What we do. We acquire older, tired, poorly performing apartment buildings. Typically current rents, are here at about 30% below where market rents are. And we improve the assets. We give it a modern contemporary exterior. We upgrade the interiors - completely gut the units and upgrade them. We bring, what is typically the first amount of any institutional quality, professional management, to these assets, that they've ever seen in their lifetimes, to optimize operations. All with a goal of increasing cash flow. And then we sell or refinance after the renovation and the repositioning plan is complete, and harvest the value. And that's typically 3 to 5 years. There's thousands of managers like Paladin, nationwide, that execute this strategy very effectively. We've been a national player, as we've discussed it previously. But very few firms like Paladin, institutional quality firms, active here in Los Angeles. It's unusual because you would think there would be a lot of folks like Paladin because LA is one of the largest, most dynamic markets in the country, over 10 million population. And, you know, the GDP of LA, if it were a country by itself would be the 19th largest in the world. It's about a $750 billion GDP. It is really management intensive to scale up an institutional quality portfolio here in LA. And there are several reasons why. The main reason is, LA's rental housing stock was mostly built out right after World War II. The GI Bill, absolutely, this region benefited greatly from that.
There's very little developable land right now. The typical apartment building was built anywhere from 30 to 50 years ago. It's a low density, two-story walkup. Typically around a courtyard or a pool. Has very few amenities. These are smaller assets. 85% of the rental housing stock in LA is 50 units or less. And they are older assets. Over 90% are 20 years or older. So it's all what you would call a class B, C asset. They're older. They are very few amenities compared to the class A. So for an institutional type of investor like Paladin, to amass any scale here, you have to acquire ten times as many buildings, as many assets in Los Angeles to get the same scale in Atlanta, Phoenix or Dallas or any of the other markets where there's broad institutional ownership. And the reason is, the typical asset size here is 30 units. The typical asset size there is 300 units. So, in a nutshell, it's really management intensive to have an institutional footprint in this market. If you're searching for yield and development yield, it's extraordinarily costly and time consuming to develop any new product here. Typically, five years after you've assembled the land, to go through the development approvals, go through the environmental reviews, go through the lawsuits that you know are going to happen and you have to budget for. Hopefully there isn't a market cycle during that whole time frame and you've been able to piece together your financing during that time frame.
And once you have achieved it and you're ready to put a shovel in the ground and you've got it financed, the cost is anywhere from $750,000 a unit to $1,000,000 a unit. And that's even if you're targeting the workforce housing segment that we talked about before. Our cost basis of these existing B/C assets, which is the real work workforce housing in LA is half of replacement cost, less than half of replacement cost once we're all in. So the cost advantage that we have is night and day relative to new construction. And the type of asset, the newer stuff are six story or higher, highly dense projects. Ours are two stories, low density, much less of an urban feel. In a pandemic, our assets were - we were seeing folks come from Hollywood and some of the more densely populated downtown areas out to the suburban markets, to our low density assets in the suburban markets. So very different, whereas in Phoenix or in Dallas, the periphery isn't that far, you just add another freeway off-ramp and there's plenty of developable land. And so that difference in replacement cost isn't nearly as pronounced in these other markets as it is here in LA. Every market is cyclical, and LA is not immune to market cycles, but the behavior of our assets in these B/C apartment buildings in Los Angeles is night and day different to Phoenix or Dallas or Atlanta, where you're much more vulnerable to supply side risk.
And so we've been active in all of those markets, and we've been very successful. And one of the reasons we've been successful is, we got the market timing right. And right now, where we are - coming out of the summer of 2022 with a war going on, interest rates rising, mortgage rates have doubled, basically, this year. Inflation is at 40 year highs. Are we heading into a recession next year? I'd be really thinking hard, long and hard about whether or not I want to embark on a new development in a Dallas or a Phoenix or a Nashville. Even though all of those markets benefited from the migration that happened during the pandemic. But don't be thinking that this time is different and that migration is going to happen forever. That's a different topic. LA's market is dominated by the exact opposite - a huge fragmented pool of smaller, unsophisticated investors, who we affectionately call mom & pop investors. They don't realize their assets are underperforming their market potential. Most of them view rent control as a nightmare rather than a regulation that you can at least understand and manage, if not exploit to your advantage. Most don't have the knowledge, the financial resources, they don't have the desire to invest in their properties to maximize value. Their typical motivation is to keep capital expenditures to a minimum, keep unit turnover to a minimum, all to keep a nice steady stream of cash flow.
