We often get asked, what is so unique about the SoCal apartment market? Is it unique, compared to other US markets? And the answer is - the simple answer is yes. And why do we say that? We've been investing in apartments all across the US for over 30 years. We have invested in over 15,000 apartment units, nearly $1,000,000,000 of total cost. Half of these were in Southern California. So I think we have a pretty unique perspective from this breadth of experience and of all the strategies that we've pursued at Paladin across three decades of investing throughout the Americas, the workforce rental housing strategy in Southern California has been among the most cycle resilient strategies that we've ever pursued to date.
What do I mean by cycle resilient? What I mean is, in good times, it means there's exceptional value-added upside potential, almost development - the kinds of returns you would earn on development projects, but without the risk of development. And more importantly, during recessions, it means stable occupancy and durable, even growing cash flow. For investors who are seeking more defensive strategies today, appropriately, given the uncertainty that's in the world and whether it's the US economy or the global outlook, we would put our SoCal apartment strategy up there with any other defensive strategy as one of the more compelling opportunities worth considering today. So, let's talk a little bit more about the SoCal apartment market and what sets it apart.
There are several attributes that SoCal has that set it apart from other US markets and importantly, which make it a very attractive place for value added investors like Paladin to focus. There's three main reasons that set this SoCal market apart. One is, there's relatively little competition among institutional investors like Paladin, which is unusual. Not think that would be the case. But what it does mean is that we can avoid costly auctions when we buy assets that tend to push prices up and drive down profit margins and returns. The lack of institutional ownership also means there is an abundance of value-added opportunities here in Los Angeles. There's literally thousands of these older, tired looking, underperforming apartment properties all across Los Angeles with current rents that are 20%-30% or more below market. That discount, that we've talked about in other videos is called the loss to lease. That's exactly the property profile we look for. And these and other factors create the third distinct attribute of this market, which is an asymmetrical risk reward proposition, meaning you get attractive upside in both good times and during downturns, but you have strong downside protection on invested equity during downturns. All of this gives Paladin, an institutional investor with strong backing and competitive advantage, in this particular market that is truly unique compared to other markets.
Very few firms, like Paladin, active as we are in this market. So let's drill down a little bit deeper on all three of these attributes. The first is, why are there so few institutional players in Los Angeles? You would think that apartments have been, probably one of the most desirable product types for real estate investors nationwide. Very attractive cash flow characteristics, good inflation hedge, good long-term appreciation potential. Lots of reasons why apartments have been at the top of the list. And there are hundreds of institutional investors like Paladin focused on apartments all across the US. And you would think that Los Angeles, which is one of the largest, most dynamic markets in the US, 10 million people. We're the 19th largest economy in the world. If LA were a nation, you would think there would be hundreds of firms like Paladin competing for deals in this market, right? But there aren't. And why is that? I often get asked that, and here's why. The reason is, LA's rental housing stock was built out right after World War II. It was done when land was cheap. It was plentiful. The typical apartment building reflects that. It's a low density, typically two- story walkup with a courtyard or a pool, if it has any amenity at all. They tend to be smaller assets. 85% of the rental housing stock here in Los Angeles is 50 units or less.
They tend to be older assets. As I said, mostly built out after World War II. 90 plus percent is 20 years or older. So it's mostly what you would call Class B, class C assets. The preponderance of these smaller assets means that the apartment market here is just simply too management intensive for most institutional investors. You need to acquire ten times as many buildings in Los Angeles, if the typical size is 30 units, as you would in Atlanta, Phoenix or Dallas, where the typical size is 300 units. And so that's where the institutional capital is focused. It's in the markets where there are larger assets and it's easier to achieve scale. In Los Angeles, it's simply too management intensive for most institutional investors. And so what does that mean when you have fewer institutional players in a market? It means that the apartment market here in Southern California is mostly dominated by a large fragmented pool of smaller, unsophisticated investors, what I call "mom and pop owners". Most don't realize their assets are underperforming in the market. Most view rent control as a nightmare rather than an opportunity, if you understand the regulations. Most don't have the knowledge or the financial resources or even the desire to invest in their properties to optimize value. In fact, they would rather keep capital investment to a minimum, unit turnover, which costs money to replace carpets and cabinet and so forth.
