A new record apartment sale was made (again!) here in the South Bay. If you followed my blog back in September 2016 then you read about the record breaking Sand Section sale in Hermosa Beach (New Era for Hermosa Apartments after Record Sale). Those two incredible sales by the beach ushered in a new era for apartment buildings: huge rents and ultra low cap rates are here to stay.
Now, that record Hermosa Beach Sand Section sale is influencing sales east of PCH/Sepulveda. Another flip job on four adjacent 4-unit properties at 1335, 1341, 1345, and 1351 Manhattan Beach Blvd sold for a record smashing $2,875,000 million each. All four properties were sold to one buyer for all-cash. That is $11,500,000 for 16-units folks.
Not only were these sales the highest 4-unit closings east of PCH/Sepulveda ever (by a whopping 24% or $460,000), but at the time they were the 14th highest MLS sale on the other side of highway 1 in the Beach Cities ever. That is including buildings up to 28-units and all of El Segundo.
Just like the record Hermosa Beach Sand Section sale in 2016, the Manhattan Beach Blvd sellers were able to pull off a high-end remodel to bring in high-priced rents. They grabbed 2-bedroom tenants at close to $3,700/mo. That rental number can get you a Sand Section 2-bedroom rental right off The Strand in many cases. As a result of these big rents, the buildings traded at about a 3.7% CAP rate. Interesting when compared that to the 3.37% CAP rate of the record Hermosa Beach Sand Section sale. Which building location and return would you want?
The fascinating thing about these Manhattan Beach Blvd sales is that it is the same apartment flipping group that set records in the Sand Section on Manhattan Avenue. Both flips were successful, but the margins (per title on our Realist Tax system) were very different.
The Hermosa Beach Sand Section flips were purchased at $5.6 million and sold for $13.8 million. The Manhattan Beach Blvd flips were purchased at $8.8 million and sold for $11.5 million. Yikes! That is a fast shrinking margin.
What is even more fascinating about these flips is that razor thin margin on the second sale was highly levered. More risk and less return. That is something to note about the our current market.
No question these new Manhattan Beach record sales will drive prices for the next year. They also show how bold apartment investors have become and the risk they currently take. Will they continue to push record sales and fuel the market? Will they take a breath? And how long can buyers continue buying at ultra-low returns?
Although there has been fatigue from tenants in the rental market this past year with sky high rents, one thing is for certain…if you are a long time owner of South Bay income property and have not raised rent in a few years, it is probably time to give notice to your tenants, gut your units and double your rents!
Richard Haynes
DRE: 01779425
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The Richard Haynes Real Estate ShowA leader in South Bay real estate for the better part of a decade, Richard thrives as an advisor to his clients with over $248 million in sales as a broker or investment principal at his boutique agency, Haynes. Richard is known for his keen local market insights which have been featured in the L.A. Times, The Street, and Forbes, along with his weekly South Bay real estate blog. [read more]