What's Next For Los Angeles' Commercial Market?

Question

I wanted to create this post for agents, brokers, and investors alike to share their opinion on current and future market trends. Interest rates are increasing, which usually means we will see a fallback since history does in fact repeat itself. However, will this be anything like 2008? Or will it just be a minor correction moving towards an even more inflated market.

I wasn't an agent back in 2008, hell I wasn't even out of high school. Jumping into real estate during a global pandemic and the most chaotic market real estate market ever has been eye opening, but I know it won't last forever. I'm looking to connect with like-minded individuals who are looking to share their opinions, learn, and take advantage of these times in the market. I'm a commercial agent in Los Angeles with my own listings, as well as my own network of qualified investors. I specialize in multifamily and 1031 Exchanges, which are hot right now. Feel free to add any words of wisdom or thoughts.

Will Barnard · Answer

There are several indicators that show a recession is coming and the banking industry's liquidity appears to be on the verge of trouble. That said, the SFR market is still seeing crazy multi bid offers well over ask but this will not last forever and could come to a drastic halt by years end (or maybe it will not - check with your own crystal ball for details). I think multi family is a very safe space, especially the larger multi deals where you have better economies of scale and more sophisticated owners as opposed to 2-10 units.

This will NOT be another 2008 as the situation is much different and most homeowners have plenty of equity, banks did not make liar loans and credit was actually checked and double checked. The real problems are macro and include the war in Ukraine, the current administration (I wont go political) and most present, the massive inflation rates. When government steps in to curb that (which they have already started on), they almost always make matters worse but the market always finds a way to correct itself. So stay focused, make wise financial decisions, and increase your RE holdings which are a fantastic hedge against inflation.

Matt Giacinto · Answer

Thanks for your input and I definitely agree with the volatility of other asset classes affecting it as well. I've seen more owner occupant investors and beginners purchasing the smaller sized multifamily properties. I currently have a duplex I'm about to list and expect it to go well over listing. It's a great method for beginners to house hack or for people who don't want to get full blown into real estate while still seeing some passive income, but I don't think it's as scalable.

Marshall Leipprandt · Answer

@Matt Giacinto Hey Matt, I'm also an agent here in Los Angeles and agree that things may likely cool off. I'm not so sure about a pullback leading to a drop in prices, but think that a leveling off could be more likely when higher rates run their course through the market. The increase in rates will certainly impact affordability for many people, but as we've seen in the last 1-2 years, properties are often selling well over list price. For those paying over list using financing, they may not feel as comfortable offering 8-10% over list and instead might just make full price offers. Eventually maybe it will transition into a buyers market a bit more, but I feel like that could still be several years out.

The other variable too is the uncertainty in the stock market and general instability in other asset classes along with raging inflation. For a lot of buyers and buy-and-hold investors, real estate is a more simple and easy to understand asset class. I do think a correction could be healthy, but I am not as concerned in the short-term as I personally focus on holding my investment properties for the long-term and encourage my clients to do the same - so long as it fits their strategy and goals.

As a commercial agent, are you seeing small multifamily properties (2-4 unit) being purchased more by experienced investors or by owner occupants looking to offset their living expenses while building equity?