Normal Heights apartment complex sold

By JAMES PALEN, The Daily Transcript

Thursday, July 14, 2011

The lender-owned apartment complex at 4963 35th St. in the Normal Heights neighborhood of San Diego has sold for more than $1 million cash.

Apartment Realty Group represented the seller, 4639 35th Street LLC, which, according to ARG Managing Director James V. Carter, was the San Diego-based private lender that took possession of the property around four years ago. ARG procured more than 10 written offers on the 5,500-square-foot, eight-unit property before closing escrow with the all-cash buyers, Gerald G. Gossman and Rose M. Gossman, for $1,087,500.

Built in 1962, the complex contains six two-bedroom, one-bathroom units and two one-bedroom, one-bathroom units.

Carter spearheaded the sale, while Don Warfield of Donald Warfield & Associates represented the buyer.

Source: San Diego Source The Daily Transcript 

Rents Rise, Vacancies Go Down

By WESLEY LOWERY 

July 7, 2011

Apartment landlords are enjoying rising rents and falling vacancies.

The average effective rent, the amount paid after discounting, was $997 in the second quarter of the year, up from $974 a year earlier, according to a report scheduled for release Thursday by Reis Inc., which tracks leasing data for 82 markets. Second-quarter rents rose in all but two markets.

Rent levels rose fastest in San Jose, Calif., to $1,501 in the second quarter. The average effective rent in San Francisco was $1,806; Wichita, Kan., $495, and New York, $2,826.

Vacancies, meanwhile, fell in 72 of the 82 markets during the second-quarter vacancy rate to 6%, the lowest since 2008 and compared with 7.8% a year earlier, according to Reis. Vacancies declined fastest in Charleston, W.Va., Greensboro/Winston-Salem, N.C., and Richmond, Va.

"Rising rents and falling vacancies are the perfect situation for landlords," said Rich Anderson, an analyst for BMO Capital Markets. "It's like drinking without the hangover."

But there were some cautious signs in the data. Landlords filled a net 33,000 units in the second quarter, a slowdown from the 45,000 units they filled in the first quarter. That was somewhat surprising because typically, the net "absorption" rate falls faster during the summer as college graduates leave campus and descend on cities in search of jobs. Some analysts said the slower absorption rate could be linked to slower job growth, although it is too soon to know for sure. The peak apartment renting season runs from May to September.

"When you're going from big numbers and getting gradually smaller it's tough to determine if things are in fact cooling," says Haendel St. Juste, an analyst at Keefe, Bruyette & Woods.

Meanwhile, supply remains constrained. Roughly 8,700 new apartment units opened during the second quarter, the second-lowest quarterly tally for new completions since Reis began collecting data in 1999.

But there is new construction in the pipeline. The CoStar Group, a Washington, D.C.-based real-estate research firm, expects about 22,500 units to be added this year, followed by 94,600 in 2012 and more than 109,000 in 2013.

But as long as employers keep adding jobs to the economy, analysts say, they expect vacancy rates to keep falling and rents to keep rising. "Barring some unexpected shock from the global economy, we expect the recovery to continue through 2011," Reis wrote in the report. "Vacancies should continue to decline while rents rise at an even faster pace than we observed in the first half of the year."

Source: The Wall Street Journal

 

Apartment Market Pushing toward 6 Percent Annual Rent Growth

By Joshua Pringle, Online News Editor

Jun 30, 2011

Dallas–Axiometrics Inc., a multifamily data and analysis providor, released a research report today that shows the national apartment market continuing to heat up in May, with effective rents (rents net of concessions) increasing 0.7 percent from April levels. Axiometrics estimates that effective rents will rise 5.9 percent in 2011, which would be the largest annual increase since a rate of 5.8 percent in 2005.

Year-to-date, effective rents nationally have risen 3.17 percent, as compared to 2.55 percent in 2010. Top performing submarkets for annual effective rent growth in May included San Jose (13.0 percent), San Francisco (9.7 percent), Austin (8.7 percent), Seattle (8.5 percent), Boston (7.4 percent) and Dallas (6.5 percent).

Axiometrics President Ron Johnsey says, “With year-to-date increases in effective rents, and continued strong occupancy levels, renters who are able might be wise to sign longer term leases as property owners in most markets will maintain pricing power at least through the rest of 2011.”

Additionally, the national occupancy rate increased for the 12th time in the past 16 months, rising from 93.3 percent in April to 93.96 percent in May. From January through May 2011, the occupancy rate has increased 86 basis points (bps), which is below the rate of 136 bps for the same period of 2010. Axiometrics says that the slowdown in absorption can be attributed partially to the increase in effective rents year-to-date. But occupancy in May was still above the previous peak of 93.5 percent reached in August 2008.

From May 2010, eight major markets increased occupancy by more than 100 bps and have rates above 95 percent: New York, Minneapolis, Austin, San Jose, Cleveland, Orange County, Chicago and Denver. Some of the most overbuilt markets are recovering rapidly as well. Six major markets that had low occupancy rates in May of 2010 have increased their occupancy levels between 142.5 and 333.4 bps: Charleston, Charlotte, Dallas, Orlando, Phoenix and Houston.

Source: Multi-Housing New Online

Multifamily market limps forward; small uptick seen in rents

By ANDREW KEATTS, The Daily Transcript

Friday, June 24, 2011

 

 

The news isn’t all good in San Diego’s multifamily housing market, but it’s better than in many other markets, and it’s only going to improve, according to a panel of local experts.

