Dear Reader, what follows is a stark look at the Los Angeles/Orange County real estate rental market from my son Kyle, the head of a successful 14 year old property management firm with over 3,000 units under management. This is a microcosm of the U.S. big city market and may reflect your market where ever in the world you are.
This is the opening segment of his letter to the many owners for whom he manages property and not an academic presentation. But whether you are an investor or a renter, do consult a local real estate professional before taking action.
December 29, 2010
Dear Fellow Property Owner and Valued Client of Beach Front Property Management,
I want to take a moment as we end 2010 to thank you for your trust in choosing us to manage your investment. We don’t take that lightly and sincerely appreciate that we have the opportunity to oversee the operations of your property.
As I too am a long-time owner of apartments and offices, I wanted to share what I am seeing as far as performance at my buildings. Since I’ve owned many of my properties for at least 10 years, I’ve gotten a good feel for their usual profitability which is primarily driven by vacancy and delinquency rates, respectively. This year has been extremely challenging as I’ve seen rents drop to varying degrees on all of them. I’ve also seen both vacancies and delinquencies rise with an overall increase in turnovers. On top of that I’ve had to offer concessions (lowered or free rent) to entice new residents to move to my properties.
A case in point is a 25 unit building in Inglewood that my group bought in 1998. For several years, the property collected over 99% of gross potential rents, meaning it lost less than 1% from both vacancies and delinquencies combined for the year. In November 2010, there were 2 evictions in process with one vacancy sitting for nearly 60 days. The evictions were both caused by job losses, including a now former professor at UCLA who refused to move since she “had nowhere else to go”. After repeated meetings with our manager, we had no other choice but to file an eviction. The vacancy was created because that resident (who had lived there for over 10 years) took advantage of the low interest rates, 40% decline in real estate prices and bought a house. 2010 will be the toughest economically for that property since we purchased it.
Nearly all of the evictions and a very high percentage of the move-outs companywide are due to job losses. Sadly most of our residents don’t have much in savings and if they can’t quickly find new employment then they hit the wall financially. Please know that while we serve the legally required notices, we also reach out personally to get the details about their respective situation and try to seek a positive resolution. Often times, the residents are quite emotional as their world is being turned upside down and we strive to always be compassionate as we work to either bring them back to being a paying resident or assist in making living arrangements elsewhere. Evictions are avoided as much as possible.
The reason for my sharing these stories is to give you a perspective on what is going on in the market as I want to make sure that the information you are getting about your property isn’t in a vacuum.
Before I leave for work every day, I read the LA Times, Wall Street Journal and Financial Times along with my local paper from the South Bay, the Daily Breeze. As I keep seeing the economy’s “recovery” covered heavily in the headlines, I note many retail and office vacancies all around Southern California. These vacancies in particular cause concern since those spaces used to employ people and many of those folks used to be renters. The juxtaposition between what I read and what I am seeing is striking.
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