Exclusive interview with CoStar’s Senior Director of Analytics, Ryan Patap, on the Los Angeles County Multifamily Market. In this must-watch video, we dive into the latest data and trends shaping the real estate market.
Juan Huizar
Hey everyone, it’s Juan Huizar and I’m super excited about today’s host. We are in the offices of CoStar. This is in downtown Los Angeles. For those of you who may not be familiar with CoStar, CoStar is the leading commercial real estate information company in the world. So that’s right. All of us real estate brokers, all of the investors, appraisers out there that are dealing in the commercial world, our data comes from CoStar. CoStar spends a lot of time, they have this massive team. They’re gathering information on every sale, every lease that’s happening in the commercial world, they’re tracking it, they’re gathering it together in reports, and then they give that to us, the real estate brokers, and we give that to you, the consumer. And so I’m sitting down with Ryan Paap, he’s one of the analysts here for CoStar. Ryan, tell us a little bit how long you’ve been with CoStar and tell us about what you do throughout for the company.
Ryan Patap
Yeah, so I’ve been a CoStar for around four and a half years now, and my job is to be a market expert on LA County commercial real estate. So I am reading the news, looking at the CoStar, data, analyzing, communicating this through our written products on the website as well as presenting to internal and external clients.
Juan Huizar
Perfect. So we’re super excited. A lot of times we’re going to hear news, national news, and we’re going to see the news all over social media. And it’s not always the accurate news for sometimes it’s at the macro level. It’s not so much exactly what’s going on in the greater Los Angeles, and today we’re going to be covering multifamily, the greater LA area, the state of the market. So Ryan, let’s hop right into it.
Ryan Patap
Absolutely. What’s happening? So yeah, I’ve got a bunch of slides here to show what is going on in the apartment market these days. Just to start, I would say things are as I would label an okay market, it’s not great, it’s not terrible. Things are kind of in line with historical averages. People maybe think things are bad, particularly because of where we were in 2021 and 2022, we saw the strongest apartment conditions on record. So we’ve had a little bit of a whiplash and reversion, but we could be reaching a point where the market is going to go through a period of weakness. We’re definitely potentially at an inflection point. So this first graph we have here is what I call our SDV supply demand and vacancy. If there’s one graph that can capture what is going on in a market, I would say it’s this.
And so what you see here with vacancy, that green line is that we saw it increase in 2022, its highest levels in decades, people moved out. We are a relatively expensive coastal market. This was seen in many other locations of the nation, but almost overnight in 2021, LA County saw the strongest demand on record just exceptional. But that being said, everywhere across the country was seeing very similar dynamics and our demand was actually relatively modest. That being said, in 2022, since early 2022, we have started to see vacancy rise. Demand has definitely cooled over the past several quarters. Clearly economic uncertainty is hurting renter demand, and at the same time we continue to have supply additions that these buildings complete and are creating additional vacancies in the market. Now to compare what is going on in LA with the nation, just kind of want to point out a few things.
Most markets didn’t see vacancy rise as much in la, things held up better and absorption levels in 2021 were also relatively stronger. But in contrast to LA in 2022, most markets have a much more elevated supply pipelines. And so that construction has really started to hit as demand has softened, and that has led to a relatively higher rise in vacancy in many locations throughout the country. Now here we look at net absorption as a share of inventory. So this graph’s a little complex, but what we see here is the bars represent the percentage absorption relative to the size of the market. And the number is just the absolute number in terms of thousands of units absorbed. As you can see here, LA is towards the middle, right? Representing very, very weak absorption. We have over a million market rate units in LA County, so this is next to nothing and definitely an underperformer when you compare it to other locations across the country.