The San Diego chapter of the California Apartment Association hosted a panel discussion on the state of the local multifamily market on Thursday, with panelists essentially saying, “Things could be a lot worse.”

Rents here are expected to increase between 2 and 4 percent this year on an annual basis, according to Darcy Miramontes, executive vice president of Jones Lang LaSalle.

That would lead to more pronounced growth in 2012 and 2013, she said, citing a Moody’s estimate of rent growth in those years approaching 5 percent. Even if that estimate is a bit aggressive, property owners can be sure rent growth wouldn’t fall below its 2011 level.

Renters who’ve moved in with family members during the lean years of the recession are expected to uncouple and look to live on their own again, according to Nathan Moeder, principal of London Group Realty Advisors. Since there’s been virtually no new projects delivered to the market recently, those renters will put upward pressure on rents.

“Even if only 20 percent of the people who’ve doubled and tripled up return to the market, that’s still a significant amount of demand,” he said.

Josh Harnett, senior manager of asset management for Irvine Company Apartment Communities, marked Escondido and Carlsbad as markets poised for an uptick in traffic and leasing, leading to rising rents.

He expects Torrey Hills to continue as one of the region’s strongest markets, but said Mission Valley will see the biggest year-over-year increase in rental rates.

North County beach markets are expected to remain the tightest in the region, Miramontes said, pointing to the area’s comparatively low 3.7 percent average vacancy rate.

She added that the vacancy rate downtown is artificially high. More than 600 units came into the market at the same time, due to the Vantage Point building, skewing the statistics.

The only large-scale project of note on the horizon is Sudberry’s Civita in Mission Valley, the three panelists agreed.

The master-planned community just north of Friars Road will bring nearly 5,000 housing units to market. After being discussed for more than a decade, it broke ground earlier this year. Two townhouse buildings by Shea Homes, and an apartment complex by Sudberry are scheduled to be delivered this year.

Other than Civita, the only other projects breaking ground are for affordable housing, according to Moeder.

“There’s just not a lot of inventory we’re going to see built immediately,” he said.

Small investors looking to purchase apartment buildings in the area are learning they need to get farther away from San Diego to find deals that make financial sense, according to Moeder. Some are now looking as far as El Centro.

But San Diego is largely seen as a safe market, and multifamily units in general are seen as a safe investment nationwide, he said.

Miramontes said investors like that San Diego development is constrained by its three physical borders, Camp Pendleton, Mexico and the Pacific.

“Investors like that, because it helps keep the area in check,” she said. “During the darkest part of the recession, San Diego wasn’t going too bad.”

Driven by the cost of debt the current state of capital markets, cap rates are low, according to Miramontes.

Roughly speaking, she said core, A-level product carries a 4.5 percent cap. That’s closer to 5 percent for class B, and it ranges widely after that. Class C could be anywhere from 5 to 7.5 percent.

“It depends on the individual story, and the position you want to take it to,” she said.

The apartment market fared far better than the for-sale housing market during the recession, according to Moeder. It’s currently down 4 percent from its peak, while the housing market remains 20 to 30 percent lower than its peak years, he said.

Diversity in San Diego’s employment market allowed it to fare better as well, he said.

Victims of foreclosure ended up in the rental market, according to Harnett, softening the effect of the downturn on the multifamily market.

Moeder said cities in the county are much more approachable when it comes to entitling projects.

“You can get the cities’ ears these days,” he said. “You can go back to the city and re-entitle for more economic uses. They’re interested in asking what they can do to revive a project.”

But he was highly skeptical that SANDAG’s estimations that 85 percent of new home construction will be multifamily. Historically, 60 percent of the county’s housing has been single-family homes.

“You can’t force people into that product,” he said.

Source: The Daily Transcript 

Survey: County has lowest apartment vacancy rate in nation

By THOR KAMBAN BIBERMAN, The Daily Transcript

Thursday, June 23, 2011

 

A new PricewaterhouseCoopers and Reis Inc. investor survey states San Diego has the lowest apartment vacancy rate of any major metropolitan area in the country and even has a strengthening office market.

The investor survey report subtitled "Optimism Prevails Despite Economic Unease" said the average apartment vacancy rate here was 3.9 percent during the first quarter of 2011 -- a full percentage point stronger than the 4.9 percent recorded during the like period a year earlier.

The 3.9 percent figure was stronger than all other major metropolitan areas surveyed. It was followed by Los Angeles at 4.5 percent and Baltimore at 4.7 percent, according to the survey that examined 18 of the largest metropolitan areas in the United States.

The survey said San Diego County's apartment investment market is in a strong recovery period for this year and next and will see a significant growth in demand in 2013 and 2014 -- likely fueling significant construction in those years.

San Diego's MarketPointe Realty Advisors has reached similar conclusions, but placed the average vacancy rate at 5.06 percent as of the end of March, with a 5 percent level considered to be ideal by the industry. Even at that, San Diego would still rank among the top five apartment markets in the country.

The PricewaterhouseCoopers report said the county absorbed 446 rentals in the first quarter of 2011, compared to 679 units in the fourth quarter of 2010 and 422 in the first quarter of 2010.

The report didn't stop at apartments. It said San Diego's office market, while decidedly less impressive, demonstrated some surprising strength during the first quarter of the year.

"Strengthening economic conditions, positive net absorption and a decline in sublease space are creating momentum in the San Diego office market," the report states.

The report adds that the technology services, hospitality, and education/health employment sectors are showing signs of growth in San Diego.

"In particular, the biotechnology and renewable energy sectors are attracting attention from venture capitalists, leaving these sectors poised for near-term expansion," the report continues.

