July Insights Newsletter
Southern California Multifamily Holds the Line Amid Historic National Reset
By Nina Hobson
The U.S. multifamily sector is navigating its most turbulent market cycle since the Global Financial Crisis. A sharp correction in values, evaporating capital liquidity, and investor inertia have rippled across the nation. Yet, Southern California, long defined by regulatory headwinds and chronic undersupply, is emerging as one of the nation’s most resilient multifamily battlegrounds.
National Freefall: Valuations Slide, Confidence Wavers
Across major metros, the numbers are stark. As of June 2025, national multifamily pricing has plummeted 14.3% year-over-year, according to industry data. Transaction volumes have fallen 22% from the prior year, marking the fifteenth consecutive month of contraction. With rising interest rates and bloated development pipelines in the Sun Belt and Southeast, investor sentiment has soured.
The supply glut in high-growth markets like Phoenix, Dallas, and Atlanta has stripped landlords of pricing power, while debt markets, once flush with yield-chasing capital, have constricted. Many deals now are not a matter of opportunity, but of necessity.
Southern California: Complexity Breeds Resilience
While not immune to macroeconomic pressures, Southern California is exhibiting a different profile. In top-tier submarkets such as West LA, coastal Orange County, and urban San Diego, price declines are capped between 6% and 10%, driven more by recalibrated expectations than distress. Trophy assets and well-located infill product continue to trade with minimal discounts, supported by a deep bench of private and family office capital.
In more renovation-intensive areas like the Inland Empire and San Fernando Valley, values have dipped 10–15%, as deferred maintenance, high insurance premiums, and tougher renovation economics weigh on buyer demand. Yet even here, the story is more about recalibration than collapse.
Vacancy Gap: Southern California Defies National Norms
On the occupancy front, Southern California remains an outlier. National vacancy rates sit at 6.4%, with Class A lease-ups in many metros struggling to hit pro forma rents. But Southern California has maintained a firmer grip on occupancy, with market-wide vacancies ranging from 4.8% to 5.5%.
Southern California softness has emerged in dense Class A corridors like Downtown LA and Irvine Spectrum, but stabilized Class B assets in suburban and coastal zones are delivering solid returns. Rent performance reflects this bifurcation: while national rents have contracted 5–8% in oversupplied metros, most Southern California submarkets are only down 1–2%, a minor blip in an otherwise healthy rent roll.
Deals Still Get Done in California With Creativity
While institutional capital continues to pull back nationwide, Southern California is seeing a resurgence in activity among savvy private players. Motivated sellers, especially those facing loan maturities or partnership splits, are increasingly testing the market.
Creativity is key as bridge loans, preferred equity, seller financing, and structured joint ventures are helping bridge bid-ask gaps. Family offices and high-net-worth investors are seizing opportunities that institutional players are too cautious to pursue. In short, dealmaking hasn’t stopped but it is evolving.
The Mechanics of the Reset
The causes of the correction are multifaceted. Nationally, the legacy of rapid 2021–2022 lease-up pipelines has left markets like Charlotte, Austin, and Tampa oversaturated. Layer in the sharp rise in interest rates, leaving acquisition yields misaligned with borrowing costs, and the result is a capital markets standoff.
But in Southern California, additional complexities are at play. Loans originated during the 3% rate era are now rolling into refi scenarios requiring 6–7% debt, often without the rent growth needed to support the shift. Meanwhile, California’s policy environment including AB 1482 rent caps, eviction moratoria, and entitlement delays, continues to constrain operator flexibility and investor returns. Add in seismic retrofit mandates, rising insurance premiums, and a tight labor market, and NOI erosion becomes more operational than market driven.
Why Long-Term Fundamentals Still Matter
Southern California’s multifamily market remains fundamentally strong despite current headwinds. Limited housing supply, high replacement costs, and regulatory hurdles continue to support rental demand and property values, especially in coastal job centers where homeownership is out of reach for many.
As distress surfaces, from stalled projects to maturing debt, savvy investors are stepping in. Success in this cycle will come down to flexibility, local expertise, and the right financing partners.
The national market may be resetting, but Southern California’s long-term resilience offers real opportunity for those prepared to act.
Investor Insights
Loan of the Month
$2.1 million bridge loan for a mixed-use property in San Gabriel, CA. Tara Sauerbrey arranged cash-out financing to support the borrower’s reinvestment in other projects, with Fidelity providing a seamless solution to help achieve their business objectives.
Fidelity Bancorp Funding: Certainty in a Turbulent Time
At Fidelity Bancorp Funding, we understand that today’s California multifamily deals demand more than capital—they require certainty of close, speed, and flexibility. Whether it’s maturing debt, GP recapitalizations, or complex rent-controlled assets, we provide tailored financing that meets the moment.