Now here we look at vacancy by star rating. And so CoStar classifies buildings by stars, think of four and five as a minus three B and one and two really workforce housing four and five star buildings have always had higher vacancy rates. That’s a result of the construction that happens in LA is outsized in that segment. It simply is very expensive to build here. And so you’re building towards a higher price point. Additionally, when these buildings complete, they deliver a hundred percent vacant and they need to be leased up. And so that’s typical throughout the market. But just want to point out over the last several quarters, we have seen vacancy particularly increase in that segment and vacancy has increased in the more affordable segments as well to a much lesser extent. And so that’s where I would say particularly when you’re focused on the more affordable units, while things are certainly better for the tenant than they were in early 2022, I wouldn’t say that it’s necessarily easy on the other side.
Juan Huizar
And so when we’re looking at this graph and we’re talking about workforce housing, the majority of Los Angeles, long Beach and all these big cities that make up the metropolitan area, most of them are in that one and two star level. Just so that people know that most of what we have in Los Angeles County is older apartment
Ryan Patap
Stock. Absolutely, we have generally much older apartment units than most other markets across the country.
Juan Huizar
But what this graph is showing us that where you’re getting the highest vacancy is obviously in the newer buildings. So buildings behind us here in downtown Los Angeles where they’re newer, it’s going to take a little longer for them to lease up. When Ryan’s talking about absorption rate, all that means is we’re leasing up the unit, how long is it going to take to lease up those units? And so when you have new construction, it’s going to take a little longer and obviously it’s new construction, so they’re going to price it at the market level that they could potentially achieve. And so given that what the graph has showing us is that you’re going to have a slightly increase in vacancy rate across the board.
Ryan Patap
Absolutely. And I did forget to mention that another factor in this is that simply less renters can afford more expensive units. And so more people generally are forced to rent in more affordable communities, whereas these higher end properties have a more limited supply of renters. So here in this next graph, we look at vacancy rate across the various submarkets in LA County. And so there’s a contrast where those markets towards the top. Certainly renters have more ample options there. Downtown LA stands out where vacancy has almost doubled over the last year. It got hit hard with almost 2000 units of new units over the last four quarters, and at the same time was facing softening demand. In contrast towards the bottom, things remain relatively tight and those markets are generally the more affordable suburban areas of LA County. Now here we look at the basis point increase in vacancy rate. What you see here is that vacancies increased across the board over the last year in most locations, most sub markets have seen around 50 to a hundred basis points in terms of increase in vacancy rate. But as I mentioned earlier, downtown LA has expanded considerably and that is really a supply response.
Juan Huizar
Ryan, just a quick question for our viewers out there. Most of us who do own rental properties or who are brokers, we know that if we have a vacancy, it gets filled up very quickly for the most part. I mean you put an out out and it fills up quickly. And so we’re talking about you guys, just to be clear. So our report today is covering five units and above, correct?
Ryan Patap
Yes. Our data only looks at market rate housing five units or more in terms of the properties.
Juan Huizar
Okay, perfect.
Ryan Patap
So this graph here is search activity on apartments.com, which coast our owns, and it’s a great leading indicator. And of course that renter first has to find an apartment, which more do than not in terms of online portals on apartments.com, tour a building, sign a lease, and move in. And so the clear message from this is that renter demand has softened in 2023. When you compare levels in what we saw in 2021 and 2022, it’s very clear. The other thing I would point out is that you typically see activity ramp up during the summer months and things have held relatively flat. So what this says to me is that we’re likely to continue to see soft demand for the next three to six months. Now here looks at the properties in LA with over 25 units that offer some level of concession. It can range from one week to eight weeks.
And what we’re seeing here, my message to you would be that concessions have increased. So clearly property managers, landlords are getting a little more cautious, are a little more concerned about attracting tenants to their properties, but at the same time, they’re nowhere near the levels that we saw in 2020 and 2021. Now the outlook for the market here, this is our base case forecast, and this is based on a moderate recession in the near term. And so when you consider our forecast, whether you’re more optimistic or pessimistic should inform your view in terms of this outlook. But with this view, we do expect the market to continue to soften this year. But then after that, as we get out of this recession, we see demand pick up and things start to improve in 2024.
Juan Huizar
And so just when we’re talking about Ryan, so when we’re looking at the graphing, you’re saying, hey, that through the rest of the year or is it through the rest of 2024 that we’re going to see a softening of the market?