It also helps that the unemployment rate has been on a slow but steady decline, currently at 9.6 percent, according to the state Employment Development Department.

The office vacancy rate tightened by a full 100 basis points to 16.8 percent year-over-year in March, according to Cushman & Wakefield. The amount of sublease space declined by 26.2 percent, while the total net absorption increased by 17.3 percent during the same one-year period.

Not everything is as office landlords would wish, however.

"The leasing market is remarkably slow for owners marketing 2,000- to 10,000-square-foot spaces," describes a survey participant.

That hasn't stopped landlords from seriously considering significant rent increases to augment their balance sheets.

"Further evidence of investors' optimistic outlook for this market is the growing use of rent spikes. The percentage of surveyed participants using rent spikes in their cash flows rose from 60 percent to 80 percent over the past three months," the report said.

San Diego's office market is presently in a recovery mode that will strengthen in 2013 and 2014, according to the report.

Retail is a mixed bag. Although many formerly empty large retail boxes continue to be refilled by such retailers as Kohl's, Best Buy, Dick's Sporting Goods and Discount Tire, the PricewaterhouseCoopers report said the retail market is still effectively in recession here and will continue to be so through next year. The report is projecting a retail recovery happening in San Diego County in 2013 and 2014.

Nationally, the report says stabilized real estate investment trust retail assets are faring the best in this economy, though malls have had their troubles. While there are many high-quality assets, few high-quality retail properties are being placed on the market -- at a time when "a flood of lower quality malls are being offered for sale ..."

In one case, Fashion Valley mall owner Simon Property Group (NYSE: SPG) has placed four malls for sale in Florida and Tennessee that have an average age of 27 years. What's more, it has been an average of 13 years since a major renovation occurred at the malls.

Power centers have been trading. In one of some 70 power centers that have traded thus far this year, Rancho Bernardo-based Excel Trust acquired the 325,431-square-foot Gilroy Crossing in Gilroy for about $210-per-square foot.

Source: The Daily Transcript

 

5 signs a Craigslist rental listing is fake

By Lily Leung

5:24 p.m., June 10, 2011

Screenshot of the Craigslist landing page for San Diego, taken June 10, 2011.

You're on Craigslist looking for a rental. As you're skimming listings in the $2,000 range for one particular area, you suddenly see one for $1,200 a month.

Too good to be true? In many cases, yes.

Real estate agents and property managers in San Diego County come across scammer listings on Craigslist and other websites from time to time. What usually happens is someone lifts the information from an existing sales or rental listing and makes a duplicate featuring a drastically lower price and different contact number.

Sometimes, the scammer asks respondents for cash up-front or an application with their Social Security number and other sensitive information -- then never follows up. The ads often are taken down after the consumer inquires about the status of the transaction, agents and property managers say.

Century 21 Award agent Nancy Beck, who specializes in University City properties, came across this just three months ago. Someone cloned one of her sales listings in that area, taking everything from the specs to property photos. What changed was the home's price and its status from a sale to a rental.

"People would call me after seeing my listing for a super-low price," Beck said. "It would create a frenzy, and people would drive by the listing, see that it was for sale" and follow up with a phone call to Beck.

"That's how I became aware," said Beck, who went through two other similar incidents within a year.

The Union-Tribune talked to Kayla Roeder, vice president of Cambridge Management Group in San Diego, who shared some signs that a rental listing is likely a scam.

The person renting out the property:

1. Does not have the keys to the home and cannot show it to you.
2. Doesn't do credit checks.
3. Deals only in cash, which makes fraud untraceable.
4. Tells you to fill out an application without letting you see the home first.
5. Lists the property at a price that's drastically lower than those of comparable homes in the area.

What others are saying:

This is a terrible scam. (Renters) go out to properties thinking they're going to get something for $1,000, and they're disappointed when they don't.

--Marilyn Lewis, office manager at Park Place Realty & Asset management in San Diego, who's recently come across cloned listings of her company's properties.

These scams drastically reduce the rent and make the rentals way below market value. People are not thinking with their heads and instead with their wallets. They have this need to snap (the deal) up. It's out of desperation.

--Jennifer Newton, president of Walters Home Management in San Diego.

Craigslist did not respond to a request for comment.

Some agents and managers said they normally flag the cloned listings, and they're usually taken down within a timely manner.

Source: SignOnSanDiego

Quote of the day: California's housing market

By Lily Leung

6:37 p.m., June 13, 2011

A year ago we were talking about sales reaching a four-year high as buyers rushed to take advantage of expiring federal homebuyer tax credits. Now sales are stuck at a three-year low. The government stimulus is long gone and some of the fundamental drivers of housing demand have yet to strengthen enough to lift sales to even average levels. Some of the key culprits are weak job growth, tight credit and a hesitancy among potential buyers and sellers, who question whether this is the best time to make their move.

 --John Walsh, president of San Diego-based DataQuick Information Systems, which culls and analyzes real estate data.

Source: SignOnSanDiego

Quote of the day: mortgage rates down, again

By Lily Leung

4:50 p.m., June 9, 2011

Long-term Treasury yields moved lower following a weak jobs report and mortgage rates followed suit. The economy added 54,000 jobs in May, the fewest in eight months, and factories cut payrolls for the first time in seven months. As a result, the unemployment rate rose to 9.1 percent, representing the highest rate since December.

Frank Nothaft, the chief economist of Freddie Mac, on this week's average mortgage rates, which fell to their lowest levels this year.