And that's a very rational objective if you're a family or an individual investor that's owned an asset for decades. But what it also means is you're lagging behind that market potential for that asset. And that's what creates the opportunity for sophisticated investors like Paladin. If you drive around - you've lived in Los Angeles and seen it, but if you drive around here, you will see value-added opportunities everywhere. There are thousands of these tired, rundown properties where current rents are 30% or more below what their market potential is. There is no - this is astonishing to me, we have yet to buy an asset that has what's called a ratio utility billing system or RUBS. It is the first thing you learn in institutional residential property management - are things like, how do you pass through utility cost exposure. RUBS is standard operating procedure for an institutional owner. We have yet to buy an asset that has RUBS in place. So, it's just another indication or evidence of shoddy, unsophisticated, disinterested management. They don't realize, even if they knew, they view it is either a headache or it requires an investment, a capital investment in their property that they're just financially unwilling to make or incapable of making. We target properties that haven't had any capital improvements put into them over the last several decades.
Tired looking, poorly performing buildings, current rents 20% to 30% below market. Lots of deferred maintenance everywhere. The interiors look like they might have 20 coats of paint on the cabinets. What do we specifically do? What we're trying to do is transform these older properties into something completely different and unique from what they are and from what the adjoining properties are. So trying to create a fresh, modern, safe, well-managed, where you have property management that's actually responsive to maintenance requests by tenants and not arguing with the tenants who actually collaborate and are trying to create a sense of place. That's what we're trying to do. So our first step in doing that is, when we buy a property is we communicate who we are and what our plans are to the tenants. We've found that just open communication that, look, we're here to fix all the problems. We've read all the complaints in your lease folders. We're here to fix it but it's going to be a construction zone for the next several years. And so if you were thinking of moving or if you are interested in moving into an upgraded unit, we have some money set aside to help relocate you or to provide an incentive to move into an upgraded unit. The crux of our business plan is to generate as much voluntary unit turnover as we can in the first few years of ownership, and that's either through assisting folks who don't want to live in a construction zone or otherwise thinking of moving, giving them some relocation allowance, or folks who want to stay and are really captured by the vision of a repositioned property that we share with them to give them an incentive to move into an upgraded unit.
And then we actually start the work. We roll up our sleeves and get dirt under our fingernails. We typically put anywhere from $10,000 to $20,000 per unit to upgrade the exterior of the properties. We address any deferred maintenance - leaky roofs might exist for example. We try to put in place a contemporary looking facade improvement, and paint schemes to really enhance the curb appeal of a property. Completely upgraded landscaping, and hardscape pathways, and patio kinds of upgrades. We'll add whatever amenities that the property will allow, and they typically come in the form of pergolas or barbecue areas, festival lighting, children play areas, dog runs and the like. And then we focus a lot of money, most of our renovation budget is on unit interiors, and that's anywhere from $15,000 to $30,000 a unit, typically. We essentially gut the bathrooms and the kitchens of these units. We put new flooring, typically wood laminate, although we're exploring other options right now throughout the entire unit. We will typically put in new cabinets with quartz countertops, stainless steel appliances. If we can get washer and dryers in, we do that because the incremental rent that you can get is a phenomenal multiple on the incremental investment.
