A few months ago I wrote an article on “Sky High Hermosa Beach Apartment Building Prices.” The article focused on two completely remodeled, gorgeous apartment buildings with ocean views that came to market at record pricing. I dove into other sales trading at similar valuations and whether an investor would be compelled to own stocks or high-priced real estate by the beach.
Fast forward to present day and those apartment buildings on 1536 Manhattan Ave and 1542 Manhattan Ave have sold. Those record high Hermosa Beach asking prices have officially become record high Hermosa Beach sales.
According to the closing information, 1534 Manhattan Ave sold at a 3.36% CAP rate and 1542 Manhattan Avenue sold for a 3.38% CAP rate. That is pretty spectacular for the seller. But that is not to say it was not earned as they were able to land 1-bedroom renters at a whopping $4,000/mo and a 2-bedroom for $7,200/mo. Big rents drive big apartment values.
With these behemoth new sales…are we ushering in a new era for Hermosa Beach apartment owners and buyers?
If you are a landlord currently (especially with views), you need to strongly consider completely remodeling your building. If there are tenants looking for completely remodeled units in Hermosa Beach, and will pay big rent like the Manhattan Avenue buildings, then you better call your lender and contractor. You will either greatly increase your cash flow, or the new cash flow will service the construction debt entirely while sending your value way up…and perhaps a good time to sell.
If you are a buyer, all of a sudden apartment listings that seemed over-priced a week ago are still over-priced, but you start to second guess yourself on if you should buy. Take for instance 1702 Hermosa Avenue, a 10-unit listed at $5.85 million. It will not have the views of the Manhattan Avenue buildings, but it has decent views, is well located between the pier and north Hermosa, and one walk street away from the sand. From the look of it, you could get the property income to match the NOI (net operating income) of the 1534 Manhattan Ave sale. So if you negotiated the price down a bit and put in time of a major remodel and newly tenant, then you would own it for the same price of the new record closing (around $6.4 million all-in). By no means a deal, but at least you are in….right?
So where do we go from here? Is this the new era of Hermosa apartments? Are we in a bubble? Or is this a fantastic deal three years from now? Who knows? What we do know is that these new sales will have ripple effects on the apartment market, tenant rents, and current landlords operating procedures.