The 30-year fixed this week was 4.49 percent, down from 4.55 percent last week. A year ago, it averaged 4.72 percent.

The 15-year fixed this week was 3.68 percent, down from 3.74 percent last week. A year ago, it was 4.17 percent.

Source: SignOnSanDiego

Rental Demand Brightens Dark Housing Outlook

By Jann Swanson

Jun 7, 2:31PM

The gloomy picture painted by The State of the Nation's Housing report released yesterday by Harvard's Joint Center on Housing Studies has but one bright spot - the improving rental housing market. 

On virtually every other level it appears that a housing recovery is still months if not years away. Rather than leading the country out of the recession as it has done in prior downturns, the housing industry is holding back economic growth. The report details a number of housing areas where, rather than the outlook improving as the economy began to pick up, things actually got worse.

First of all, household growth has dropped precipitously since 2007.  In the four years since, an average of 500,000 new households have formed each year compared to the 1.2 million annual pace averaged between 2000 and 2007.  This is even more disheartening as the "echo boomer" generation, those born after 1986, is the largest generation in our history to reach its 20s, peak household formation years.   Instead of forming households, many in this age group have stayed in or returned to their parents' homes.  At the same time, for the first time in decade the rate of immigration as slowed.  From 2004 to 2007 the number of new households headed by foreign born citizens increased by 200,000 per year but since 2007 the number foreign-born non-citizen households have declined by the same amount. 

The rental and the homeowner market have diverged.  There has been a net shift of 1.4 single family homes from owned to rental property between 2007 and 2009, almost twice as many as in the previous two year period.  Still, rental vacancies are down, dropping from about 3.5 million to less than 2 million between 2009 and 2010, and rents have begun to move up.  At the same time homeowner vacancies, which dropped from over 9.5 million in 2008 to about 7.8 million in 2009 has declined only fractionally since even though new home construction has slowed considerably and banks appear to be holding large numbers of foreclosed homes off of the market.  Still, housing prices, unlike rents, have resumed their decline. Unusually large numbers of households are switching from owner to renter and the ownership rate has fallen from 69 percent in 2004 to 67 percent in 2010.  The report says that the continuing foreclosures and reluctance on the part of owners to buy as long as prices are unstable will cause home ownership to continue its decline through 2011. 

The Harvard report cites a Fannie Mae study showing that while attitudes toward homeownership have become more negative over the last few years, 74 percent of renters and 87 percent of the general population still view homeownership as safe investment.

While many households aspire to homeownership, tightened underwriting standards may stand in their way and the report speculates that the proposed 20 percent down payment requirement for qualified residential mortgages could sharply curtail homeownership unless the borrower obtains a government guarantee.  "Over the longer term, it is unclear how the impending reform of the housing finance system, (...) will influence the cost and availability of mortgage loans.

The number of rental households accelerated in the second half of the last decade, swelling by an estimated 3.9 million between 2004 and 2010 but rental vacancy rates increased and rents fell during the same period as new units were added and homes were converted from ownership to rentals.  In 2010, however, the rental market moved into high gear and the vacancy rate dropped from 10.6 percent to 9.4 percent over the course of the year.  MPF Research reported vacancy rates below 5 percent in almost one third of the 64 markets it studied and more than half had rates below 6 percent.   As vacancies declined, rents rose.  Rents in professional managed apartments were up 2.3 percent last year with most of the growth in metropolitan areas.  As employment grows, especially among younger persons, and homeownership continues to decline there will be pressure on the rental market, pushing rents up and encouraging multi-family construction.   Given the time line for new construction, however, rents are likely to remain tight in the short term and will present increased affordability challenges for low-income renters.

There is much uncertainty in the market regarding access to mortgage credit, home buying attitudes, immigration trends and laws, and household formation, but there is certainty about some factors related to demographics.  It is known that the aging baby boomers will drive up the number of older households by some 8.7 million by 2020.  This tends not to be a mobile population and will provide "ballast" for the owner market, offsetting in part the lower homeownership rates among younger households.

While the senior population is likely to age in place, if boomers follow the pattern of the preceding generation some 3.8 million will downsize their homes over the next ten years, lifting demand for smaller housing units and having a major impact on the housing markets in preferred retirement destinations.  The large pre-boomer population will create a similar demand for assisted and independent living developments.

The echo-boomer generation will have a less predictable impact on housing markets.  There are questions involving their homeownership attitudes and the net impact of immigration.  There is reason to believe that this generation will be large enough to boost household formation and the demand for starter homes and apartments.  The report states that if household formation (headship) rates return to their pre-recession average and if immigration is just half of what the Census Bureau projects, the number of households under age 35 will grow to nearly 26.5 million in the next decade.

Affordability is another challenge facing the housing market.  In 2009 10.1 million renters and 9.3 million owners paid more than half their income for housing.  While this hits low-income households the hardest, households with incomes under $15,000 pay over 80 percent of their incomes for shelter, the cost pressures have been moving up the income scale.  Households earning $30 to $45 thousand increased the proportion of their incomes spent on housing from 30 percent to 40 percent over the ten year period ending in 2010.

The recent crash has wiped out household wealth, ruined credit ratings and devastated communities with foreclosures and has left nearly 15 percent of homeowners in homes that are "under water".  This has reduced the amount that owners can cash out of their homes by selling or refinancing.

