Los Angeles Apartment Construction Booms
Thousands of apartments are expected to hit the Los Angeles rental market in 2016. Between 2014 and mid-2016, rent prices will likely see an increase of more than 8-percent. In fact, in Los Angeles alone, prices jumped 12-percent in 2015, while vacancy rates hovered at a low 3-percent.
Los Angeles has seen a steady increase in the need for housing. Within the past year, the city has approved more than $7 billion in construction, which is the most housing activity Los Angeles has experienced in more than three decades.
In 2015, builders were able to put more than 5,700 rentals on the market.
These rentals were mostly in the downtown and in the San Fernando Valley area. Unfortunately, Los Angeles also is one of the most unaffordable housing markets in the U.S. Reports show that 59-percent of people in the LA area spend more than average on their rent – 30-percent or more of their paychecks, in fact.
Some renters report spending more than 50-percent of their income-to-rent ratios – if they are fortunate enough to live in a rent-regulated apartment. Renters are forced to move or share their apartments with roommates.
Other cities in the U.S. have higher rent rates yet, including New York, San Francisco, Boston and Oakland.
Los Angeles is trying to make rent more affordable for buildings built before 1978, citing a rent-stabilization law. Today’s modern-day affordable housing is still too expensive for many people that belong to the tenants unit.
Many banks will not lend on apartment building loans. They are risky and apartments take a long time to build.
Traditional banks look at several important aspects when loaning on apartments.
• Net Operating Income – This includes the total annual income, minus any expenses that an apartment property generates from operations.
• Debt Service Coverage – This is the measure of the cash flow relative to any debt payment obligations.
• Loan-to-Value (LTV) Ratios – This is the measure of the loan amount in relation to the value of the property.
Borrowers may have more flexibility with small banks, but also with direct lenders, such as hard money lenders, especially when building apartment complexes.