If we can source it, supply constraint issues in the current environment have constrained this, but if we can get new double pane vinyl windows in, we will do that. That's always a feature that really makes a property feel new and fresh and contemporary. And then, you know, more contemporary paint schemes. We talked a little bit about how none of these assets have had any kind of professional management. Well, we bring that in. We actually enforce leases. If a tenant is being a nuisance or creating other kinds of issues, and not following the terms of the lease, we enforce that. And we find that the kinds of tenants who really try to game the system don't want to put up with a more institutional level of property management that we bring to our properties. We talked before about utilities pass through and RUBS. We always implement that on new leases. All of our property manager partners, we don't do the property management in-house. We always hire good third parties in the markets where we're at and they all are using technology. So there's app-based communications with tenants. Tenants can order maintenance requests through an app. They can pay rents through an app. They can talk to the resident manager through an app, just a very different business. It's not rocket science by any means, but it's very different than the way these mom & pops have been managing these assets.
This is standard operating procedure for any institutional quality manager, and it makes a huge difference in how an asset looks, and how it's operated compared to the prior ownership. And then lastly, once we've increased cash flow, we've turned a majority or all of the units, then we're looking at harvesting when that repositioning plan is complete, and that's either through a sale or through a refinance. I can't underscore the importance of being able to buy from an unsophisticated, a fragmented pool of unsophisticated owners. If you don't have these kinds of rundown properties in mass, in other markets where there is broad institutional ownership the way that you have here in Los Angeles, you don't. And it also means the way that you find these assets in any market, it's really hard to circumvent the brokerage community. We don't try to. In fact, we view the brokers as our partners. But as fragmented as the ownership is, it means that the brokerage network in Los Angeles is just as fragmented. So there are a couple of dozen brokers who we've worked with over the years, and they know us and they know that we will have their backs in a negotiation. We let them represent us so they actually can double end, it's called. They can get twice the commission by representing us as a buyer in a transaction as it was an institutional buyer who's bringing in their own brokerage relationship, which is typical in any other US market.
And so we don't do auctions. And auctions are somewhat rare in this marketplace, at least in the transactions that we bought, we have yet to buy an asset in an auction. If it starts getting into an auction situation, we share our underwriting with the broker. We tell them, "Here's our price. We're good for it", but we're not going to do a best and final and so forth. And if you put it under a contract with somebody else, good for you. If it falls out, three months from now, give us a call and hopefully we won't be working on something else. We've had five transactions out of our last seven were situations where we walked away because it had started to turn into an auction, and a few months later, it came right back to us and we closed on the price that we had set. So we have a reputation for, when we put something under contract, we close. We don't re-trade unless we discovered something new that was unforeseen and not disclosed to us or some circumstances changed. And we have the brokers back, we're honest. We only work with brokers who are really honest with us too. We view these as long term relationships and, you know, they're doing a service to their clients because there's so many flaky buyers.
It's a very competitive market even in the absence of institutional players. And so, we might have to look at 200 different transactions in order to close on ten. But the brokers know that when we put it under contract, we're going to close. We've got a very, I would say, sizable track record investing in apartments over the last 30 years. We've done 90 value-added apartment investments since 1995. It's over 15,000 rental units. Half of these were located in the greater Los Angeles area, and the other half, in virtually every other major US market, from Atlanta to Dallas to Phoenix to Portland. We've realized returns on 83 of these investments sold to date with returns in the mid twenties net to our investors. Southern California, though, have been by far the best performing subset of the portfolio. Across the US, I think, on 83 assets sold today, we generated a 26% net IRR to our investors. The portfolio, the Southern California portfolio, which accounts for about half of those, is closer to 30%. So why is that? Why has Southern California been our best performing market? And it's really the reason why we are primarily focused on Southern California right now. The answer simply is that, because of the dynamics that I described earlier, buying from a fragmented pool of unsophisticated mom & pop owners, and we have this huge cost advantage.