The report concludes by saying that the strength of the housing recovery, when it does finally occur, will depend on how fully employment bounces back, and then local markets will revive in proportion to the increase in jobs, the depths housing fell during the recession, and the amount of overbuilding that occurred before the downturn.  But the most critical factor for housing recovery in the resumption of household growth and it may be that the unemployment rates on top of the long-term housing affordability issues may have lowered the baseline trend of household growth itself.  "To match the 1.12 million annual rate average in the 2000s, household formation rates must return to their 2007-2009 average and net immigration must reach at least half of Census Bureau projections," the report says.

In the near term it will be rental markets that are likely to lead the housing recovery, but once consumers decide that a floor has formed under house prices, their reentry into the market could quickly burn through the lean inventory of unsold new homes and reduce the excess supply of existing homes on the market.  There is also the danger that government programs to address rent affordability and assisting distressed neighborhoods will feel the budget axe just as affordability problems are escalating.

Related MND comments....

From: HUD Focused on Rebuilding America's Dilapidated Housing Inventory

"Take note of HUD-sponsored initiatives aimed at rebuilding America's dilapidated housing stock." says MND's Managing Editor Adam Quinones. "This is where housing professionals will find the most opportunity in years ahead.  The FHA should reopen the 203(k) program to investors if they want to encourage private investment in the U.S. housing market."

From: Home Remodeling a Forward Indicator of Housing Bottom?

"With so many foreclosed properties sitting empty on the market we can expect remodeling and rehabbing to be a leading indicator of a bottom in the housing market", says MND's Managing Editor Adam Quinones. "We already know there is dearth of affordable rental housing available to low income renters. From that perspective, FHA should open its 203(k) program to investors if they want to accomplish their affordable housing goals."

Source: Mortgage News Daily

Unemployment Falls in 39 US States

Published: Friday, 20 May 2011 | 11:46 AM ET 

By: AP

Unemployment rates fell last month in more than three-quarters of nation's states, evidence that companies are feeling more confident in the U.S. economy.

The Labor Department said Friday that unemployment rates dropped in 39 states in April. That's an improvement from March when 34 states had reported decreases. Rates rose in three states and the District of Columbia. They were unchanged in eight states.

Employers added workers in 42 states. Only eight states and the District of Columbia lost jobs last month.

Nationally, businesses have added more than 250,000 jobs per month, on average, in the past three months. It's the fastest hiring spree in five years. The unemployment rate has dropped nearly a full percentage point since November. Still, it remains very high at 9 percent.

New York added 45,700 jobs in April, the most of any state. It was followed by Texas, which added 32,900 jobs, and Pennsylvania, which gained 23,700 jobs.

Michigan lost 10,200 jobs, the largest decline of any state. Minnesota lost 5,200 jobs and South Carolina shed 3,800 jobs.

Nevada reported the biggest monthly drop in unemployment among all states. Despite the decline, unemployment in Nevada was 12.5 percent, the highest in the nation. New Mexico and Oklahoma reported the next biggest monthly decreases.

North Dakota had the lowest unemployment rate of any state at 3.3 percent. It has benefited from oil production, which is among the state's top industries.

Other states with low unemployment rates were Nebraska, New Hampshire and South Dakota.

By region, the Northeast had the lowest unemployment rate at 8 percent. The Midwest's unemployment rate was 8.1 percent, followed by the South, 8.8 percent, and then the West, 10.4 percent.

The West region includes California and Nevada, two of the states hit hardest by the foreclosure crisis.

Source: CNBC

Apartments to Rise on Site of Failed San Diego Condo Development

May 31, 2011

By Dees Stribling, Contributing Editor

San Diego–Alliance Residential Co. has acquired a 1.3-acre development site in the Little Italy district of downtown San Diego and is planning 201 apartment units for it. The property will be five stories atop three levels of parking, and the design will also incorporate six brownstone-style units along the residential street frontage on Fir Street. Construction is slated to begin later this year.

The development will feature studio, one- and two-bedroom units, available with dens or lofts. Unit amenities will include wood-plank style flooring, stainless steel appliances, granite countertops, full-sized stacked washers and dryers, oversized tubs, walk-in closets and private balconies.

Common amenities will include a residents’ club, business center, resort-style pool with spa courtyard overlooking San Diego Harbor, a fitness center, and digital gaming and screening room. Also, the streetscape will be improved with a piazza, offering water features, public art and café-style seating.

The site was originally entitled for a 247-unit high-rise condominium development, but the seller was unable to break ground due to a dearth of financing. Phoenix-based Alliance is capitalizing on the existing zoning—which allows for a high-density, mixed-use residential development—by building an apartment property with 9,000 square feet of ground-floor retail space, branded under the Broadstone community name.

As in most markets nationwide, apartments are far more viable in San Diego than for-sale multifamily developments. In fact, the fundamentals for San Diego apartments are quite strong.

Investment specialist Marcus & Millichap predicts that by the end of 2011, San Diego apartment vacancies will be 3.4 percent, or 50 basis points below the long-term average. The company is also predicting that asking and effective rents will rise 3.9 percent and 4.6 percent, respectively, during this year.

Source: Multi-Housing News Online

Downtown hotel, in bankruptcy, sells for $49 million

By Lori Weisberg

Originally published May 26, 2011

The upscale Sè San Diego, mired in bankruptcy for nearly a year, has been sold for $49 million to Kimpton Hotels, a well-known operator of boutique properties throughout the U.S.

Proceeds from the sale, approved in U.S. Bankruptcy Court this week, will fall far short of what is owed not only to the original lender but also to a number of creditors, including the construction company and sub-contractors who worked on the $150 million project.

The debt owed by the owner, 5th Avenue Partners, was estimated to be between $50 million and $100 million when it filed for bankruptcy in June of last year. At the time, the company owed its German-based lender, WestLB, about $73 million.

