Playa Vista Property Changes Hands in Climate of Rising Interest Rates, Transfer Fees
Investment firm DivCore acquired the 214-unit Reveal Playa Vista apartment property in Los Angeles. (CoStar)
By Lou Hirsh
CoStar News
May 2, 2024 | 2:17 P.M.
A Los Angeles apartment sale is among the region’s highest-priced of the past year but underscores a lingering slowdown in value appreciation and deal volume in the face of rising interest rates and other transaction costs.
Public filings showed investment firm DivCore of San Francisco, parent of DivcoWest, acquired the 214-unit Reveal Playa Vista in the city’s Playa Vista neighborhood for about $122.1 million or $571,000 per unit from Clarion Partners of New York. The property was built in 2003 at 5710 Crescent Park East and was about 94% leased at the time of sale.
The deal price was about 4% above the $117.5 million or $549,000 per unit paid by Clarion Partners when it purchased the property in September 2018 from investment firm Barings of Charlotte, North Carolina.
Ryan Patap, senior director of market analytics for CoStar Group in Los Angeles, noted the region’s apartment property sales have slowed considerably over the past year. The reasons include high interest rates that have made purchases and refinancings more challenging in many U.S. cities.
But he said Los Angeles is also seeing effects from an increase in its document transfer tax, also dubbed a “mansion tax,” that has raised transaction costs when high-value properties change hands. The latest CoStar data showed the Los Angeles region posted $4.2 billion in apartment property deals during the past 12 months, down 56% from the prior year, as properties sold at an average per-unit price of $355,000.
While buyers and sellers bring various motivations to deals, Patap said the Playa Vista sale price, just incrementally higher than its last price in 2018, shows how transaction costs generally have helped to slow multifamily property price appreciation in a region where apartment rents remain high by national standards as new housing construction has lagged demand for several decades.
“Considering rents at the property have increased by 25% during this time, the modest appreciation seen during Clarion Partners’ investment hold demonstrates how interest rate rises and the implementation of the transfer tax have adversely impacted pricing,” Patap said.
Representatives of DivCore and Clarion Partners did not immediately respond to requests from CoStar News to comment.
A CoStar Market Analytics report showed the Los Angeles region’s apartment vacancy rate has risen slightly in the past year but remains low by national standards at 5%, though the average rent has grown just 0.3% in the past 12 months. Los Angeles apartment demand was curbed in the past year by factors including continued outmigration of residents, entertainment worker strikes and other economic uncertainties, though demand has gradually rebounded so far in 2024.
A recent first-quarter report from brokerage Colliers noted that, with more than 30,000 apartments under construction in the Los Angeles area, “occupancy will likely trend downward with new supply coming online.”
Effective April 1, 2023, the city of Los Angeles imposed a new document transfer tax on residential and commercial property sales and transfers valued at more than $5 million. The move followed voters’ approval of a November 2022 ballot measure aimed at raising new funds to address the city’s rampant homelessness.
Separate from existing county transfer taxes, the new Los Angeles tax is 4% of the property deal value for transactions exceeding $5 million and 5.5% for deals exceeding $10 million. Nearby Santa Monica and Culver City, California, have also increased transfer taxes, and other U.S. cities are considering similar measures to handle homelessness and other municipal priorities.
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