Ryan Patap
No, just rest of the 2023. So this is a near term picture. We do expect things to start to improve in 2024. And then to compare to where things are nationally, we do expect similar dynamics there, vacancy to continuing to rise. The one thing that I would say is there continues to be much uncertainty with the economy and with that demand, if the economy were to worsen more than we are anticipating markets with more elevated supply underway, which will deliver in late 2023 and 2024 could lead to weaker conditions there relative to LA just because we don’t see nearly as much development activity in LA County than most other metros. So the next section I will cover are rents. And so here we look at multifamily asking rents, our average rents per unit. And what we’ve seen over the last year is basically rents have moves sideways. We saw record setting growth in 2021 and early 2022, but things have ramped down quite considerably as vacancy has continued to rise over the last year.
Juan Huizar
This graph is critically important. A lot of times us as real estate brokers and even as investors, what we typically want to see these reports is that rents are going to continue to rise. And the reason why we want to see that is rents go up, the value of the real estate goes up, it’s a direct result. And so when we’re looking at the rent growth in Los Angeles, when he says sideways, it’s plateauing, it’s plateauing. And so there’s two things going on to kind of summarize the last two points is that renter demand is weakening, so it is softening and also rental growth. But those two things would go together. I mean if I own a building and I’m having trouble leasing it so it’s not leasing as fast, I may look to maybe not increase as much or not go to market rent or try to make it where I could get it to lease up sooner. So those two things are correlated, but again, kind of based on what you just said, that is just an expectation through the end of the year because right now as I’m looking at this, it sounds not so great for an investor, but the forecasts are just taking us through the end of 2023.
Ryan Patap
Well, so yes, I will show the forecast in a couple slides and then kind of give you our outlook based on this base case scenario. So just kind of quick comparison here, nationally a similar dynamic as well. Here we have our daily asking rent per square foot rent series and just want to show you on a daily basis, we did see rents decline in late 2022. We did see a pickup in the earlier part of 2023, but things have cooled in recent months and rents have moved sideways during the summer period. Nationally, a pretty similar profile there declines in late 2022 rises through the first half of the year, but it does look like rents have peaked on a national basis. Now here we have rent growth across the major metros. LA is not on this graph because we’re looking at top and bottom performers, and LA is about right in the middle with its rent growth.
We have seen rent growth cool considerably in most markets across the country. And what’s interesting is the markets that are doing the best are typically slower growth Midwest markets, which I think speaks to a bit of a catch up in that they were lagging over the previous several years. Here we look at rent growth by star rating again looking at buildings by class and just want to point out that those higher end buildings are more volatile when it comes to rent gains and rent losses. We saw greater losses in 2020 as vacancy shot up to record levels in the earlier stages of the pandemic. But then when we saw that demand come back in 2021, rent growth was exceptional. But with the new supply that continues to come and most of it being concentrated in that higher quality segment, we did see rent growth turn negative on a year over year basis in the second quarter.
Now here we look at rent growth across the various submarkets in LA and things have cooled across the board in most locations. Those markets towards the top, I would say are generally the more affordable locations in LA County to find apartments. So in those periods of economic uncertainty, these areas are holding up better. In contrast, those markets towards the bottom are more expensive and or have seen more supply in recent quarters. Downtown LA stands out for having the worst rent growth as a result of that supply. And now here’s our outlook for the market. So we do expect things to remain kind of steady Eddy through the rest of the year, but then as we get out of this recession in this forecast, we do expect rents to continue to return to trend like growth. I wouldn’t say not the record setting levels that we saw in 20 21, 20 22, but more of that reversion to the mean.
