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
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