At Southern California’s Hotel Indigo DTLA on May 3, multifamily leaders will come together to discuss the outlook for investment and development. LaTerra Development Managing Director Chris Tourtellotte oversees a platform with some 3,000 apartment units in the pipeline. Recently, he shared his take on how LaTerra has been responding to economic headwinds and how state government efforts are affecting the climate for multifamily development.
Q: How has LaTerra been responding to some of the economic headwinds we’ve seen recently? And has it affected company operations?
A: We’re fortunate at La Terra that our two business verticals – residential and self-storage – have remained strong despite turbulent conditions in other areas of real estate investing. Rents remain high as people still need places to live while self-storage is one of the best asset classes during downturns or periods of high inflation due to its low occupancy risk; occupancies only drop from 96% to 94%. As such, debt financing remains available through agency lenders, life companies regional banks, and national money center banks through leverage levels are kept low at 55%, 60%, or 65%. To further protect against turbulence we focus more time on portfolio management by reducing operating expenses where possible while emphasizing tenant retention both when they enter properties but also when they leave them behind.
Q: Simultaneous with this economic turbulence there’s been a push at the state government level to increase the housing supply in California – what effect is this having?
A: When considering markets that may have too much supply coming online it’s important to measure new construction as a percentage of existing stock – L.A., for example, 1%, compared to 10%-15% Nashville Charlotte Austin Phoenix others). This indicates significant constraints in California coupled with robust demand drivers bode well market so additional needed though red tape must navigated navigate CEQA (California Environmental Quality Act) full-blown Environmental Impact Report can take 2 years entitlements which is too slow however Housing Accountability Act great tool legislation recognize cities not meeting Regional Housing Needs Assessment penalized fines withdrawn funding now many cities supporting projects especially those containing affordable housing component yet still insufficiently supplied.
