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Stepp Commercial, a multifamily brokerage firm in the Los Angeles market, has completed the $2.99 million sale of an 8-unit apartment property located at 2327 2nd Street in Santa Monica, CA. The property, which sold for $673 per square foot, is in a prime location just one block from Main Street and two blocks from the ocean.
Kimberly Stepp, a Principal with Stepp Commercial represented the seller, Los Angeles-based Surf Realty, Inc., as well as the buyer, a Los Angeles–based private investor. The cap rate was 1.4 percent based on rents far below market value.
“Highly walkable and located in one of the most desirable rental areas in Santa Monica, this rent-controlled property had rents that were 108% below market rates, providing the new ownership the opportunity to add significant value,” said Stepp in a statement. “During escrow the soon-to-be owners negotiated buy-outs with five of the eight tenants, providing an immediate upside in value.”
Built in 1924, the single-story, two-building property features all bungalow-style units that consist of four one-bedroom units and four studios. The units feature private entrances, private patios, spacious kitchens and baths, hardwood floors, and built-in cabinetry.
“In this rising interest rate environment as well as overall economic uncertainty, buyers in prime Los Angeles area locations have an elevated interest in value-add apartment assets like this one,” noted Stepp. “Investors are averse to acquiring an asset at market rents as it means they are most likely losing money right out of the gate. Ultimately, value-add opportunities are the most coveted investments for rent-controlled assets this year, and I see that spilling over into 2023 as well.”