18 properties trade hands in 2025 as buyers shift focus from growth projections to current income streams
Santa Barbara’s multifamily investment market is undergoing a recalibration as regulatory uncertainty and rising costs force buyers to abandon speculative models in favor of conservative, income-focused underwriting. The city recorded approximately $69-$70 million in closed transactions across 18 properties of five or more units during 2025, maintaining deal flow even as investor priorities shifted.
According to a report from Colliers, the market’s defining characteristic in 2025 was not transaction volume but rather the transformation in how assets were valued. Buyers increasingly rejected pricing models built on anticipated rent growth, instead prioritizing current cash flow, unit composition, and physical condition. This shift reflects mounting concerns about potential rent control measures under discussion at the city level, coupled with operating cost pressures that continue to erode net operating income.
“Investors are no longer broadly factoring future rent growth into their pricing and are taking a much more reserved approach to rent growth,” said Mike Lopus, Vice President at Colliers. “Instead, greater emphasis is being placed on current in-place income, existing unit mix, and overall physical condition.”
Pricing outcomes varied significantly across the market. The average capitalization rate settled at approximately 4.9 percent with an average price per unit of roughly $395,500, though individual transactions ranged from $250,000 to $729,310 per unit. The highest per-unit price came at 20-80 Oceano, a 29-unit property that sold for $21.15 million at just under 5 percent cap rate. The asset’s mix of long-term and short-term tenants expanded the buyer pool beyond traditional multifamily investors. At the opposite end, 410 W Sola, a five-unit building, traded off-market for $1.25 million, or $250,000 per unit.
Based on the report, the relationship between cap rates and per-unit pricing revealed a more nuanced market dynamic than traditional metrics suggest. Several properties traded at compressed cap rates while maintaining moderate per-unit pricing, signaling repositioning potential rather than premium stabilization. The sale of 622 & 630 E. Victoria St.—16 units for $5.85 million at a 4.23 percent cap rate—exemplified this trend. The $365,625 per-unit basis reflected below-market rents and future value-add potential, offering buyers a lower entry point compared to fully stabilized assets.
Conversely, properties closer to market rents commanded higher cap rates as buyers demanded additional yield to justify premium per-unit pricing with limited growth runway. A six-unit property at 618 Olive St. sold for $3.65 million ($608,333 per unit) at a 5.69 percent cap rate, reflecting strong existing income with minimal upside but also minimal execution risk.
“Transactions are most consistently closed when seller expectations align with current underwriting realities, rather than when peak pricing was achieved in prior cycles,” Lopus noted.
Rising regulatory risk represents only one component of investor caution. Insurance premiums have increased sharply, particularly for older and coastal properties, while labor and contractor costs remain elevated due to wage inflation and skilled labor shortages. Utilities, repairs and compliance costs are rising faster than historical norms, compressing margins and reducing tolerance for aggressive assumptions.
Looking forward, the market appears poised to maintain its emphasis on tangible fundamentals over projected potential. Buyers are prioritizing properties with strong in-place rents, favorable unit mixes and minimal execution risk while applying discounts to assets requiring turnover or long-term repositioning. This shift is expected to create downward pressure on valuations for properties with substantial below-market rent exposure, as the regulatory environment may extend the timeline for capturing rent increases that previously supported pricing. The 2025 Santa Barbara multifamily market reflects a decisive move away from speculative underwriting toward asset-level analysis, a recalibration that will likely define investment activity throughout 2026.
