Los Angeles Apartment Investing: Regulations, Cash Flow & Multifamily Opportunities

Jeffrey Estrada (00:00)
for me I’m kind of a contrarian and maybe because it’s some a bit younger I think LA is definitely very inefficient. that could be a combination of the regulations that we have or not but look I think inefficiency creates opportunities and a question that I get asked all the time is

you know, by someone that’s owned a building for fifteen, twenty, thirty, forty, fifty years, doesn’t matter. They said, Who the heck is buying in LA? Right? And the answer is who you were thirty years ago is still buying in LA.

Cody Crabb (02:04)
Welcome back to the Real Estate Pros podcast by Investor Fuel. I’m your host, Cody Crabb, and today I’m joined by Jeff Estrada with Marcus & Millichap. Jeff brokers 10 to 50 unit apartment deals across Los Angeles and has a front row seat to what’s really happening in multifamily right now. Jeff, welcome to the show. Thanks for giving us some time today.

Jeffrey Estrada (02:22)
Thanks, Cody. Appreciate appreciate you having me on.

Cody Crabb (02:24)
So the first question I’d have is before we get into your background and and everything, LA gets painted as this pretty brutal place to own multifam. Like if you had to pick a place to not go, a lot of people would say, well, probably Los Angeles. but you’re in these deals every single day. So I would love to hear, before we even get into any anything about you specifically, what does this market actually look like from someone who is on the inside of it every single day?

Jeffrey Estrada (02:54)
Yeah. I think part of it is true, right? You have and also that’s a really interesting question to start with. It’s the loaded one. I have a lot of thoughts that I can obviously share. but I’ll try to to keep it a little short. you know, I I mainly deal in the middle market space, with a fluctuation of institutional clients that have buildings that can be exited to a middle market sort of buyer. And

We also have, you know, developers that are semi-institutional clients as well. And lot of their capital partners have redlined Los Angeles or California as as a whole because of the regulatory changes. Specifically in Los Angeles, I mean there there’s new like transfer taxes that has happened the new in the rec like last four four years or so that’s taken a really big hit and really probe new development pipeline.

It almost seems like being a housing provider in Los Angeles as a mom and pop, like let’s just say, you know, s you’re an ordinary person and you own an eight unit apartment building and you happen to be a housing provider, you get the reputation that you have deep pockets when, you know, a lot of those type of owners happen to that’s their retirement, you know, that’s how they make ends meet. And it’s not something where they’re making

insane amount of returns, you know, it’s but yeah look I I think it it does get a lot of bad rap.

for me I’m kind of a contrarian and maybe because it’s some a bit younger I think LA is definitely very inefficient. that could be a combination of the regulations that we have or not but look I think inefficiency creates opportunities and a question that I get asked all the time is

you know, by someone that’s owned a building for fifteen, twenty, thirty, forty, fifty years, doesn’t matter. They said, Who the heck is buying in LA? Right? And the answer is who you were thirty years ago is still buying in LA.

Cody Crabb (04:50)
I like that. Yeah. I I I like this a lot because I think I I love talking to contrarians because you’re, you know, it’s it’s always more interesting. so you said you’re a little bit of a contrarian on this. Like what is it that mean, what what is it that makes you actually still want to be there when the institutional capital is like kind of shying away from it? I mean it feels like it feels like a lot of people would take that as a signal to be like, no, let’s let’s maybe just pause on this.

the other thing too, like you said, like you said, the the the there is a lot of kind of because of the volume, there’s a lot of l not lower class, but like kind of mom and pop type investors too. So does that play into it as well?

Jeffrey Estrada (06:18)
Yeah, I mean look the with the capital red line in California or Los Angeles is is partially true. I mean, just last week you have a big announcement that BlackRock just bought more than a billion dollar portfolio in across Southern California. So you you know, you have money coming going out, but you also have money new money coming in.

Cody Crabb (06:38)
yeah, that was I was just kinda saying like what what’s the appeal? But like you said, there’s people that are not everybody is in solid agreement as as the the narrative might suggest that it’s like a better place to buy.

