The first quarter delivered another useful read on the state of the local multifamily market across Southern Los Angeles County, from LAX down through Long Beach. As is often the case at the start of the year, transaction volume softened following a busy fourth quarter, but the broader market signals suggest we may be moving out of the sharpest phase of the downturn and into the early stages of stabilization.
At Buckingham, we track the local multifamily market differently than most of the larger data platforms because much of the opportunity in our area exists in the 2–4 unit residential space, which is often difficult to study accurately through traditional commercial databases. By reviewing and correcting closed sales ourselves, we are able to compare the smaller residential multifamily market against the 5+ unit commercial multifamily market at a much more granular level. That comparison continues to be especially important in this cycle, as the two segments are behaving very differently.
Volume Remains Muted, But No Longer Collapsing
Transaction volume in the first quarter came in at roughly 170 closed sales, a sharp decline from Q4 but very much in line with normal seasonality. Many investors rushed to close before year-end, particularly after the passage of the “Big Beautiful Bill” and the renewed importance of bonus depreciation for 2025 tax planning. By contrast, Q1 is often slower as buyers and sellers come out of the holidays, reassess taxes, and reset expectations for the new year.
While volume remains well below the pre-pandemic and ultra-low-rate years of 2020 through early 2022, it does appear to be recovering from the extremely depressed levels of 2023 and 2024. The market is not back to normal, but deals are beginning to work their way through the system again. The real test will come in the second and third quarters, which are typically more active periods for closings.
Income Metrics Suggest a Floor is Forming
From a valuation standpoint, the market continues to look like it is bouncing along the bottom of the cycle. Across Southern LA County, the first quarter posted an average 14.2 GRM and a 4.8% cap rate. That is only marginally improved from the prior quarter, with GRM up by 0.1 and cap rate down by 0.1, but the more important takeaway is that the pace of deterioration appears to have slowed.
Historically, these are compelling levels. Looking back to the last time the market traded at similar cap rates and GRMs, we are effectively back near late-2013 and early-2014 valuation levels. For investors with a long-term view, that context matters. Those who bought during that period are likely quite pleased with the results today, and current conditions may offer a similar opportunity for buyers willing to step in before sentiment fully recovers.
Price per square foot tells a slightly different story. The quarter averaged roughly $479 per square foot, down from $491, but still higher than levels seen in parts of 2021 and 2022. That relative resilience reflects the strength of rents over the past several years, even as income-based valuation metrics have declined. Price per door was actually up slightly at approximately $414,000 per unit, though that figure can be influenced by the mix of properties and submarkets trading in any given quarter.
The 2-4 Unit and 5+ Unit Divide Has Never Been Wider
The most important story remains the extraordinary gap between 2–4 unit residential multifamily and 5+ unit commercial multifamily. In the first quarter, 5+ unit properties traded at an average 6.1% cap rate and 10.9 GRM, with price per door around $250,000. Those are extremely attractive numbers relative to recent history, and they imply that individual deals in certain submarkets are trading at even higher cap rates.
By contrast, 2–4 unit properties remain far more expensive. That segment averaged a 15.2 GRM and a 4.4% cap rate, with price per door just above $450,000. Put another way, smaller residential multifamily properties are trading at more than four multiples of GRM higher and roughly $200,000 more per unit than comparable 5+ unit assets.
The reason is almost entirely driven by debt. Owners of 2–4 unit properties often have long-term, 30-year fixed-rate mortgages, many of which were refinanced during the pandemic at rates in the low-3% or even high-2% range. There is little financial distress forcing those owners to sell.
The commercial multifamily market is facing a different reality. Many 5+ unit investors used 3-, 5-, 7-, or 10-year fixed commercial loans during the low-rate period, and the 3-year loans have largely reset while the 5-year tranche is now moving through the system. Those resets are creating pressure, forcing some owners to refinance at much higher rates, inject capital, or sell. That dynamic is pushing cap rates up, GRMs down, and pricing lower in the 5+ unit category.
Why the Market Can Look Worse and Better at the Same Time
One of the more important takeaways from Q4 is that the market can simultaneously show weaker pricing metrics and stronger forward momentum. GRM and cap rates reflect closed sales and tend to lag. Inventory moves sooner, as listings are absorbed while contracts are pending and before closings appear in the data.
When inventory drops and volume rises, it often indicates that sellers are no longer anchored to peak pricing. That theme was echoed repeatedly in Q4: sellers appear more realistic and more willing to work through negotiations, including post-inspection retrades. The emotional cycle is shifting from denial toward resignation—an uncomfortable phase for owners, but historically one that creates compelling entry points for buyers.
There’s also a structural difference from the last major downturn. In 2008–2010, everything crashed at once—including equities—creating broad demand destruction that prolonged recovery. This cycle has been more segmented. The stock market has not experienced a comparable collapse, and in many cases investors have accumulated meaningful gains elsewhere. If and when capital rotates out of equities—particularly if it comes with tax consequences—real estate often becomes a logical destination.
Outlook: A Rare Trade-Up Opportunity
For owners of smaller properties with significant equity, this may be one of the more compelling 1031 exchange environments we have seen in years. The ability to sell high in the 2–4 unit market and buy low in the 5+ unit market creates a rare arbitrage opportunity. In many cases, investors may be able to meaningfully increase cash flow – and in some situations, potentially double or even triple it – by moving from smaller residential multifamily into larger commercial multifamily assets.
The broader market is not yet fully recovered, and sentiment remains cautious. But the data increasingly suggests that the worst of the repricing may be behind us. Volume is no longer collapsing, inventory has come down from elevated levels, and income metrics appear to be stabilizing near levels not seen since the last recovery cycle.
For patient buyers, the opportunity is becoming clearer. The market may not feel comfortable yet, but historically, the best acquisitions rarely do. The investors willing to act while the data is improving but sentiment remains hesitant may look back on this period as the point where the next cycle began.
