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Wermers Expands Its Multifamily Mission

After building multifamily projects for other developers for much of its 57-year history, San Diego-based Wermers Cos. is placing significant bets of its own on continued high demand for apartments in Southern California.

The latest example is the $130 million Adagio on the Green, a 256-unit luxury apartment project in Mission Viejo, adjacent to Mission Viejo Country Club in southern Orange County, on which the company recently started construction.

It is the second-largest apartment project that Wermers has undertaken since venturing into the development side of the business, CEO Tom Wermers said. The company recently completed the first 404 units of what will be an 868-unit apartment complex called Artisan in the Riverside County city of Corona, working with Los Angeles-based Watermarke Properties, its partner in the Mission Viejo project.

The partners’ investment in the second 464-apartment phase in Corona, with 77,000 square feet of on-site retail, by itself is expected to reach $150 million, company officials said.

Leveraging What It’s Learned

The family-run business was started in 1957 by James Wermers, Tom’s father, and for the next several decades it stayed in its lane as a building contractor specializing in apartment construction for developer clients, currently known officially has Wermers Multi-Family.

About a decade ago it branched into management and property acquisitions with a separate company, Wermers Properties, which in the past five years has increasingly ventured into new apartment development.

The current CEO, the second in what is now a three-generation line of family participants in the business, said Wermers plans for now to stick with what it knows best: apartments, primarily in Southern California, where demand is rising while supply struggles to keep up.

As a contractor, Wermers has completed more than 200 apartment projects since 1994, recently including Circa 37 at Civita in Mission Valley and a large mixed-use development in progress on Adams Avenue in the Kensington

neighborhood.

The company’s aim is to leverage the knowledge it gained building apartments on clients’ behalf, in order to locate development opportunities that others might decline because the location or other factors prove challenging.

For instance, Tom Wermers said some might have passed on the Mission Viejo development because of its rolling topography next to a golf course, the presence of a large creek in the middle of the property, and the need to connect the two halves of the project with a pedestrian bridge.

“We’re able to find these approaches that you might not think of if you’re a developer with a strictly financial background,” he said, noting that the Mission Viejo project is set for completion in 2015.

2,000 Units Underway

Marcus & Millichap Inc.’s most recent national apartment report ranked San Diego County fifth among 46 U.S. metro markets tracked by the brokerage company, based on the strength of their investment prospects. The 2014 report considered variables such as forecast employment growth, vacancy rates, construction, rents and housing affordability.

Orange County placed 11th in the ranking, with Los Angeles at 15 and the Inland Riverside-San Bernardino region at 19.

Researchers said low levels of home affordability this year will support apartment demand near the coast in San Diego’s North County region. An influx of new construction could put upward pressure on vacancies in places like downtown San Diego and adjacent neighborhoods, where about 2,000 apartment units — nearly half the region’s current pipeline — are underway.

On the apartment investment front, listing activity was expected to accelerate in the first half of 2014, ahead of an anticipated increase in interest rates. Buyers are expected to outnumber sellers, as apartment demand continues to be fueled by job growth in segments like tourism, as well as the widening gap between home prices and rents.

“Value-add” opportunities for renovation of older properties are expected to be highly sought after in markets such as North Park, University Heights and South Park.

“Many apartments developed in the 1960s and 1970s can be repositioned with relatively modest demand and achieve much higher rents,” Marcus & Millichap researchers said in their assessment of the San Diego market.

High Expectations for SoCal

Tom Wermers said his company’s Corona project, in western Riverside County, has been planned to take advantage of proximity to Orange County. Many residents in that part of the Inland Empire commute to jobs in Orange and Los Angeles counties.

The company continues to also scout development opportunities in San Diego County, though it is not yet ready to announce specific upcoming local projects. It is carefully gauging building and land costs — which could rise over the next 24 to 36 months, along with interest rates — but generally expects demand for Southern California apartments to remain high.

“The interest we’ve seen in Mission Viejo shows that the demand range is pretty wide — people from age 45 up to 65,” Wermers said.

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