Keep that to a minimum. And that's a totally rational objective for many individual investors, these mom and pop investors. But that's what leads to the second unique attribute of this market, which is, it creates an abundance of value-added opportunities. In short, the lack of institutional competition, the lack of sophisticated investors like Paladin, who know how to increase cash flow, know how to maximize the market potential of an asset, creates the opportunity for us. Because if you drive around Los Angeles, you will see the opportunity everywhere. There are thousands of tired, rundown properties. Current rents well below market. It's clear that they've been poorly managed. These are exactly the assets that we target. Older Class B, class C assets, low density, two story walk ups, typically 20 to 50 units with a 20% to 30% loss to lease. This unique combination of upside potential, this value-add opportunity that exists, combined with downside protection that you cannot find in any other market is what creates the third unique attribute of the workforce housing market here in Southern California. It's this asymmetrical risk/reward relationship. So let me dive a little deeper into this. Upside potential can be astonishing in this market. I've done other videos that focus on the value of investing in low cap rate markets. But when you take a huge pool of abundant value added opportunities, poorly managed, tired, rundown apartment buildings and the fact that you're buying on a negotiated basis, meaning avoiding auctions from a fragmented pool of mom and pop sellers who don't really know what they have, and the untapped potential with a 20% to 30% loss to lease.
If you know how to capture that loss to lease, which we've been doing for 30 years, in a supply constrained gateway city, with a low cap rate market like Los Angeles, the rewards can be hugely disproportionate for value-added investors. For every $1 of cash flow you can increase in a 4 to 5 cap rate market like we have here in Los Angeles, that produces $20 to $25 of value. So the upside potential in a low cap rate market, like Los Angeles, can be huge. But it's the downside protection that really sets LA apart because there's a lot of markets in the US that have priced themselves down to low cap rates. They won't remain that way forever. But, it's the downside protection that the SoCal market offers that's truly unique. These older class B,C assets that we target are truly irreplaceable. They would not be possible to develop today given the lack of developable land and the huge barriers to new construction that exist. So, we end up having a huge cost advantage, relative to new construction.
It's very typical for us to be in at 50% discount to replacement cost or more even after we've completed our renovation plans. You can't find that kind of discount in other US markets where the ownership is much more competitive because it is dominated by sophisticated institutional investors, where auctions are the norm. So, the cost advantage is one huge attribute. Secondly, because we're in one of the most chronically supply constrained housing markets in the US, we are able to target a different kind of renter than most other US markets. It is often described as a permanent renter class, here in Los Angeles. It's a renter by necessity who have no other affordable housing choices available to them. They've been priced out of homeownership and the only affordable options to own a home result in a several hour commute each way. And so what the Class B, C apartments, that we target, provide is essentially an essential need in this marketplace. It's workforce housing located near the jobs. And, we're able to offer that at rents that are half of new construction. So the demand for our assets is resilient. Even during downturns, they stay filled. Always stay filled during recessions. We have not had, unless we have been trying intentionally to drive up vacancy in order to turn over units and rent them at higher rents. Our assets will be 98% occupied during a typical recession.
And lastly, because we target this permanent renter class and because of the huge loss to lease, this discount between market rents and current rents that we target, we have pricing power to raise our rents at our properties even if we're in a downturn and market rents come down. So we've got a 30% discount and market rents come down by 10%, we're still at a 20% discount. We still have a huge loss to lease. So if we get a unit, at below market rent, existing tenant moves out, they lose their job and they move out or for whatever reason, we can raise the rents up to here. So, you end up with resilient occupancy, you end up with resilient cash flow and you actually have the pricing power to raise rents if you get any turnover during a downturn. So that's what sets LA and SoCal as a whole apart from virtually every other US market. There's very few institutional players. The market here is dominated by smaller mom and pop owners. As a result, there is an abundance of value-added, underperforming assets that create opportunity for investors like Paladin. And because of the factors we talked about, there's an asymmetrical risk/reward relationship where you can get returns that are almost consistent with new developments, but without the risk and with unparalleled downside protection as long as you capitalize investments conservatively, which we do.