Koreatown has found its way back onto the institutional radar, and this time, it is may be there for good. Four years ago, TruAmerica Multifamily purchased the Vermont in Koreatown for an astounding $283 million, putting the Downtown Los Angeles-adjacent market on the map. Then, with little institutional quality product available in the market, things settled down. Now, Century West Partners has sold its class-A, luxury K2LA project for approximately $200 million. The three-building development sold to two separate institutional buyers in the second largest transaction in the submarket.
“The Vermont put Koreatown on the map for institutional investors, and this is the second largest transaction since then,” Moran & Company’s Derrek Ostrzyzek, who brokered the deal, tells GlobeSt.com. “When the Vermont sold, institutional investors were still hesitant. At the time, the question really was, ‘How deep is the market for class-A luxury units at those rents?’ Now we have a pipeline ahead of us. This is the first deal that is going to open up the floodgates to more activity there. This is a catalyst trade.”
On this deal, Ostrzyzek saw tremendous interest from institutional buyers from across the country. “Every institutional shop came out,” he says. “This wasn’t value-add or opportunistic investors that were looking at this deal; these were large core funds and institutional separate account clients that were now comfortable with Koreatown and understood its position within the market.”
There was still an education process. Koreatown is considered an emerging market, and investors needed to see the growth to accept the neighborhood as a luxury market. “We would tour the property and then get investors in the car and point out the restaurants, the shops and the metro line,” says Ostrzyzek. “Once people finished the tour, they got it.”
He believes that more momentum will follow this deal, especially considering the current development pipeline. In the last 20 years, the Koreatown market has only delivered 1,500 class-A units. Today, there are 2,100 class-A units slated for delivery in the next two years and another 5,000-plus in the planning stage. “Most investors had never set foot in Koreatown, and I think that the lack of development is the reason. There has really not a lot to look at down there,” adds Ostrzyzek.
Aside from the surge of development activity, there are a lot of reasons why Koreatown deserves to be on the institutional radar. The laundry list of amenities—restaurants, nightlife and two metro stops—is one. Another is the historically strong performance in the market. “A lot of people don’t realize the historical outperformance of Koreatown relative to Downtown Los Angeles, Hollywood and the overall L.A. metro MSA,” says Ostrzyzek. “When you look at the forecasted rent growth and occupancy, Koreatown actually outperforms Downtown L.A. and Hollywood over the next term.”
A big driver of that strong forecast is Koreatown’s substantial discount to surrounding markets, specifically Hollywood and Downtown Los Angeles. “K2LA has smaller units—the average unit size is 600 square feet—and you’re whole dollar rent is $2,100,” says Ostrzyzek. “If you compare that to Hollywood, you would pay $3,500 for a similar product, and in Downtown L.A. you would pay $2,500. There is a considerable discount living in Koreatown.”
With plenty of quality product poised to come online, this will continue to be an interesting market to watch.
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