Juan Huizar
So Ryan, as we’re looking at this graph, I’m seeing, I mean yes, I see it plateau through 2024, but then in 2024 we do see this increase through 2027. So from CoStar’s perspective, anytime we’re buying an asset, we’re not just buying it for that 12 month period, right? We’re buying it typically it is for the next 10 to 15 years, seven years. And so if I look at this through 2027, once we get through 2024, rents are going up and that’s what the data’s telling us. So although a lot of what we’ve spoken about, hey, there’s less rent or demand, rents aren’t going up as much as they were, they once were. But as we forecast forward through 2027, I like what I see from a rental increase perspective from an investor perspective, I think that that’s a really good thing. And a lot of times we tell investors to enter the market when you’re able to enter.
And what that means is that you’re not always in a position to buy the asset you want. What does that mean? That means if there’s a lot of investors, you may not get chosen, but right now, and we’ll get into the data in terms of sales, but right now I would say would be a prime time to enter, there’s going to be less competition and you could position yourself for the rental growth that will come. Now we’re not going to expect that in the next 12 months. That’s fine, but you go into that expecting that. So be prepared, be patient. But I think I like what I’m seeing right now.
Ryan Patap
So now we will get into construction. And so LA County over the last four quarters, so that’s from the end of June 30th of this year, from July 1st of last year, saw 11,500 net market rate units added to the market. In reality though, that’s a drop in the bucket here again, we look at the percentage inventory growth with these blue bars and then the numbers, just the absolute units added. And so on a relative basis, LA saw significantly less supply than most other markets throughout the nation. Those higher growth Sunbelt locations continue to see quite excessive supply pipelines. In this graph, we look at net deliveries by some market over the past 12 months. Downtown and Koreatown stand out for having the most new supply added. That has been the case for years. These are really some of the easier places to build in LA County.
Downtown LA has ample redevelopment sites scattered throughout the area, but also several areas too like East Hollywood, greater Englewood, I want to point those out. Those are newer areas for development. Those areas had not seen as much activity until several years ago. So the city, the metro, does continue to shift and evolve in interesting ways. But I also want to point in contrast, there are a lot of areas of LA that see little to no apartment construction. And so there is this divide between the markets that continue to see elevated supply, their vacancy rates get more impacted versus other areas where vacancies relatively remain low because they do not have that supply added over the past five, 10 years. Now to point out a few interesting projects that have delivered this year so far, this is Bowry and this sits in downtown LA right across the street from where I’m sitting right now.
Very large high profile project. Top of the line finishes and developer was Brookfield. And I think it’s really interesting here because Brookfield is the largest office landlord in downtown la. And so this has been a diversification strategy for them in terms of building an apartment project as opposed to intensifying further with office. Other project I want to point out here is residences at West Edge. This is at the intersection of Expo and Bundy in West la. The scale of this project is very unique for the west side, 600 apartment units, 200,000 square feet of office space, around a hundred thousand square feet of retail. The site was purchased by Heinz several years ago for a hundred million. It’s around just under five acres. So that shows you the complexities and costs in terms of developing a project like this in these more infill areas of la.
And now here’s an interesting one in Long Beach. This is on East Village in downtown Long Beach, 432 units. This is the largest project in Long Beach since 2003. So this is very interesting in terms of how the city continues to densify. And within Long Beach, almost all the development activity happens downtown. The neighborhoods see much less activity. Now just to recap, in terms of development, as we’ve seen over the last decade, again, development is concentrated in specific areas where it’s easier to get deals done. It’s very hard to build in a lot of areas, single family zoning, NIMBY sentiment, approval processes take forever. So this is this divide where we see a lot of supply in certain areas and little to no in others. In terms of the pipeline, today we have around 24,000 units under construction. And when you calibrate it to the size of the market, it is one of the lowest pipelines among other markets throughout the country.
Now here we look at multifamily starts and units under construction. And so the blue bars are the thousands of units under construction and starts represents the thousands of units that commence construction during that quarter. And what we’ve seen on a national basis is a clear ramp down in starts. And so we do expect the supply bulge that is happening now to ramp down nationally. And I think the factors driving this earlier on perhaps were supply chain issues, but now we’re facing debt costs and with increased debt costs, developers are having a harder time making projects make financial sense. And so that is now leading to this downdraft in activity and we’re starting to see that in LA too over the last level. Quarters starts have come down quite considerably. And so I would expect our construction levels to start to ramp down as we go into 2024.
