A 36-unit building on Natick Avenue in Sherman Oaks closed in May 2026 for $12.1 million, or $336,111 a unit. The Sherman Oaks multifamily median that month sat at $237,708 a unit. The Natick Avenue deal traded 41 percent above it.
That gap is not noise. It is the clearest visible sign of a split that has been building in this submarket since the Los Angeles City Council rewrote the rent stabilization formula in December 2025, and it means two buildings that look nearly identical from the street, same vintage courtyard layout, same block, same square footage, can now price tens of thousands of dollars apart per unit depending on a single fact buried in the certificate of occupancy: whether the building existed before October 1, 1978.
Why one date carries this much weight
Los Angeles runs two separate rent control systems side by side, and which one applies to a given Sherman Oaks building depends on when it was built. The Los Angeles Housing Department says any two-or-more-unit residential property with a certificate of occupancy issued on or before October 1, 1978 falls under the city's Rent Stabilization Ordinance, known as the RSO. Buildings that went up after that date generally answer to a different law entirely, the statewide Tenant Protection Act, commonly called AB 1482.
For most of the last decade, that distinction mattered mostly for compliance paperwork. It now matters for price, because the two systems just diverged further than they have in years.
The ceiling on rent-controlled buildings just got cut
For the twelve-month cycle that ran from July 2025 through June 2026, the Los Angeles Housing Department listed a 3 percent allowable increase for RSO-covered buildings. That was already a hard ceiling for owners of pre-1978 stock. Starting with the cycle that began July 1, 2026, the formula changed again, and this time structurally. The old system pegged the annual increase to 100 percent of the Consumer Price Index, with a floor of 3 percent and a ceiling of 8 percent. The new formula ties the increase to 90 percent of CPI, with a floor of 1 percent and a ceiling of 4 percent. Owners also lost the utility surcharges they used to layer on top: the separate 1 percent adders for landlord-paid gas and electric, along with a 10 percent adder for an added dependent in the unit, were eliminated effective February 2, 2026.
Run the arithmetic and the ceiling on a pre-1978 Sherman Oaks courtyard building effectively dropped from a potential 8 percent a year, plus utility pass-throughs, to a hard 4 percent with nothing on top.
Non-RSO buildings did not get the same treatment. Under AB 1482, the statewide cap for the Los Angeles metro area ran at 8.0 percent for the cycle covering August 2025 through July 2026, and rises to 8.7 percent, calculated as 5 percent plus a 3.7 percent regional CPI adjustment, for the cycle beginning August 1, 2026. A post-1978 fourplex two doors down from a pre-1978 fourplex is now working with more than double the annual rent-growth headroom of its older neighbor, and that gap is precisely what is showing up in the deal data.
What the 2025 numbers already show
A market report on Sherman Oaks and Studio City multifamily covering 2025 activity found that RSO-controlled buildings saw a genuine rebound in transaction count that year, but pricing did not follow. Price per unit came in essentially flat year over year, and price per square foot actually declined. Cap rates expanded and gross rent multiples compressed across the RSO segment, which is the language investment analysts use to describe buyers pricing an asset on what it produces today rather than what it might produce five years out. When a building's rent-growth ceiling is capped at 4 percent with a 1 percent floor, there is not much future income story left to underwrite, so buyers stop paying for one.
The same report frames the practical effect directly: on an RSO-covered property, value is driven primarily by in-place cash flow and long-term yield rather than future rent growth, and buyers underwrite these assets conservatively, factoring in extended hold periods and limited ability to offset rising operating costs. That is a materially different underwriting exercise than a post-1978 building, where a buyer can still model meaningful rent growth into the pro forma and pay a premium for it.
Sherman Oaks multifamily buildings from before 1978, from the 1980s, and from after 1995 can sit on the same street and still trade at distinct price points, before condition or location even enter the picture. That helps explain the 41 percent spread. Vintage, and the rent-growth ceiling attached to it, has become one of the largest single variables in how a Sherman Oaks multifamily building gets priced in 2026.
What this changes about a Sherman Oaks underwriting file
For a buyer comparing two Sherman Oaks multifamily listings this fall, the address and the finish level are the easy parts. The variables that actually move the offer are less visible from a drive-by.
Pull the certificate of occupancy date before you pull comps. LADBS records and the city's own RSO lookup tool will confirm whether a specific address falls under the pre-1978 rule. Two buildings with identical unit counts and nearly identical curb appeal can sit on opposite sides of a rent-growth ceiling that is now twice as wide for one as for the other.
Read the rent roll against the ceiling, not against market rent. On an RSO building, the gap between in-place rent and market rent tells you less than it used to, because the path to closing that gap is now capped at 4 percent a year with no utility adders to widen it. A rent roll that looks underpriced on paper may take considerably longer to reach market than the same gap would have taken under the old 8 percent formula.
Check who has been paying the utilities. Owners of master-metered RSO buildings lost the gas and electric adders they used to fold into the annual increase. If a seller's operating statement still shows those adders baked into projected income, the pro forma needs to be corrected before you underwrite against it.
Confirm which law actually governs eviction and turnover, not just rent. The Los Angeles Housing Department says Just Cause protections extend to most Los Angeles rental units regardless of RSO or AB 1482 status, so a newer building is not automatically easier to reposition through turnover than an older one. The rent-growth ceiling and the eviction rules are two separate questions, and both belong in the file.
Price the hold period, not just the entry cap rate. A wider cap rate on an RSO asset reflects a longer expected hold and a slower path to repricing. A tighter cap rate on an AB 1482 asset reflects a buyer paying today for rent growth the ceiling still allows. Neither number means much without the other.
The comparison at a glance
| RSO (pre-October 1, 1978) | AB 1482 (most newer buildings) | |
|---|---|---|
| Annual increase, cycles beginning July/August 2025 | 3% flat | Up to 8.0% (5% + regional CPI) |
| Annual increase, cycle beginning July/August 2026 | 90% CPI, 1% floor, 4% ceiling | Up to 8.7% (5% + 3.7% regional CPI) |
| Utility and dependent adders | Eliminated February 2, 2026 | Not applicable under this framework |
| Governing body | Los Angeles Housing Department | State law, Civil Code Section 1947.12 |
A note on timing
The formula change is recent enough that any rent projection in an offering package deserves a check against the current 4 percent ceiling, early in a deal rather than during the appraisal contingency. The Los Angeles Housing Department maintains the current RSO figures and an address lookup tool directly on its site, and it is worth confirming both a property's covered status and the applicable cycle numbers there before an offer goes out, since the department updates them as each cycle takes effect.
None of this changes what makes a Sherman Oaks multifamily property worth owning. Rental demand along the Valley floor has not softened, and a well-run building on either side of the 1978 line can still perform. What has changed is how much of that performance a buyer is allowed to price into the future versus how much they have to find already sitting in the rent roll. That distinction, more than the block or the finish level, is what separated the Natick Avenue sale from the submarket median this spring, and it is worth running the same math before writing an offer on anything else in Sherman Oaks this year.
If you are evaluating a multifamily acquisition in Sherman Oaks or comparing it against opportunities elsewhere in Los Angeles, Jonah Wilson Partners can walk through the underwriting file with you before you write an offer.
This article is general information, not legal, tax or financial advice. Consult a qualified professional about your situation.
