San Diego Business Journal

The Needle Moves Up on Apartment Supply

PROPERTY: North County Should See More Projects By Lou Hirsh Monday, September 10, 2012

North County’s apartment supply has recently been inching upward to meet what experts say is long pent-up demand, as new construction has been rare in that region during the past decade.

New apartments are gradually coming online this year. Atlanta-based Wood Partners LLC earlier this summer began leasing the first phase of its 108-unit Alta gated apartment community in San Marcos, next to the Cal State San Marcos campus.

In April, Lyon Communities of Newport Beach opened Latitude 33, a 198-unit community of apartments and townhomes in downtown Escondido.

Most recently, AvalonBay Communities Inc., a Virginia-based national apartment operator with eight communities in San Diego County, moved to raise its own North County profile with its $12.5 million purchase of a vacant 7.29-acre land parcel in Vista.

AvalonBay plans to build a 220-unit apartment project off South Melrose Drive near state Route 78, according to commercial real estate firm Colliers International, which brokered the transaction on behalf of seller Buie Investments I LLC.

AvalonBay officials could not be reached for comment on the Vista project.

Choosing to Rent

Gunder Creager, a senior vice president in the San Diego office of Colliers International, said North County has recently seen demand for apartments rise with the rest of the county, as consumers are either unable to afford single-family homes or choose to rent until their financial status improves.

However, there has been little new construction in the northern region during the past decade, and many of the larger apartment communities along the state Route 78 corridor are at least 25 years old. The big issue is a dearth of undeveloped properties zoned for high-density multifamily developments.

“There just aren’t a lot of properties available, with the right zoning, for those 200- and 400-unit projects,” Creager said.

Rezoning and mapping of new apartment developments is a long and complicated process for cities, as high-density projects continue to face resistance from neighboring homeowners. But there are signs that the tide is shifting.

Creager anticipates that in the next 18 months, perhaps half a dozen undeveloped sites could become available for potential apartment development along the Route 78 corridor.

He said Vista, for instance, has already been proactive in revising zoning of some parcels near the city’s main commercial hubs, as it aims to raise the local supply of apartments.

Ranked 6th for Investment

San Diego County placed sixth in the nation among U.S. metro markets for apartment property investment, in a 2012 annual ranking by the commercial brokerage firm Marcus & Millichap. The report, designed to guide potential investors, considers economic growth and other factors impacting supply and demand for apartments.

Marcus & Millichap forecasts that apartment projects delivering 1,480 new units to the San Diego County market will be completed this year, up from the 450 units delivered in 2011. Asking rents are expected to rise 4.2 percent.

As of mid-2012, AvalonBay owned or held stakes in 201 U.S. apartment communities with more than 59,000 apartments, including eight existing developments in San Diego County.

The company made major investments in local apartment communities in 2011, purchasing the 676-unit Highlands at Rancho San Diego in El Cajon for $124 million, and the 450-unit Waterstone Carlsbad for $78.1 million.

In its recent second-quarter earnings report, the publicly traded AvalonBay said rent revenue year-to-date has grown 5.1 percent in Southern California and 6.2 percent nationally, compared with the first half of 2011.