If you read my June blog “Are South Bay Income Properties Safer than U.S. Bonds,” you may have been surprised by the insane asking prices of income properties in the Beach Cities.
Since I wrote that post, a few things have changed:
- The featured six-unit property (3302 Manhattan Avenue) reduced its price by $800,000
- It now yields a return of just over 3.4% after a price reduction to $5,095,000
- The 10-Year Treasury went from 2.8% to almost 3.1%
So as U.S. Bonds climb higher, it will push apartment sellers to offer better returns in order to catch buyers.
Hermosa Beach Income Property Market
With the conclusion of the third quarter, there has been interesting data surrounding Hermosa Beach income property sales. The numbers below are income property sales during the first three quarters of each year.
- Median Price: $2,350,000
- 25 sales
- Median Price: $2,107,500
- 16 sales
- Median Price: $1,995,000
- 25 sales
This data shows us median prices are down the past two years for Hermosa Beach income property. Year over year, they are down 5.6%. If you purchased Hermosa Beach income property in 2016, median prices are down 17.8%.
Now remember, all of this is “in theory” as Hermosa Beach is a small sub-market with not a lot of sales. But the data to the downside is compelling as the majority of sales in 2018 were below $2,000,000 and there was only one sale above $3,000,000.
Record Asking Prices Galore
Even with rising interest rates, the climbing 10-Year Treasury, and two years of median price decline, Hermosa Beach real estate owners are still asking sky-high prices.
Here is the list of expensive/record-asking Hermosa Beach apartment buildings:
- 3302 Manhattan Avenue
- $5,095,000 or a 3.4% yield
- 60 15th Street
- $9,000,000 or a 1.9% yield
- 538 8th Street
- $6,752,100 or a 2.9% yield
If you thought the Manhattan Avenue property was expensive, the listings on 15th Street and 8th Street are a fortune. And even those have been reduced from their original asking price!
The 15th Street property is asking over $1,100 per sq. ft. and 8th Street is asking $675,000 per unit. That’s about as pricey as it gets in Los Angeles for existing income property.
Residential income property (4-units or less) are not shy about asking high prices as well.
Take a look at these prices:
- 1641 Manhattan Avenue
- $3,495,000 or a 2.5% yield
- 907 5th Street
- $4,600,000 or a 1.8% yield
The Manhattan Avenue duplex is positioning itself closer to a single-family home and thus, the $1,747,500 price per unit.
The most shocking is the triplex on 5th Street. The minuscule yield of 1.8 percent might be expected of property right on the beach, however, this property is in East Hermosa Beach. At over $1,500,000 per unit, you could purchase three single-family homes in the East Hermosa area for less.
Now after reading all this data, you might ask yourself: What does this all mean, Richard? Well, to be honest…I don’t know exactly as I can’t predict the future.
It is clear that prices are down and rising interest rates will continue to put pressure on income property prices. So, if I had to take a guess, buyers will continue to have the upper hand and drive prices down.
Will buyers fold to these record-high asking prices? Will sellers continue to ask record prices against what the data says and interest rate headwinds?
The next quarter into 2019 should be interesting to see which side blinks first!