When the hotel sale went to auction earlier this week, there were no other prospective buyers who outbid Kimpton, which also operates the Hotel Solamar in downtown San Diego.

The price paid for the Sè is clearly in line with recent purchases of high-profile properties in San Diego, including the 258-room W hotel, which recently sold for $56 million. Included in the sale are the hotel's 23 unsold condominium units and the attached House of Blues.

"The fact that it includes condos is a big plus for the buyer," said Alean Reay, founder of Atlas Hospitality Group. "And with a company like Kimpton that’s extremely well known in the boutique hotel brand, they can add tremendous value because they have a good following for their hotels in San Francisco, Los Angeles and the East coast.

"Eighteen months ago, I would have said $49 million is a very high price but today it’s a fair number and over the long term it’s a great investment for Kimpton.

Kimpton Hotels declined Thursday to comment on the acquisition.

The hotel sale is expected to close within the next week, but distribution of the proceeds remains a hotly contested issue, acknowledge attorneys representing the owner and the creditors.

Although $21 million was set aside for those holding liens against 5th Avenue Partners, that figure could change depending on the outcome of litigation by a number of creditors seeking reimbursement. Among those trying to recoup money is Highland Partnership, the general contractor on the Se hotel project.

"We are pleased that there is a pot of cash available to those creditors who will be able to establish that their liens have priority," said attorney Ali M.M. Mojdehi, who represents the creditors committee. "The outlook for creditors without liens is not bright, given the magnitude of secured bank debt in this case."

Attorney Marc Winthrop, who represents 5th Avenue Partners, explained that for now, WestLB is entitled to roughly $28 million, which represents the balance of funds beyond the $21 million being held in escrow. Also still to be paid are back hotel room and property taxes owed prior to the filing of bankruptcy, Winthrop said.

"The owner of the property borrowed a lot of money from WestLB to build the hotel," Winthrop said. "The contractors are entitled under state law to file liens if they’re not paid, and there are a number of mechanics liens by the general contractor and various trades and suppliers who believe that their liens are ahead of those of the bank, and that’s where the issue really comes up.

"We know that the $49 million will not pay off the $73 million (owed the lender), so for the workers with liens, their only hope of recovery is that their liens are ahead of the bank's."

Source: SignOnSanDiego

Echo Boomers Transform Multifamily Expectations

April 20, 2011

By Tim McEntee, Director, Wood Partners

The echo-boomer generation, born between 1980 and 1995, represents a significant retreat from the propensity-to-own mentality. Many of them have seen how their siblings or parents got caught up in the housing boom and bust, and they don’t want to make the same mistake.

Their living environments are far less tied to the conspicuous consumerism that was a trademark of the baby boomers. Those racks of CDs and shelves full of books that took up so much space in baby boomers’ homes are now stored on an iPod and a Kindle. Photo albums live on laptop hard drives. A pair of small high-end speakers attached to a computer has replaced racks of glowing audiophile components. As video-streaming technology improves, DVDs begin to go the way of the VHS cassette.

Technology is a top priority for the new generation of renter, and increasingly for renters of all demographics. Flat-screen televisions are ubiquitous in clubrooms and fitness centers, where iPod-docking stations, Wi-Fi, Wii hookups and an adequate amount of cardio machines during peak hours are mandatory.

Technology used to mean expensive hardwiring into each unit. That has become less important today than having hot spots in locations throughout the community where tenants want to use their laptops.

A key concept in unit design is “less space/more flexibility.” We are seeing smaller units with much more thoughtful design. Large computer desks with multiple shelves are not as prevalent. A decade ago we would have put fireplaces in 50 to 75 percent of units; today we might put them in 25 percent. Storage areas need to be more functional and designed with bicycles, golf clubs and (in some climates) snow skis in mind.

Community activities will continue to be an important amenity for the new generation of renter. A robust and well-conceived schedule of activities fosters relationships with staff and neighbors, creates a sense of community and helps with renewals. Cooking classes were hot activities at one time; now it might be a computer class or something based around movies. The newer generation sees value in social networking, but at some point they want to actually meet people, too.

Putting notes on apartment doors or on common-area bulletin boards to alert residents of upcoming events in today’s world is the equivalent of writing on cave walls. Now renters expect an active and dynamic social-media presence from their community. The tone needs to be immediate, informational, casual and conversational. If you place signage at nearby shopping districts to promote your opening, it needs to have a scannable bar code so potential customers can capture all your information with one click of a smart phone.

This is a generation that dines out, even in difficult economic times. At our new development, Alta Aspen Grove in suburban Denver, we are partnering with the restaurants at the lifestyle mall next door to have dinners delivered to our residents’ doors.

Easy access to mass transit is crucial, not the least because of sticker shock at the gas pump. Most of the projects we’re developing are within 1,000 feet of a mass-transit platform. That said, direct-access parking is a much-desired amenity today, and we don’t see that changing within the new generation.

Today’s renter is very attuned to environmental concerns. Our newest project, Alta Aspen Grove, is, we believe, the first LEED certified apartment community in the Denver area. That was an expensive investment, but being environmentally friendly and sustainable is going to become more important with every passing year. It matters not only to the customer, but also to investors and institutional buyers.  There are institutional funds right now that can’t buy anything without LEED certification from the U.S. Green Building Council. In 10 years, your property is going to be physically obsolete if you don’t have LEED and ENERGY STAR designations.

Attention to environmental issues carries over to the layout of the community. People appreciate passive spaces, park benches and picnic tables with gas grills at the edges of the community where residents can read a book, work on their computer or just relax.