There's an asymmetrical risk reward proposition that you can get in Los Angeles, that you just simply cannot find in any other US market. And we speak from experience, in 30 years of investing nationally in this strategy. So let's look at the upside. The upside in any low cap rate market like Los Angeles can potentially be enormous if you know how to increase cash flow. So in a four cap market, which is generally what exists in Los Angeles and has been that way for a long time, for every dollar of cash flow that you're able to increase, you get a 25 fold increase in value. Huge, huge upside potential. But are there opportunities? Well, the answer to that is yes, because the ownership is fragmented across this huge pool of small mom & pop owners that don't know what they're missing. They don't realize their assets are underperforming, or they do realize it, but they don't care because they're keeping vacancy low. They're keeping their out-of-pocket expense low, and they're keeping their cash flow steady, which is rational. So abundant value-added opportunities in a low cap rate market for a manager like Paladin, who has a track record - a 30 year track record across almost a billion of assets increasing cash flow. There are ripe pickings here. Let's talk more importantly, I believe, is downside protection, which in LA is unparalleled in this sector, in this product type - apartments, compared to any other US market.
Why is that? As I said before, these smaller assets, low density assets are irreplaceable. They would not be feasible to develop today. Further, and more importantly, the cost advantage. Our all-in cost advantage - purchase price plus renovation budget is a 50% discount or more to the cost of new construction even if we were competing directly on a rental basis. So we have a huge cost advantage relative to new construction. You cannot find that discount anywhere else in any other US market where ownership is dominated by sophisticated institutional investors, because they will capture that loss to lease and the asset prices then will bid higher and get closer and closer. You don't have the kind of constraints on new supply, high land values, entitlement costs, litigation, all of that that create a much higher replacement cost here in Los Angeles compared to others. What I just described is perhaps the most chronically supply-constrained market in the US of any type of product type. What it's created is a permanent renter class here in Los Angeles. These are renters by necessity. The prospect of owning a home is unrealistic because of the high cost of housing here relative to incomes. And so they have no other choice but to rent. And that creates a resiliency of demand for Class B/C assets, which is where these renters by necessity live. They perform remarkably well during recession. Occupancy stays stable, sometimes even goes up as people move out of more expensive class A space into the more affordable Class B and C spaces that we own.
Rents dip - no market is immune, no submarket is immune to market forces and economic forces. And so in the last two downturns that we had - one, the recent pandemic downturn, and then the global financial crisis, rents went down in the class B/C space by about 10%, only to rebound by more than that amount - by 15% within a year or two. So these are among the most cycle resilient assets in terms of demand of any type of real estate in any type of market in the US. And as long as you conservatively capitalize these investments, which we do, and so you make sure that your capital structure allows your cash flow, even if rents come down 10% and occupancies shift a little bit, you can still pay your debt service, and you don't have interest rate risk and you don't have loan maturities that are coming due in the middle of a business plan. It's hard to, I don't want to say it's hard to lose money without knocking on wood. But we have yet to lose invested equity here in Los Angeles. It's been one of our most successful markets. We've been a fiduciary to institutional capital for three decades. Some of the largest pension funds and institutional investors in the world are our clients. As a result, you have to have a highly disciplined investment process if you're going to be a fiduciary and a custodian to institutional investors.
The level of transparency and reporting that they require, it's just light years above what most individual investors, or even a mom and pop would be looking at. We've been praised by some of our institutional clients for having truly best in class reporting. Some of them actually use them as templates. I think the second feature that sets us apart in the institutional community is that we are a sharpshooter in our markets. We really have two businesses all focused on workforce housing. We develop workforce for sale housing down in select markets in Latin America, and we buy, renovate and reposition rental workforce housing here in Southern California. And I think the third and final thing that would set us apart, particularly from the local players, is our track record that I mentioned. Not just the overall performance, which proves Paladin's ability to add value, but the scale of our track record. And, you know, over 800 million of assets, over 15,000 units, 90 separate investments, 83 roundtrip - that makes us a uniquely strong buyer in this marketplace, and it's one of the reasons why brokers have been able to steer transactions to us and we're able to get them under contract without them going to a broader auction, because we're perceived as the strongest buyer of a relatively small pool here.