Have been spending a lot of time looking at 2-4 unit apartment buildings in the Miracle Mile area recently and let me tell you: That is one ridiculously hot market.
First, let’s define what we mean by “Miracle Mile”: It’s the area loosely bordered by Wilshire to the North, Pico to the South, La Brea to the West and Crenshaw to the East.
Within that area, smaller apartment properties are listed at around 14-15x annual rents. So, if you have a fourplex with each unit renting for $1,500 (so $6,000 total rent per month and $72,000 per year), your building would list at $1,008,000-$1,080,000.
To put this in perspective, Silver Lake buildings tend to list in the 12-13x range right now. The same $72,000 / year in rents would therefore go for $864,000-$936,000 in Silver Lake.
This bogles my mind. Intuitively, it seems to me that, over the next 5-10 years, rents in Silver Lake will grow considerably faster than rents in Miracle Mile. Costs in both areas are roughly similar. So, I would expect to pay a premium for Silver Lake properties. Instead, the market is saying they’re worth LESS.
Now, there are a lot of great things about Miracle Mile. I live there myself (although, depending on whom you ask, that may not be one of the great things about it!). But any time I see a price discrepancy like that, it makes me think that there is something going wrong in the market.
In this case, I believe the answer is that there is still a lot of Westside money that has not discovered the Eastside rental market. And when it does, I believe we will see a large run-up in prices (and corresponding decrease in cap rates) on the Eastside. If you own on the Eastside when that happens, things could get pretty interesting.