Creature comforts need to include creatures. This generation is very pet-centric and expects to live in a community that reflects and respects their devotion to their animals. For example, a doggie wash may soon become a standard amenity. At Alta Aspen Grove we added a large stainless steel sink with folding steps, hot water and spray nozzles, as well as an adjacent dog park.

This new generation of renter poses challenges to old assumptions as well as burgeoning opportunities for multifamily housing’s future.

Source: Multi-Housing News Online

Mortgage Rates Reach Another Low for 2011

Daily Real Estate News  |  May 20, 2011  |

For the fifth straight week, mortgage rates inched down again--this time reaching the lowest level of the year as well as lowest year-to-date. The 30-year fixed-rate mortgage averaged 4.61 percent this week, while the 15-year rate averaged 3.80 percent, Freddie Mac reports in its weekly mortgage market survey.
The 30-year mortgage hasn’t reached 4.61 percent or below since December 2010. Last year at this time, it averaged 4.84 percent while the 15-year fixed-rate mortgage averaged 4.24 percent.
The falling rates may be yet another lure to buyers during real estate’s traditionally prime home buying season. Owning a home has also recently been found to be more affordable than renting in 78 percent of the major U.S. cities, according to the latest data from Trulia.
Mortgage applications, meanwhile, are increasing as interest rates continue to fall. Mortgage loan application volume increased 7.8 percent this week when compared to the week prior, according to the Mortgage Bankers Association. Refinancings hit the highest level since mid-December, increasing 13.2 percent over the prior week, while the purchase index for mortgage applications dropped 3.2 percent. 

