LA Multifamily Minute No. 104: LA's "All Electric" Appliance Mandate on the Horizon
Happy new year! Hope everyone had a relaxing holiday with the family and is enjoying these last few days of quiet before things pick back up again.
We closed out the year with a few nice closings, marking $55 million in volume across 25 different transactions in 2024. I was also very proud to learn that I earned the spot for #2 Producer at Lyon Stahl for the 2024 calendar year, which is an exciting achievement no doubt!
As we enter 2025 with cautious optimism, we are hopeful that some stability in the debt markets, limited new multifamily supply, and a new federal administration may breed positive results for commercial real estate.
And now, here's this week's update for the LA apartment market.
LA City Prepares to Enact "All Electric" Mandate
The LA City Council is getting ready to enact an "all electric" appliance mandate, which would require multifamily owners & property managers to remove all of your gas appliances like water heaters, furnaces, stoves, ovens and dryers and replace them with all electric appliances.
If your first thought is, "Wow, that sounds like an extremely expensive endeavor that will also cost my tenants much higher electric bills each month" – you are completely right.
And you have your 15 esteemed city council members to thank for this latest madness...
This proposed mandate is all part of the LA Housing Department's (LAHD's) decarbonization efforts, which were introduced as a concept back in March of 2022. During the past couple of years, LAHD hired a private sustainable development firm to prepare a report projecting the potential costs of this "all electric mandate".
The LAHD report estimates that costs for the electrical work and appliances at $22,500 per unit on average, which does not even include any allocations for capping gas services, removing existing gas lines, temporary relocation fees, or lead/asbestos removal. For RSO properties in LA alone, the total cost was estimated at $14.6 billion without these additional costs included.
While there is still time to fight this mandate and voice your opposition to an "all electric" transition, the current cast of characters on the LA City Council continue to act beyond reason, and the prospect of compromise is looking slim. We will see the outcome of the final vote soon.
Capital Markets Update (by Greg Kavoklis)
The benchmark 10-Year Treasury yield opened this morning at 4.57%. Below are some factors driving bond yields up over the past month:
Persistent inflation concerns.
Decent employment reports (before revisions) & resilient consumer spending, reinforcing the view that the economy remains strong.
Elevated government borrowing to fund fiscal spending has increased the supply of treasuries (exerting upward pressure on yields).
Rising bond yields have pushed multifamily and commercial loan rates higher as we move into 2025. Borrowers transacting earlier in the year will benefit from a larger lender pool when shopping debt versus later in the year as lender allocations fill up and loan volume is met. We expect spreads to thin and terms to be more competitive, as lenders are eager to grow their pipeline earlier in the year.
Amid the chatter of Life Company, CMBS, & Credit Union lenders – we’ve seen a nice resurgence of regional bank lenders hopping back into the market making competitive loans on multifamily & commercial deals. I can see the regional bank lenders taking back market share this year, with many removing deposit requirements and turning the capital faucet back on. Long-term, it will always be beneficial for borrowers to have more lenders active in the market increasing the competition surrounding assignments. This is a stark difference from what we experienced at the beginning of 2024. The nets casted this week running bid processes for new debt assignments are significantly wider.
We are seeing multifamily rates range in 5.90% – 6.45% depending on loan-to-value and loan amount. Below are the key economic data points on the docket to be released this month, which will have an effect on bond yields:
January 10th – Jobs Report
January 15th – CPI (Consumer Price Index)
January 30th – GDP (Gross Domestic Product)
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Gregory Kavoklis
(818) 206-5835
Twitter: @debtanimal
Weekly Market Activity – Beverly Grove
1/3/25, Last 7 Days, 4+ Units
New Listings:
1. 6154 Fountain Ave [90028] - 6 Units for $1.73MM, $287K/unit, $329/SF, 16.01 GRM, 5.43% Cap Rate (1940)
Corner 6-unit in Hollywood with 2 current vacancies. Mix of 1BR and 2BR units.
2. 1184 N Berendo St [90029] - 10 Units for $2.75MM, $275K/unit, $350/SF (1958)
10 units in East Hollywood with 1 vacancy and 9 parking spaces. (8) 1BR units and (2) 2BR units. Ample tuck-under parking with ADU potential.
3. 4071 Melrose Ave [90029] - 6 Units for $2.75MM, $458K/unit, $683/SF, 4.62% Cap, 14.33 GRM (1981)
Fully leased and fully renovated 6-unit 1980s building in Virgil Village near Silver Lake. Not subject to LA rent control (5% + CPI). Mostly 1BR units. Parking lot with 10-car parking or room for 4 ADUs.
If you are considering offloading an apartment building or exploring a 1031 exchange in 2025, reach out and we'd be happy to see how we can help. You can also request a complimentary property valuation here.
Just upload a rent roll and we'll handle the rest.
Until next time.. And as always, thank you for reading.
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