Multi-Housing News - March 2009 - (Page 14)

market forecast Southern California is a ‘Mixed Bag’ Except for pockets of need, the Golden State sees strong rents and occupancies By Christopher Hosford, Contributing Editor Southern California’s multi-housing market is a mixed bag. Project owners are holding their own with rents and occupancy, but only by default since little is being built. Mixed-income development isn’t thriving; the money that once flowed from redevelopment agencies has been siphoned off to help fuel the state’s battered finances. Projects once planned as condominiums are being converted to rentals. And the few investors out there are being lured to existing mixed-income projects for the stability of their income stream. “There is so much fear in the market that most of the people who used to be buyers have gotten out,” says Dana Brody, associate vice president with the West Los Angeles office of Grubb & Ellis. “The smart people know that there is the possibility that properties could decline in value, so they’re looking for higher cap rates and stabilized returns.” The Los Angeles area is expected to weather the recessionary storms relatively well compared with the rest of the nation, according to Marcus & Millichap. The commercial real estate brokerage firm projects that the area will see “reasonable” rent gains in 2009, with strongest increases projected for Santa Monica, Beverly Hills and West Hollywood as some contracts requiring owners to lease to low- Photo by Joanne DiBona, San Diego Convention & Visitors Bureau income tenants expire. Job cuts and resultant turnover, meanwhile, are expected to help owners reset rents to market rates. In addition, those areas with a high proportion of working-class renters will continue to see vacancies in the low 3 percent range, the firm says. Such areas as the South Bay/Long Beach submarket fall in this category, with a similar phenomenon occurring in class-C complexes across the area. The market for buying and selling, however, is not as robust. Brody notes that with so few buyers around, the ones who are left—the guys with all the cash—are in the catbird seat, demanding and getting favorable terms. There have been some bright spots, Brody notes. Grubb & Ellis closed a deal in January for a 14-unit rent-controlled property in Sherman Oaks that sold for $2,750,000, or just under $200,000 per unit. That deal represents a switch of emphasis, she says. In past years, market-rate properties were considered the more desirable purchase, but today the focus is on rent-controlled developments that deliver smaller but relatively guaranteed income streams. “You know these kinds of renters aren’t going anywhere,” Brody says. Because condo sales are tight, many new properties are converting to rental properties. The ones that continue on to sales will likely do so at a 10 percent to 20 percent discount. Overall, Marcus & Millichap projects a slightly rising vacancy, to 5.7 percent in the Los Angeles market in 2009. Asking rents will rise slightly to $1,516 per month, with effective rents at $1,457. A relatively strong Orange County South of Los Angeles, renter demand in Orange County will remain strongest in Newport Beach and Tustin, with vacancy rates in the mid-3 percent range, according to Marcus & Millichap. Supply will increase, the firm says, as unsold condos come to market as luxury rentals. This includes the 250unit Avalon Anaheim Stadium project in the Platinum Triangle, with one-bedroom units starting at $1,595 per month, two-bedroom apartments beginning at $1,895, and three-bedroom units at $3,150. Orange County expects to see about 2,900 units come online this year, compared with 1,034 last year. Vacancy will rise almost a full point to 5.9 percent by year-end. Average and effective rents are expected to grow 2.9 percent and 2.3 percent respectively, to $1,634 and $1,574 per month. Nevertheless, the signs of relative strength come at a cost, with most new construction halted and pending projects moribund. Recent Multi-Housing Transactions in Southern California Market Los Angeles Submarket CBD Hollywood/Santa Monica Valley/Tri-Cities Garden Grove/Santa Ana Huntington Beach Irvine/Mission Viejo Riverside County San Bernadino San Bernadino CBD Mission Valley San Diego North San Diego East Property Seven Forty 1437 W. 3rd Street Milford Apts. Westminster Arms Las Casitas Prado at Laguna Hills Hillside Park Kendall Park The Lexington On Broadway Crest Manor Oak Terrace Adagio Units 309 17 32 88 52 360 177 52 165 33 41 82 143 Price $56,500,000 $5,000,000 $8,000,000 $12,100,000 $10,550,000 $77,000,000 $11,600,000 $6,250,000 $29,240,000 $20,835,000 $5,100,000 $9,745,000 $22,000,000 Price/Unit $182,848 $294,118 $250,000 $137,500 $202,885 $213,889 $65,537 $120,192 $177,212 $631,364 $124,390 $118,841 $153,846 Orange County Inland Empire San Diego Source: Real Capital Analytics Inc. 14 March 2009 | Multi-Housing News | Official Publication of Multi-Housing World

Table of Contents for the Digital Edition of Multi-Housing News - March 2009

Multi-Housing News - March 2009
Contents
From the Editor
Executive Insight: Jonathan Rose
Profile: How Owners are Riding Out the Storm
Market Report: Southern California
Development Case Study: A City in the Sky
Finance: Small Loans
Property Management: Marketing Magic
Products: Submetering
Kitchen & Bath: Water and Energy Conservation

Multi-Housing News - March 2009