Source: REALTORMAG

Southern California on Its Way Back to Health

By Brad Berton, Contributing Editor
May 3, 2011

Southern California apartment owners might collectively adopt an encouraging motto as they track the hard-hit regional market’s ongoing recovery: “We’re halfway home.”
“Southern California metros generally have regained about half the [multifamily] occupancy that was lost during the recession,” calculates Greg Willett, vice president of research at MPF Research.
But as multi-housing pros here prepare for another hot summer, Willett also points out that effective rental rate gains in Southern California have amounted to only half the nationwide average over the past year. More specifically, SoCal’s four primary markets experienced gains of just 1.5 to 1.8 percent—a pretty weak performance relative to the nationwide average of 3.2 percent.
The more comforting news: Slowly recovering apartment occupancies in the three big coastal counties have returned to more manageable levels. As Marcus & Millichap reports, prevailing average vacancies in Los Angeles, Orange and San Diego Counties range from the low-4s to the mid-5s—and falling.
The weaker exceptions are the hotter, drier Riverside and San Bernardino Counties, comprising the region’s boom-and-bust-prone Inland Empire. The vacancy rate there is still about 7 percent, but Marcus & Millichap projects a decline of about 70 bps by the end of the year.
“The Inland Empire is really struggling,” laments regional apartment owner Chris Mitchell, founder of Crown Acquisitions.
Elusive employment growth is a primary factor holding back apartment absorption out east and in the coastal counties. The Inland Empire’s unemployment rate is still scary at more than 14 percent, and even L.A. County remains over 12 percent.
The rate in San Diego County, where apartment occupancies are fairly tight at 96 percent, is still above 10 percent. But at least Orange County’s has dipped back into single-digits.
One factor that should further reduce vacancies—but won’t exactly help the employment situation—is that apartment construction in the region is at a fraction of historical production levels. Marcus & Millichap projects 2011 deliveries in the four primary Southern California markets to total 2,500 units—and nearly half of them will be in L.A. County. That’s a tiny amount of new product for a region with a population now approaching 25 million.
Perhaps predictably, given still-depressed rental rates and the supply-constrained region’s notoriously high land costs, only in rare cases today are market-rate developers encountering project economics that justify paying prevailing prices for development sites, observes Crown Acquisitions analyst Brett Bayless.
“If you’re not already land-banking, you just can’t justify what it costs to buy land,” he says. But that may change in the not-too-distant future as lenders that have taken back sites look to sell REO properties more aggressively, Bayless notes.
Even amid scant conventional apartment production, however, Willett concludes that SoCal won’t return to “true health” until 2013-2014. Nevertheless, REITs and other institutional buyers appear to be bidding for quality properties as if recovery in the regional markets was already well beyond the halfway point.
Indeed, with prospective buyers outnumbering acquisition opportunities in the region, institutional types are frequently paying prices translating to sub-5 cap rates for top-tier properties, relates Stephen Stein, first vice president overseeing Marcus & Millichap’s L.A. operations.
AvalonBay Communities, Essex Property Trust and UDR Inc., for example, have been active acquirers of large Southern Cal communities of late.
Developments built to condo specs, then converted to rentals as the for-sale sector cratered, are a particularly hot product among these players. For instance, Essex recently paid $80 million for Anavia, an 82 percent leased, 250-unit converted condo project in Anaheim.
Indeed, Mitchell perceives a clear “flight to quality” among active buyers in Orange County especially—with cap rates on some highly competitive transactions coming in as low as 4.5 percent.
Los Angeles County
While Marcus & Millichap projects continued gradual improvement in L.A. vacancies and effective rents, the economy isn’t exactly on fire. Job growth in L.A. has been tame and will likely remain muted into next year, laments Paul Darrow, a Marcus & Millichap associate.
“Unemployment is the elephant in the room here,” Darrow continues, adding that the situation stands to limit much in the way of rent growth over the coming years.
While strained budgets are cutting into public employment, Darrow and Stein identify a few economic bright spots. Health care employment is growing, and L.A. is seeing new restaurants and other start-up businesses taking advantage of the city’s depressed commercial rents.
The city’s signature industry is also helping fill apartments. “The entertainment sector is one growth area driving demand for apartments” in areas such as Hollywood, North Hollywood/Burbank and L.A.’s Westside, notes Stein.
Among few noteworthy new multi-housing developments, Alta and Jefferson are suddenly playing starring roles in Tinseltown. Wood Partners’ 218-unit Alta Hollywood just opened a few blocks from Oscars venue Kodak Theatre, following last June’s opening of JPI’s nearby 270-unit Jefferson@Hollywood.
Downtown L.A. is another bright spot given its employment trends and ever-burgeoning resident amenities. Architectural firm Gensler’s pending relocation from Santa Monica to downtown says a lot about the CBD’s attractiveness, Stein and Darrow agree.
After declining about 50 bps in 2010, L.A. vacancies should continue downward by another 40 points to end the year around 4.4 percent, according to Marcus & Millichap. RealFacts, meanwhile, reports that average overall asking rents are just over $1,600—up 2.8 percent from one year ago. And Marcus & Millichap projects a comparable hike in effective rents over the course of the year.
Orange County
Orange County’s comparably stronger economy and slowed-to-a-trickle development pipeline should generate more pronounced near-term improvements in occupancies and effective rents;
indeed “The O.C.” can expect a paltry 300-some unit deliveries over the course of 2011.
Unemployment here is 9.2 percent—well above normal economic times but at least better than elsewhere in SoCal. Strength of late is coming from the O.C.’s stronghold in leisure and hospitality, as well as professional and business services.
The environment here has been a contrast in renter demand between the luxury-level and Class B and C sectors, Crown’s Mitchell and Bayless relate. Local Class A owners got hammered with the loss of so many residents that made good livings in the subprime mortgage sector.
But as those jobs disappeared with the housing crash, these residents could no longer pay the rent in coastal communities, with many opting for densely populated inland and northern submarkets such as Fullerton and Buena Park, where rents are 30 percent or 40 percent lower, Bayless elaborates.
Meanwhile, tourism-related employment in North County has been rebounding as Disneyland and convention-oriented hotels are beginning to experience stronger visitation.
Average rents county-wide bottomed out below $1,475 in late-2009, according to RealFacts. The average improved somewhat over the following year, but then slipped from $1,492 to $1,475 during 2010’s fourth quarter.
Marcus & Millichap projects that the O.C.’s vacancies will decline a substantial 130 bps, to about 4.4 percent over the course of 2011, helping boost effective rents by 4.5 percent.
Currently, development plans are solidifying in the high-end commercial district near John Wayne Airport, in and around Irvine. AvalonBay and Mill Creek Residential have near-term plans for 500-some units, and Mitchell expects local powerhouse Irvine Co. to begin development of projects on nearby land the company has owned for decades.
Inland Empire
Apartment owners can take at least a bit of comfort in realizing the Inland Empire’s ranks among the nation’s most foreclosure-plagued markets; at least the area has seen thousands of former homeowners join the rental pool. Accordingly, with employment recovering, and a minuscule 600 new units scheduled for delivery during 2011, multifamily occupancies and rents are headed north.
The Empire is expected to post positive net employment growth this year, for the first time in a half-decade—although it will most likely be moderate to the tune of 16,000 positions, factoring to a 1.5 percent growth rate. Marcus & Millichap is projecting vacancies will likely end the year at a still-uncomfortable 6.3 percent—but that’s a 70-bp decline from the beginning of the year.
Rents currently average about $1,065, representing a recovery of about 1.2 percent since the market bottomed out, according to RealFacts. Marcus & Millichap, meanwhile, anticipates a 2.2 percent gain in effective rental rates over the course of 2011.
The Empire’s western periphery generally should see superior gains in demand as the
regional economy continues to recover, due to its proximity to employment centers in the coastal counties. Meanwhile, apartments in the more remote eastern submarkets will continue to face challenges.
But the Moreno Valley vicinity may well be a notable eastern exception here, as it should feel a surge in demand from workers building the massive $3.3 billion March LifeCare campus and the Sketchers mega-distribution center.
San Diego County
With employment strengthening and just 500 units slated for delivery this year, San Diego County’s apartment sector is in store for continued tightening—and likely some hefty near-term rent gains.
Marcus & Millichap is projecting vacancies will end the year approaching 3.5 percent, down from just over 4 percent at the beginning of the year. And effective rental rates are on track to rise a strong 4.7 percent over the course of the year.
San Diego rents haven’t declined to the degree seen in the rest of Southern California, as “the economic vacancy rate hasn’t fluctuated all that much,” Bayless observes. He’s seeing rents move upward at Crown’s properties there, although he characterizes the growth rate as “slow to moderate.”
RealFacts reports that average San Diego rents appear to have bottomed out about a year ago at $1,357. Recovery has been modest since, at roughly 1.5 percent.
The projected 2 percent employment growth in the county this year should push unemployment back toward single-digits—with the particular strength in higher-income industries, boosting demand for Class A rentals.
Recoveries in San Diego’s renowned biotech and telecom sectors bode well for ongoing employment recovery and renter demand, along with the military’s vast presence in the county, Mitchell relates. Meanwhile North County should see resurgent demand for Class B and C apartments, in particular, as construction of a major hospital at Camp Pendleton will require 1,000-some workers.

Source: Multi-Housing News Online