In terms of the current construction pipeline, downtown LA and Koreatown still rank number one and two greater Anglewood is very interesting in that this is an area that I’ve not seen a lot of development before, but with all the activity happening around Englewood with the SoFi Stadium, downtown Englewood and Englewood has seen a lot of gentrification. And also included in this is the West Adams neighborhood of Los Angeles, which has become a very hot residential area with lots of really cool retail opening up. And so this has become a new area for development. The other area I’d like to point out is East Hollywood. You hadn’t seen a lot of activity there that has been historically one of the lowest rent areas in greater la, but with everything that’s happening in Hollywood to the west and then to the east, you have the neighborhoods of Los Filas and Silver Lake.
Again, some of the hottest residential areas. Developers have increased their focus on these locations. And here we look at the construction pipeline on a relative basis looking at the number of units divided by the number of units that already exist. And so downtown LA is still up there, but we have areas like Westlake and that sits between Koreatown and downtown. So again, it’s that area in the middle there, Northeast LA that is a lot of the really hot residential neighborhoods right now in terms of young creative types, younger families wanting to live in those areas. And so there’s relative construction in a few areas, but again, at the same time, other areas have very little supply underway. Now let’s wrap up with some thoughts on capital markets. Now here we look at multifamily sales activity by quarter over the last 15 years, and what we have seen is a clear deceleration in the second quarter of multifamily sales activity. When we look at sales activity on a monthly basis, we can see activity has been low except for the month of March, and that was because the measure ULA or the mansion tax started in April 1st. And so sellers were trying to get ahead of that and get rid of their properties. And so we saw this burst of activity in March one, and since then things have come to a standstill.
Juan Huizar
Ryan, can we go back to the prior? Yeah. Okay. So let’s talk about volumes. A lot of people in our industry want to know, well, how’s the market, right? And so right now based off of this specific graph, you’ll see that sales are significantly down, down by 60, 70%. So if you’re five plus units, sales are down. But one thing that’s interesting, although they’re down, they’re down because we just experienced what I’m going to call the unicorn years, the years where we had this massive acceleration and lots and lots of sales. And so as I talked to fellow commercial brokers that do what we do, and I talked to them and they’re like, well, there’s a whole lot of nothing going on. Sales are still happening. But I get it, the pie has certainly gotten much, much smaller. But let’s note that although the numbers are down in 2023, they’re still somewhat higher than they were in 2009, certainly. So it’s just that right now what people do is it’d be very common is to look back. Well, the prior two years, well, the prior two years were the best two years we’ve ever had, as you could tell by the market. So it’s just a very interesting thing to know is our sales down? Yes, 100% they’re down. But overall, when we go back to 2007, we’re kind of in line of what it was 2008, 2009, 2010. Just an important thing to note when it comes to sales,
Ryan Patap
Yes, these past couple years have not been normal market conditions by any means. So this graph looks at sales activity within the city of Los Angeles, and then I took the sales activity that happened in LA County and then subtracted the sales activity in the city. And just want to point out here, that activity has reversed in Q one. We saw more sales in the city of LA as people tried to sell their properties before the implementation of the transfer tax, but we have seen activity ramped down quite considerably. What is interesting to note is that of the sales that happened in the city of la, they were overwhelmingly more so concentrated with properties under that 5 million mark. There were over 60 properties that traded in the first quarter over that threshold where there were only seven in the second quarter here to look at national sales activity. Again, you can see that ramp down. And while they don’t face regulatory issues like ULA, those increased debt costs have led to an impasse with buyers and sellers. Many buyers want the pricing that they saw in early 2022 and buyers seeing the increased debt costs out there, they want a discount to that. And so there has been a hesitation where people aren’t willing to sell, people aren’t willing to buy, and that has really suppressed sales activity over the last several quarters.
