A Hundred Reasons for Doubt, A Hundred for Hope: Navigating LA Real Estate in 2025

“Today, I have a hundred reasons to be happy, and a hundred reasons to be miserable. The choice is mine”

Check the news and you’ll see headlines focused on global geopolitical tensions, continuing inflation risk, market turbulence and economic unpredictability.

There are tariffs that may bring on higher prices for imported goods, and DOGE cutting government spending. The downstream effects that cause concern as it pertains to real estate are higher construction costs, a slowdown of Section 8 subsidized housing funding and office buildings losing federally funded tenants where lease contracts are being cancelled. Historically, federal government tenants have been regarded as some of the safest tenants due to the certainty of rent payments, but now propose a huge risk.

In local LA news, there’s a new countywide eviction moratorium for tenants who Self Certify that they’ve been impacted by the recent fires and a potential rent freeze on the table.

At the same time, owners continue to face rising operating expenses, specifically around repairs and construction costs, with ever expanding regulatory mandates.

Insurance prices are up roughly 300% over the last few years. We recently purchased a building where our insurance policy costs $18,000 with extremely limited coverage. A few years ago, a far more comprehensive policy for that exact same building would have cost $6,000. In addition, we are seeing a nearly doubling in insurance costs for properties that have been renovated and have had zero insurance claims.

So, what's the incentive to continue to own and operate real estate, specifically in Los Angeles?

Local Ownership Shift: 10-15 years ago, there were many more ‘Mom & Pop’ operators who would buy 1-2 buildings per year, and over the course of a few decades, built their family portfolios. Due to how difficult it has become to operate apartments, there has been a market shift with many of these owners selling off assets and fewer of this buyer demographic entering the market. This translates to less competition, which opens up opportunities for buyers like TGG.

Belief in the Long Term Demand: LA has some of the best weather in the world, is a leading technology hub, and Hollywood is still the entertainment capital of the world. Additionally, more people now have the choice of where to live due to remote work flexibility. This leads to high rental demand as those who value world class weather and entertainment have LA in their list of top destinations to call home.

TGG Strategic Advantage: There are strategies which we have been utilizing in order to increase cash flow in LA multifamily. Adding both attached and detached ADUs, reconfiguring units to increase bedroom and bathroom counts, and creating more desirable layouts, are some of the strategies we use to add value and increase cash flows.

Market Pricing Adjustment: Perhaps most importantly, the comps have been set. People who are trying to get out of the rental business today know where their properties will sell. If an owner's goal is to sell now, they will find that buyers will pay around 9-10 times the gross income for buildings that just a few years ago would have sold for a 14-15 time the gross. The market has spoken and prices have adjusted downward, which allows us to buy properties at better price points, so long as we hold to our long term perspective for Los Angeles real estate.

With pricing down, is today as good of a time as any bear market we’ve seen? Is 2025 the new 2011? We’ll know in a few years. In the meantime, we continue to pursue properties that reflect today's market, coupled with business plans which we feel optimistic we can execute on.