Jeffrey Estrada (06:50)
And and look, I I think yeah, it it is highly regulated and it’s a pain and a lot of people are going through it, whether if you’re an owner, whether if you’re in insurance, if you’re a lender, if you broker deals like me, every part of the business is de definitely has pain points of trying to get a building sold or purchased in in Los Angeles.

I think one of the big reasons why people continue to like Los Angeles besides the weather is look in my in my opinion, it’s it’s still one of the more stable markets in the country. from what I read in the sun belts, you know, you don’t have as much vacancy and someone say, Yeah, but you it’s hard to to evict someone, which yeah, it’s hard to evict someone, but I would probably argue or question like in those sun belts.

What what’s the delinquency rate like? Like what’s the vacancy like compared to LA? What’s the swing in rents that you’re going to get in either direction? You know, in LA, the the playbook is not that that sophisticated, or it’s not that complicated. you know, I think right now the market that we’re in, a lot of people have gone back to the basics, buying boring buildings, buildings where they’re positive leverage and

Cody Crabb (08:06)
Mm-hmm.

Jeffrey Estrada (08:07)
It’s

it’s a stable market. Like yes, you’ll have delinquency, yes, you’ll have bad debt, yes, you’ll likely get into some regulatory challenges being in LA, but that’s just that that’s part of the territory.

Cody Crabb (08:23)
You know, I l I kind of like this this line of thinking because you’re saying it’s not it’s not that there aren’t challenges, but you’re saying there are challenges everywhere. It’s just that these are these are some of these are kind of unique to LA, but some of these are just kind of things people deal with. And and there are probably other challenges that you might have to deal with elsewhere too. And and the reason I particularly like that is if there are certain challenges that you are particularly well equipped to meet that that

that is and you know what I mean, then maybe that would be a good fit for you. So I think as always, the thing that I get from this podcast is no two situations are going to be the same as far as what you should do because everybody’s situation in investing is different. Everybody’s strengths and weaknesses and what they bring to the table is different. So yeah, I mean looking at what i the market is like I could definitely see some people going, well actually I’m particularly well equipped for this right now. So yeah it makes sense totally

Jeffrey Estrada (10:00)
And you have operators that have continued to purchase in LA through multiple cycles over twenty, thirty, forty years and are still actively buying and they’re well aware of the challenges, but they’re not going anywhere. because they don’t know those other markets. And you’re you you said it spot on that look, I don’t know what the challenges are in those markets, but I’m sure those challenges are probably I’m guessing those challenges are probably equally as painful to deal with challenges here. They’re just different.

Cody Crabb (10:30)
Yeah, exactly. so if I’m an investor looking in LA today, where does opportunity actually come from? Is this like you said, kind of the buying boring buildings is kind of something that’s been coming back. but would you say like buying something mismanaged, you know, getting re redeveloping stuff? Like where do you see the most money being made right now? And I know you’re in multifamily, but just if if I’m sure you have perspective on this.

Jeffrey Estrada (10:56)
Yeah, look, I think right now if you’re if you’re buying well and your your your thought process is to hold for a long term, you buy at a low basis in a good location and somewhere where you can naturally lift the building where there’s still cushion and rents or other ways to kind of have a value add strategy. that’s if you’re someone that’s looking to roll up your sleeves and work a building. If you’re someone like right now I’m seeing an uptick in people in tech that have

that that came into money recently and they want to buy in Los Angeles, but they’re not real estate people. So their thesis is a little different than what I just explained. You know, what they would probably look for is a building, yeah, good location, but somewhere that’s going to be that that has been managed professionally, something that where they can buy at a good cap rate, a good yield, so that they can set their money and get a reasonable return.

It’s still gonna be work because it’s not necessarily passive a passive investment. But but yeah, that’s kind of my take on. It kind of depends on what side of the spectrum you are you’re on. If you’re an operator or if you’re looking to place some cash.