Juan Huizar
And if I could just add something to that, I’ve called that a stalemate. It’s a complete stalemate where listen, I’m talking to the buyers and they’re saying it doesn’t make sense. Interest rates have doubled, it doesn’t pencil, so that’s a common term that people will use for it. It doesn’t make money. I’m going to put so much money in sometimes 40, 50% down and I’m going to lose money. They’re not going to do that. No one wants the building that bad, now they expect a discount, but the seller is in a position where why do I have to discount it? And so there’s been this stalemate now for longest time. Here’s what I was saying, that the last six months is that something has to give, right? Because that stalemate, something’s got a budge. So up until this point, what I was believing I was seeing it was that there are more investors with money that want to place that money than there are willing sellers that need to sell. Therefore, I was saying that it was going to lean towards the favor of the seller. I think the narrative moving through the rest of the year is a little bit different where I’m seeing a lot more flexibility from the sellers. I’m not saying the sellers are desperate, and I’m not saying that they have to sell. Some of them just have chosen that they want to sell, and I’m seeing a lot of more price reduction and the buyers are getting the price that they want for the investment to make sense.
Ryan Patap
And looking at sales activity monthly, just pretty consistent in 2023, so far very suppressed sales levels on a national basis here is sales volume over the past four quarters. And so LA ranked number three with seven and a half billion of properties traded. So even with that downdraft in the second quarter, still lots of activity. LA still remains a active investment market and a desirable market for investors. Just to point out in Q two sales activity here, that blue bar well below historical averages, those gray lines represent the average sales activity of the proceeding a quarters. So you can see really, really suppressed sales levels. Here is our average transaction price series. And so you can see things flip around a bit. It’s a great indicator to look at, but you have to also understand that there’s a composition of trades issue that can happen. Some quarters. You can have higher quality properties, trade other quarters, you can have lower quality properties trade. Does that necessarily mean that average pricing went up or down? No. But that will create fluctuations
Juan Huizar
Of the things I want to point out. When you’re, a lot of investors that we work with, they want to look at cap rate, gross rate multiplier, and there’s return on equity. But one of the quick measurements is what’s the price per unit? So the price per unit, which is also the price per door. If you’re buying a 20 unit building, how much is each door? And so that’s a quick way for an investor who has been doing this for some time, knows right away whether it’s a good deal or not. And so the slide that we’re working on right now is kind of showing a decrease on a price per unit.
Ryan Patap
I certainly do think there has been a decrease. I would argue that it’s probably not this much in terms of, I think that some of this is perhaps lower quality, smaller, lower quality properties trading, and we’re having less of those larger, higher quality communities. And so that I think fluctuates there. And so what we do is we create a market price series. And so this is a model series where we estimate a price for every property within the CoStar database. And the idea of that is to smooth out the fluctuations of the composition of what’s sold during a respective quarter. And in terms of this analysis, we’re seeing a price decline so far of around 10 to 15%. And that’s what I’m hearing when I’m talking with sales brokers. Kind of anywhere from 10 to 20 is kind of the average in terms of a price decline in terms of what sales are going through. Now, when we look at cap rates, so far we’ve seen cap rates increase around 75 basis points on average. There certainly is a range depending on the quality of the product, the location, the unit mix. But when we’re looking at market averages, it is clear that there has been that increase in the cap rate as a result of the rise in debt costs.
Juan Huizar
And so cap rate is probably, I think when investors are looking at a property cap rate is the one thing that they use to try to negotiate something on their behalf. Also, we use cap rate to come up with valuation for a property. It’s one of the best ways to determine it. Now for some of those that have been watching our channels, I want you to know that when cap rate goes up, values are going down. So that’s what’s happening now by looking at this graph. If I’m an investor and if co-star who’s the expert in this data is telling us cap rates are going to continue going up, if you’re the investor, you should be welcoming that news. That’s going to put you in a very good position to negotiate now and well into the next 12 months.
