The Logic Behind the Deal: Cityview’s Perspective on Multifamily Investment in California

University of Southern California
Image courtesy of Cityview

By Meghan Hall

Founded in 2003, Los Angeles-based investment management and development firm Cityview has steadily expanded its portfolio throughout the Western United States, targeting multi-family and mixed-use development opportunities in some of the nation’s fastest-growing markets. With more than 100 projects and $4 billion in urban investment, the firm has become adept at navigating the ins and outs of development deals. However, as primary markets such as the San Francisco Bay Area and Los Angeles become increasingly competitive — and expensive — Cityview’s investment strategies are beginning to change, and the company is taking a careful look at how to remain competitive in the long run.

“We’re really working on deals for both length and time,” explained Melissa Bartolucci Delgado, vice president of asset management at Cityview. “Deals do not always work out, but it’s really about staying close to the sellers and not losing sight of the [development] potential.”

According to Bartolucci Delgado, Cityview currently has about 40 properties within its portfolio and a little over two billion in assets under management. The bulk of Cityview’s portfolio is in California, with about a third concentrated in the San Francisco Bay Area. Like many investors in land-constrained markets, Cityview has traditionally targeted ground-up development opportunities and has narrowed in on transit-oriented and urban infill developments.

“We have different funds and different strategies within each fund, but overall I would say that Cityview is really focused on TOD and infill,” said Bartolucci Delgado. “That is the overarching strategy.”

Such types of developments, with their proximity to transit and jobs usually post solid potential rental rates; Cityview also takes into account its prior experience in the market and the construction type of the product. Additional focus is placed on markets that possess future job and demographic growth, and pose high barriers to entry on the supply side.

However, Cityview is also looking to widen its investment portfolio by pursuing value-add opportunities and potential development within opportunity zones. These changes are in part a response to shifting market conditions and then nature of construction in markets such as the San Francisco Bay Area, where competition to develop remaining property is fierce. While Cityview would like to invest more in the region, Bartolucci Delgado admits it can be difficult.

“It has certainly become increasingly competitive, and obviously construction costs have increased pretty significantly,” said Bartolucci Delgado. “It is definitely making deals more difficult to pencil out. More so in Northern California; it is not that we are not interested in the Bay Area, because we are continuing to look there. But it absolutely has changed the pace at which developers are continuing to close on deals and it is really shifting the landscape of development [transactions.]”

Opportunity zones, in particular, fit in well with Cityview’s goals of long-term investment. According to Bartolucci Delgado, several of Cityview’s prior developments now reside in opportunity zones, and the firm is pursuing development deals in Oakland.

“Opportunity zones are really about the longevity of the deals,” said Bartolucci Delgado. “These are going to be 10 year — or longer — holds.”

Cityview also closed on its first opportunity zone deal last month in Southern California, and the firm is currently developing a 296-unit mixed-use project in a Los Angeles opportunity zone blocks from the University of Southern California.

“We actually have history in what are now considered opportunity zones,” said Bartolucci Delgado. “Some of the deals we have closed on or assets that we have developed previously have now fallen into those areas. We feel like we have some expertise in this space, so we feel like this is a good avenue to continue to work toward and continue to build more of a presence in.”

Because investors can defer tax on any prior gains reinvested in opportunity funds until 2026, Cityview is investing with the aim of holding its properties, providing flexibility if the market corrects.

“I thin everyone in the industry is questioning when [a market correction will occur], and is trying to hedge themselves in a way that they don’t find themselves in a similar situation to 2007-08,” said Bartolucci Delgado. “I would say one of the things that we have done successfully is looking at different investment strategies; we are really trying to create different lines of business that will fare well through a recession.”

While the market fundamentals of a property are pivotal to Cityview’s pursuit of a deal, Bartolucci Delgado also emphasized that consumer desires are also impacting multifamily product and the greater market.

“Another thing that ha seen shifting the commercial real estate market outside of making deals is changes in tenant expectations; those are having an effect on how we look at deals and how we approach deals that we’re developing,” said Bartolucci Delgado. “We really spend a lot of time understanding who the consumer is up front, what type of product they are looking for. We try to build to that.”

Tenant expectations, according to Bartolucci Delgado, now go beyond the structure and design of the building. Consumers are looking for additional perks and services, something that developers like Cityview are keen to incorporate if it aids lease-up potential. Bartolucci Delgado points to Cityview’s The Pearl, a 346-unit development at the heart of Koreatown. Community perks such as happy hours and wellness classes aided in the lease-up, and the property stabilized in 10 months.

“It’s a good example of understanding who the consumer was in that market and building a product that suited them,” said Bartolucci Delgado of the development. “In order for us to stay competitive, it’s becoming more about the services we provide on top of building a product that is in demand by the consumer.”

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