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Monday, Mar 18, 2024
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Apartments Get a Warm Reception In an Overheated Housing Climate

In the six months since it formally took over Vantage Pointe in downtown San Diego, after buying the former high-rise condo project for $200 million and converting it to apartments, Equity Residential has leased about 400 of the upscale property’s 679 units.

While a 60 percent occupancy is nowhere near the 95 percent figure that the company has become accustomed to at its San Diego County properties, representatives say the lease-up has occurred faster than anticipated in what has been a brutal climate for most types of real estate.

“It’s ahead of our expectations for this economy, and also for the size and location of the property,” said Robert Grant, vice president of property management in the Southern California regional office of Chicago-based Equity Residential.

As new apartment construction remained at a relative standstill in the first quarter of 2011, San Diego County landlords generally continued to benefit from rising demand for rentals amid tight supply compared with other major metro regions.

Those trends played out in the form of low vacancy rates, and continuing momentum in the sale of apartment properties, which was seen in the second half of 2010.

Darcy Miramontes, a multifamily investment broker in the San Diego office of Cassidy Turley BRE Commercial, noted that the region ended the first quarter with an apartment vacancy rate at 5 percent, up slightly from 4.75 percent a year ago but still below the 6 percent to 7 percent seen in most major U.S. markets.

Amenable to Multifamily Lending

While financing for most types of property acquisitions ground to a near halt during the past two years, certain investors have ratcheted up their financing in the multifamily arena. Miramontes said those have long included the mortgage-backing agencies Fannie Mae and Freddie Mac, as well as life insurance companies and more recently some large real estate investment trusts.

In 2011, those have been joined by traditional lenders, including Chase Bank and California Bank & Trust, wwewhich are slowly wading into apartment acquisition financing as other real estate sectors continue to struggle.

“The traditional lenders are starting to get more involved in the multifamily market,” Miramontes said.

Large local apartment building purchases of the first quarter included AvalonBay Communities Inc.’s acquisition of the 450-unit Waterstone Carlsbad for $78.1 million; The Praedium Group and Greystar Real Estate Partners’ purchase of the 112-unit Sunset View at Rancho del Oro in Oceanside for $20.1 million; and the Recht Family Trust’s acquisition of the 67-unit Sanside Apartments in San Diego for $7.1 million.

Chris Payne, senior vice president of development in the Southern California regional office of Virginia-based AvalonBay Communities, noted that San Diego was the first of the region’s coastal markets to be hit by the residential housing downturn, which caused apartment demand and rents to drop.

But it now appears to be the first to recover, with rents and occupancies on the rise, and the company will be scouting in the long term to add to its current total of five San Diego County properties. “We think that area will be a place where the shifting demographics will continue to increase the demand for apartments,” Payne said.

Tony O’Neill, vice president in the San Diego office of brokerage firm Voit Real Estate Services, said those demographics include a growing contingent of young people who are leaving home to enter the work force. Many are opting to rent rather than buy, either because they don’t have the down payment to purchase a home or otherwise are holding off on buying until the economy and job market stabilize.

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