Cody Crabb (12:03)
Yeah, interesting. And and like and the the thesis still stands if you’re if you know no two situations are the same. It depends on what you’re bringing to table. so you’ve got a pretty unique perspective on the market, but I’d like to shift gears for a second. You you told me that you’ve only been in brokerage for just a few years, the last few years here, and you’re already doing a pretty decent volume it this year and last year. How did you get traction that quickly in a business where you’re competing

Against people that have been doing this since I was a baby, really. I mean, like s for the last thirty years, you know.

Jeffrey Estrada (12:37)
Yeah. how am I getting the traction? I think the first thing is surrounding yourself by good people. and I think something that I’ve taken on from kind of like my DNA or fabric, but I always put other people’s interests before mine and I think that comes across in meetings. Like I I don’t really care what’s what’s in it for me. so that that that’s just part of who I am as a person.

And I think that the person that’s sitting on the other side of the table sees that, acknowledges you know, I use my my my youth as an advantage. I you know, before brokerage, I was I was in a very like competitive like lemming environment. And my DNA is my fabric is made of being in the office at 5 a.m. and leaving at 8 p.m. Those hours have changed since then, but that’s how I started, you know. So I have a lot of energy.

And a lot of tenacity and but really it’s it it’s for me my biggest thing is just surrounding yourself with people that you enjoy working with. with.

Cody Crabb (13:37)
Mm.

Jeffrey Estrada (13:38)
The exact correlation there, but look, it’s I haven’t reinvented the wheel. I’m not doing anything that’s new with like AI or this or that. You know, I I’m sticking to the basics. I have my playbook, I know it works for me, and it’s really about providing good value, real value to the person that you’re sitting across the table.

Cody Crabb (13:57)
Yeah. Yeah, I think that’s a great way to look at it. I think some people use if people people that are a little on on the younger side, they’ll be a little bit defensive about it. I was talking to Yeah,

Jeffrey Estrada (14:07)
Your biggest advantage.

Cody Crabb (14:08)
I was gonna say, yeah, and and I think it’s no different than any other disadvantage you might have, where maybe you have maybe you’re not good at speaking in front of people as well. And but like it’s it’s just like any other it’s a like any other disadvantage, there’s also a lot of advantages that come with it too.

You know, you’re not bur burdened by thirty years of of old thinking and there’s lot there’s lots of reasons that it would be really advantageous to work with someone that that has a little bit of a new perspective. So yeah, I think that’s a that’s a great way to to think of it. was there a particularly particular client or deal where you kind of felt like, okay, this is working. I can actually I’m starting to actually compete at this level now.

Jeffrey Estrada (14:48)
I’ve kind of always known that I could compete at this level. I think it was a matter of getting through my first sixteen sixteen months in brokerage because that was the hardest time. you know, that that that time is like your survival window because you’re for me I say sixteen months because that’s how long I went without making a paycheck. yeah, sixteen months without making a paycheck. So I was living off savings and it was you know, self doubt.

especially in that time in that in that window has a very strange a powerful way of creeping in and making making it known that mak making you start to doubt yourself. Like, I can’t do this, can’t do it, but

Cody Crabb (15:26)
Every day that passes without a new deal or something, you’re like, maybe there isn’t gonna be one or yeah, I could see why.

Jeffrey Estrada (15:32)
Yeah,

and if you’re anything like me in this business, like you have to see it through. not even just this business, but like just who I am as a person. If I start something, I have to see the result at least once before I make a decision of what I’m going to do next. but to answer your question, like that that was my whole thing was the the the theme was having a proof of concept. I needed to give myself the confidence and proof of concept that I can do this and I deserve a seat at the table.

Cody Crabb (15:59)
Totally. so you know, you you mentioned putting the client’s interest in in front of your own. In brokerage where everybody gets paid at the same time, once things close, has there been a time where doing the right thing for a client meant telling them don’t do this deal?

Or maybe a better question would be I mean, i if it hasn’t happened, would you do that? Like would you go out of your way to tell someone?