Ryan Patap
Yes. So I want to point out two interesting sales here. So not a lot of sales activity, but this was the largest sale in LA County in downtown Long Beach. The building is the Edison, 156 units. It traded for 58 million or just over 370,000 a unit. One thing that I want to point out though is that it sold for more back in 2017 for 65.4 million. And so that’s really interesting in terms of the dynamics, considering that this was six years ago, what was interesting is that the buyer at the time of sale did note that they do not anticipate any rent growth for the next two years. So that shows you the conservatism that some investors are showing. Just another sale here, this is Normandy loss in Koreatown 50 units, a lower quality trade just sold for over seven and a half million, 150,000 a unit. It sold in 2018 for 8.9 million. It was a bankruptcy sale. So certainly demonstrating distress there, but this is a bread and butter area to invest in apartments. So that is showing you again, the discount that this buyer expected as a result.
Juan Huizar
Ryan, I can’t thank you enough for sitting down with us today. There was a lot of information out there. I certainly appreciate what you do and a lot of times people, and sometimes brokers pretend to know what’s going on, but at the end of the day, well, what does the CoStar data tell us? Because that’s really the leading source in terms of where the market’s heading and how the investors should advise our clients. So I thank you so much for today and for your time. It was excellent. So there you have it. Our interview with Ryan, pay tap with CoStar, one of their head analyst here. So what are my takeaways? Okay, so just so you know as you’re watching the video, there was a lot of things that didn’t come off positive. So he talks about, hey, it’s taking longer to rent units, rents aren’t going up as high as they used to.
In fact, they might go down a little bit. So there was a lot of that kind of stuff. But please note that the presentation that we heard today that we saw today was a reflection of what happened in quarter two of 2023. And so we know that there’s quarter three, there’s quarter four to come. Now a few other takeaways that I take of this, sales are down by like 70%. So again, five plus units. So we’re talking about 1220 and above. These are large complexes, sales are down, but again, they’re down because comparing ’em to the unicorn years, that two special years, something that may not happen again in the near future. So sales are down. So that’s a fact. Cap rate is about to rise. It’s been going up. So again, cap rate goes up, prices go down, rents are supposed to stabilize or go down a little bit.
Okay, so what do I make of all this? The most important graph that I saw today, two of them. One is that rents are going to start increasing again sometime mid 2024. Okay? So a year from now. So I don’t know when I’m buy a property, I’m not buying it for 12 months, I’m buying it for 10, 15 years. And so as I look through that graph, I say, well, from 2024, halfway through the year through 2027, CoStar, not me, not sage. Real estate is telling us that rents are going to go up. When rents go up, property values go up. That’s a very good thing. But also that’s the second most important graph that I saw was cap rate. Cap rate goes up, values go down. So if you are in a position where I’m telling you the data’s telling us that values are going to drop, okay, then that should get your attention.
You should maybe be working with us or someone like us to say, Hey, I see that prices are going to be shifting favorably more into what I would call a buyer’s market. You better be ready. We better be prepared. We better be saving up our money or partnering up with who we’re going to partner with because the prices coming down in the very near future. But what else is in the near future? Rent’s going up a year from now for another three years. Okay, so those two things, I think timing it. I think getting in when the prices are favorable, knowing that the rents are going to continue to rise once we get through this 12 month phase. Again, this is just a forecast, but it’s coming from the most reputable organization that we have in the world when it comes to this specific data.
And so including myself, guys, I tell you that I’m an investor first, real estate broker. Second, I’m going to be in a position where I see what’s happening. Does any of this scare me? Absolutely not. In fact, instead of waiting, which a lot of people are going to say, well, I’m going to wait till the value to drop. I’m going to tell you don’t do that. I don’t like that narrative. I say, get in now. Negotiate the rate the cap, rate the return that you want. Now get in now when there’s less competition, because most other folks are going to want to wait. They want to see the number drop. And what I’m going to tell you is let’s not wait for it to drop. So again, if you want a buyer consultation with us, an investor consultation, please reach out, make sure to comment and subscribe. Until next time.
