San Diego Countyâ€™s apartment market ranks second nationally after Washington, D.C., in its outlook for stability and possible growth in 2010, according to Marcus & Millichapâ€™s annual apartment report covering 44 metro areas. Two other reports came to the same conclusion: San Diegoâ€™s rental market is on the way up.
â€œWith property performance expected to be steady throughout much of the metro area, investment activity will likely pick up this year,â€ said Kent Williams, regional manager of the real estate investment services firmâ€™s San Diego office.
Marcus & Millichap is a great company and Kent has really done a great job leading the San Diego office. In my opinion until something causes owners of buildings to sell, things like foreclosures, high vacancy and credit losses, etc. we will have light volume.
I think (my guess is as good as yours!) is 2010 will start off slow continuing from last years anemic sales volume (15% or so compared to 2004) and the second half will pick up some steam but slowly. In talking to some friends of mine like Aaron Bove (later in this article, who will probably deny our friendship but eh what can you do?) and others I am starting to hear of some deals that are almost piquing my interest. I will probably be a buyer myself towards the later half of 2010 or early 2011. It will most likely these deals will be value added deals that were previously bought by novice investors who were ok with all the crap that goes into operating apartments when they were getting 20% increases in equity per year. Now that the buildings have not been maintained or operated well I believe we will see some motivation.
As much as I would like to see rock bottom prices with huge CAP rates I don’t think that is where the deal flow will come from. It will probably take a little more creativity this time around doing things like subject to, master leases, wraps, or partnering with the current owners in some capacity. The goal for me is to control mismanaged buildings and bring them back through good operational management to bring the vacancy and credit loss down and reduce expenses. Nothing like a little tenants & toilets phone calls in the middle of the night eh?
Aaron Bove, an apartment expert at Marcus & Millichap, said the outlook for complexes will vary depending on location and quality. Middle-market complexes, charging an average of $950 to $1,200 for two-bedroom units, are likely to fare best. Bove also said investors favor coastal areas.
One factor that may push vacancies down, the company said, is the arrival this spring of the aircraft carrier Carl Vinson. Its shipboard crew of 3,200 will be home-ported in San Diego, â€œproviding a boost to rental housing demand.â€
Thanks for the info Aaron I did not know this was happening. I have been wondering when we would start getting some of the military back. If most of the rest of our troops get back within the next 5 years in combination with the lack of apartments being built San Diego apartment owners may just see some upside in the rents. Probably not until then and unemployment becomes much lower.
Bove said he could not estimate how many more military households will seek local housing off the base. But he said it is common for landlords to hear from military tenants in certain areas.
Asked why vacancies should go up at a time of rising demand, Bove said supply is being boosted as many formerly owner-occupied condos and foreclosed houses become rentals. Also, some renters are doubling up or moving in with relatives.
I am seeing this in my own properties.
â€œThey say the economy is getting better, but talk to the person out there right now and see whether thatâ€™s the truth,â€ he said.
Totally agree. There seems to be a lag of what we have on the news and what is really happening, the hangover is still there and peoples savings have run out and were just about to see a big wave of people on unemployment run out of benefits.
Still, he said, San Diego is better off than most metro areas, as Marcus & Millichapâ€™s national apartment index indicates.
â€œSan Diego has been one of the first markets to go into the downturn, and we see signs of San Diego being one of the first to come out,â€ Bove said.
If you are in the market to buy apartments right now Aaron is a top notch broker and you’d be doing yourself a favor to talk to him. Just don’t call him for no money down, 10 CAP deals at the beach. There not there and it’s tough to get brokers to work to hard on deals where the principal is hoping to get in through some Carlton Sheets infomercial program. Remember this is a relationship business and San Diego has a small Real Estate community. If you burn good brokers time it get’s around quickly.
Seconding that prediction was Sarah Bridge, owner of RealFacts, a Novato company that monitors 37 apartment markets around the country and 24 in California . While some areas, such as Phoenix and Las Vegas, are classified as â€œcode red,â€ meaning apartment vacancies are rising rapidly despite deeply discounted rents, she said San Diego is on the mend.
â€œSan Diego is poised for recovery unless something really goes wrong in the economy, and we are all going to have another big drop,â€ Bridge said.
In its report on the apartment market, RealFacts listed San Diegoâ€™s average rent at $1,357 in the fourth quarter, down 1.5 percent from the third quarter and off 2.8 percent year over year. Its 5.7 percent vacancy rate for the quarter was down from 6 percent in the third quarter but up 0.4 percent year over year. It was one of 12 areas to see a quarterly decrease nationally, and it tied with San Jose and Oxnard in having the lowest vacancy rate.
The companyâ€™s San Diego findings were based on a survey of 438 properties holding 98,892 units.
This may or may not be true but personally doesn’t matter as much to me since this is not my niche. There are over 15,000 apartment buildings in San Diego and most companies only focus on the large developments or in this case 438 of the 15,000 + properties. That is not the market my tenants are coming from or going to or I’ll be buying in the next few years.
For the most updated information & news on real estate & Gabhart Investments go to our facebook & twitter pages
ps. click here to like us on facebook