Jeffrey Estrada (16:24)
for sure. Yeah, I tell them all the time. I have you know, when I’m sitting with clients, you know, it it’s really interesting. Let me explain the profile on clock, where it’s this is a real story. They have a 64 unit building. They’ve owned this building for 64 years and they have no debt, they’ve self-managed the building. it’s for where where the value is for those type of buildings,

It’s almost

Smarter for him to not do anything. And he’s like, I’m ready to sell. I’m selling, I’m selling, I’m selling, I’m selling. Like, okay, sure. You want to sell, great. For me, that’s good. But let’s focus on what’s what’s next, right? You want to sell, then what? You have to exchange. because you depreciated too much. There’s gonna be a big tax liability. You have to exchange. And if you exchange, like what is that income? What what what income are you gonna be able to replace?

Is it more, less, the same? Are you comfortable with that? So we went through the whole through the whole process and it was very clear to me. I was like, you shouldn’t sell the building. You know, you you self-manage, you do great, you don’t have any issues, your insurance is fine, your panels are fine, like sure the rent increase formulas changed, it’s impacted you a bit, but look, this is the devil that you know, and you’re comfortable with it.

Cody Crabb (17:36)
Yeah.

Jeffrey Estrada (17:36)
Really solving for

Cody Crabb (17:37)
Yeah, I suppose it depends on someone’s goals too. I mean, if someone’s kind of met the goal that they are really looking at, I mean there’s some at some point there’s no sense in trying to grow and grow and grow and grow. If they’re kind of reached if ki if they’ve reached the point that they want to reach, then why why push further than that?

so you know, you s you said that you were you’ve gone 16 months without a paycheck. That’s a lot. for someone that’s building a business print in particular. if somebody is in that kind of ugly period where they’re doing all this work, probably more work than they will once once things stabilize, but they haven’t gotten the proof of concept yet and the things haven’t started paying off, what would you tell them? Like maybe talk to yourself as a as an er early in the in the process.

Jeffrey Estrada (18:22)
Yeah. I mean what I would tell myself is I I would have an honest conversation from with myself, excuse me. And I would say I would ask myself, am I willing to commit the next 12 months of my life from today, months from now? Am I willing to commit to doing this? Do I have the ability and the financial means to do it? What does my support system look like? What am I jeopardizing? can I actually sustain myself for those twelve months?

If the answer to that is no, the recommendation I’d be giving to myself is don’t do it. It’s a waste of time. Because I think in in anything, even outside of brokerage, I think twelve months is too little of time to genuinely see results in something. You know, and brokerage is a long term game, real estate’s a long term game. so yeah, I mean that that’s really what I would do. It’s like just before you even start.

Just be honest with yourself. Is this a pipe dream? You have to keep yourself grounded and make a responsible decision for yourself.

Cody Crabb (19:17)
Yeah. Yeah, I think that that’s a great way to to kind of end us off here. We’re kind of r winding down to the end here.

So let’s say people want to get in touch with you. They they really like what you’ve been saying. They want to ask you a question. They want to work with you. Who should be getting in touch with you and how can they do that?

Jeffrey Estrada (19:35)
Well, I I think if you have a genuine desire or questions about commercial real estate, it’s you know it’s it’s it’s hard to find people that you can rely on and trust. So I think if you’re just looking for a second voice, you’re welcome to to reach out to me. really anyone listening to the podcast, if you have any questions about Los Angeles, if you’re looking get in to the market, out of the market, and you’re yeah, you’re welcome to to to reach out.

Cody Crabb (20:02)
Awesome. Well thank you so much for that. I think some people in our audience will be really excited to have an opportunity like that. and thank you listeners for giving us some of your time as well. if you liked today’s episode, make sure you stay tuned for the next one. Jeff, it’s been a pleasure. Thanks so much for for what you’ve given us today. And we’ll see you next time.

Jeffrey Estrada (20:19)
Appreciate it. Thanks.