Deferring Capital Gains When Selling Multi-Family Properties with David Evans

David Evans Prior to joining Kidder Mathews, David was a part of a top-producing team at KW Commercial that sold $50M in its first year of formation. At Kidder Mathews, David works alongside Scott Rosenberg in the El Segundo office, focusing on helping private investors buy and sell apartment buildings in the greater Los Angeles apartment markets.

As a former apartment investor himself, David stays apprised of current and pending litigations that adversely affect landlords’ ability to operate in Los Angeles, keeping clients and prospects apprised of recent developments and laws through a monthly newsletter.

In his spare time, David enjoys spending time with his wife and young family.

Episode Highlights Here:

David:

You know, making sure you’re researching the market, not just knowing what sales comps are, knowing what litigation may negatively affect owners.

Pierce:

What’s the number one secret to becoming a multifamily broker expert?

David:

Call lots of costs. I mean, here in LA, that, you know, here in LA, called pic of rates are low. So it’s just really making a lot of calls. Following up, you know, consistency. I think that’s really what it is. And, you know, making sure you’re researching the market, not just knowing what sales comps are, knowing what litigation may negatively affect owners. Here in LA, we got the SB 679, which is considered the mansion tax, which will tax add an additional tax to, you know, real estate transactions. And you have a lot of other limiting regulations, that arc that control the way real estate investors are able to manage their properties, particularly multifamily. With the eviction moratorium, which is ongoing in Los Angeles for almost three years, we’re finally getting the sunset on it. Come December 31. So it’s really just being informed about any changes to, you know, litigation and affects the way owner-operators in LA are able to, you know, manage their properties.

Pierce:

Yeah. And that’s tricky LA is a tough market, especially for multifamily. I mean, from what I’ve seen, you know, cap rates are super compressed, right? You have some really tough, like tenant-landlord, laws that are really favored towards the tenant. How are you navigating this landscaping, especially now that rates are rising? And you know, sometimes they’re, you know, they’re, they’re higher than then some, like cap rates that you’d be getting on the property. So how are you navigating this current economic landscape?

David:

Well, you know, to be clear, it’s challenging with smaller, it can be challenging with smaller assets, for sure. Because you don’t, there are limited, more limited opportunities to add value to larger assets, we’re still seeing a great deal of demand. And it just really depends on the sophistication of the owner-operator, traditionally, some of the more savvy operators do tenant-buyer out with, you know, tenant buyouts, so they’re able to create a vacancy, because, unfortunately, that’s the primary area where you have opportunity to raise rents to market rate. So that’s, that’s where some of the more sophisticated operators we’re seeing are taking advantage of.

Pierce:

So they’re doing a Cash for Keys to vacate the property, and then from there doing their value adds and raising rents, to, you know, market value.

David:

That’s correct.

Pierce:

Okay. And you’re saying that demand for the larger assets are still relatively high, but for the smaller one, so where’s that threshold? Where’s that threshold as

David:

well? Yeah, so in Los Angeles, larger assets, depending on the sub-market, convenient, were north of 10 units. And I think there is still a strong for the master of a lot smaller assets as well. The issue is, you know, there’s more of a price concession traditionally, for smaller assets, with, you know, rising interest rates, you know, being able to make a deal pencil before with a forage, you know, for percentages, right versus having to, you know, accomplish that same. underwriting, you know, requires a, you know, a significant discount and price now, the interest rates are approaching six, or at six in the residential market. So, it’s just really, I think we’re seeing more of a price discount, definitely smaller s is one of the larger assets, not as much, primarily, in demand has been high in the non-local rent control markets. So that will be South Los Angeles County, Orange County, and anything that was in Los Angeles proper that was built post-1979. We’re seeing a high demand there. The obstacle with the last one is that there’s so much inventory built post-1979 That actually hits the market traditionally. Those are longer-term holds. Assets here. Gotcha.