Photo courtesy of Universe Holdings. 
This La Mesa apartment complex recently sold for nearly $34.5 million.

Photo courtesy of Universe Holdings. This La Mesa apartment complex recently sold for nearly $34.5 million.

Apartment sales in San Diego County were booming at the end of 2019 and sales continue, albeit at a slower pace due to the COVID-19 pandemic.

Post-pandemic, some multi-family experts see a return to a strong market while others said it’s a little iffy.

“Though there is a slowdown currently, we have an optimistic view for the long term as we don’t think the rental market will be impacted as deeply as industries like travel and hospitality,” said Crystal Chen, marketing director at the apartment listing service Zumper.

Countycyclical

“In fact, the rental market tends to be quite countercyclical so in the event of an economic slowdown the rental market has historically performed well as landlords spend to maintain their rent rolls and as Americans choose to rent, not buy,” Chen said.

Nevertheless, Chen said that nationally, landlords have been removing listings on Zumper until they can show them again and tenants are cancelling plans to move.

In San Diego County, Chen said that in the last week in March, there was a 13 percent drop in the number of people searching for apartments on Zumper’s listings.

Rachel Parsons, a director of the commercial real estate brokerage Moran & Company, said that market fundamentals are strong enough that the multi-family market should be able to bounce back once the pandemic ends.

Stronger in Down Times Than Other Markets

“Our economy in San Diego is really diversified and, generally speaking, we’ve always been stronger in down times than many other markets around the country,” Parsons said. “Moving forward, lenders and investors are going to recognize that this was an anomaly in the market and I think values would be minimally impacted. Right now, in the current environment, investors like everyone else are taking a breath and waiting for this to improve.”

Short term, Parsons said landlords may take a hit as tenants struggle pay rents that have been steadily rising.

On the other hand, with shelter-in-place rules, she said its unlikely tenants will be eager to move so landlords should have a fairly stable tenant base.

“You’re probably not going to shop around to find a new apartment right now,” Parsons said.

The Southern California Rental Housing Association reported that the pandemic has some landlords antsy about the prospects of losing rental income, particular those with small apartment projects and rental homes.

“If we’re not collecting rents, the burden is going to be on me to meet payroll,” said Todd Henderson, an association board member whose family owns about 100 units of rental housing in San Diego.

“We’re mom and pop. We don’t have huge amounts of reserve. We have some, but at some point, we’re going to be negative,” Henderson said.

Talk Early With Tenants

Serving as a clearing house for COVID-19 information for building owners, the association is advising owners to talk early with tenants to assess their situation.

“I don’t think people anticipate not collecting rent or not having a job on this scale for a long period of time,” said Association President Kendra Bork, who is CFO of Cambridge Management Group.

Pre-pandemic going into 2020, apartment complex sales jumped in the last quarter of 2019, according to the commercial brokerage CBRE.

Total sales volume reached $96.4 million in the fourth quarter, a 27.6 percent increase over the third quarter of 2019 and a 32.3 percent increase year-over-year, CBRE reported.

The rise in multi-family project sales was due largely to the deals of $50 million or more, according to CBRE.

Notable fourth quarter sales included the $149 million acquisition of Hanover Mission Valley by R&V Management Corp. and the $119 million purchase of Overlook at Bernardo by LaSalle.

Prior to the onset of the COVID-19 pandemic, CBRE predicted that the apartment market was headed to another good year with rising rental rates and demand strong as few new apartment projects were expected to open.