What are your thoughts in the California real estate market?

[Tim Chen]

Every investor I meet, I like to ask them about their thoughts on where the real estate market is headed, specifically in California. People seem to give me answers from both ends of the spectrum. Recently, I spoke with an investor with half a billion dollars in real estate holdings and right now, his thirst for real estate is greater than ever. He anticipates hyper inflation. 

In the market where I work, Pasadena and Alhambra, the cap rates are so compressed. Buildings are selling at GRMs over 20x and Cap rates of 2-3% actual and 4% pro forma. Recently we brokered and closed the sale of a 7 unit apartment building at $440k a unit and $650 per sqft. It set a record for the area but I'm not really sure how the market can get any higher than that. I personally feel like we're due for an adjustment but what does everyone else feel? It seems the only thing preventing the multi family market from blowing up is the lack of inventory. The small escalations in interest rates haven't seemed to faze any investors. 

I'm curious, what are everyone else's thoughts?