Stos Partners based in Encinitas is targeting apartment projects for acquisition – a departure for the firm which had focused on buying industrial property.
Its most recent acquisition was an El Cajon apartment complex – the firm’s third apartment investment in two years.
“We’re looking to replicate what the company’s done on the industrial side, industrial flex side, which is the company’s core interest,” said Sean Giffin, who joined Stos in late 2021 as vice president of multifamily acquisitions.
“The goal is for us to diversify for product type,” Giffin said. “We’re certainly looking at all markets throughout the county. There’s certain pockets where we were able to hit our return better than others. We’re looking at everything from Oceanside to Chula Vista and east to El Cajon and the central markets as well. It’s harder to make the prices work in coastal communities. That’s not to say we won’t look at those deals.”
In early January, Stos bought Lincoln Washington Apartments, 685 S. Lincoln Ave., in El Cajon for $6 million.
“This property aligns perfectly with our investment strategy through which we acquire, reposition and operate well-located properties that are poised to deliver long-term value,” said C.J. Stos, principal of Stos Partners.
The purchase of Lincoln Washington Apartments followed the firm’s September 2020 acquisition of an apartment complex in Talmadge and early 2021 purchase of an apartment complex in Cherokee Point.
Lincoln Washington Apartments has 25 apartments which Stos plans to renovate, along with adding one new apartment.
“The idea is that we’ll go through and do a heavy remodel to each of the units,” Giffin said. “We’ll be redoing the common areas, just adding some more functional landscaping.”
With the renovations, Giffin said Lincoln Washington Apartments will be aiming to attract “those who want to do a step up and maybe are looking for a little more quality increase who are already living in El Cajon.”
The three projects that Stos acquired through January 2022 are similar in that they cater to middle-income, working families compared to some of the pricey apartment towers that have gone up in downtown San Diego.
Jay Boyle, executive vice president of Stos Partners, said that demand for apartments has outpaced supply, especially in El Cajon, which he said has a strong rental market with low vacancies.
“El Cajon has seen a steady increase in population, growing at 4.55% from 2017 to 2021, making it a desirable place to invest and capitalize on organic growth,” Boyle said.
According to Zumper, an online apartment listing service, El Cajon had the lowest rents in San Diego County in January with monthly rents for one-bedroom apartments averaging $1,520 and $1,900 for two-bedroom apartments.
San Diego had the highest monthly rents in January, according to Zumper, with one-bedroom apartments averaging $2,160 and two-bedroom apartments averaging $2,760.
As with single family homes, the demand is high and inventory is low for apartment projects in San Diego County.
“It’s not an easy market to be active in right now,” Giffin said. “It certainly has been challenging to find the right deals. Moving forward, we’re looking not only in San Diego and Southern California but other growth markets in the western U.S.”
According to the commercial real estate brokerage Northmarq, vacancy rates in Class B and Class C apartment projects ended the third quarter of 2021 at 2.4% and vacancy rates in the pricier Class A apartment complexes finished the quarter at 6.9%.
Northmarq also reported that sales of San Diego apartment projects picked up in 2021 after slowing in 2020.
Apartments and industrial projects are the two market sectors that have held up well during the COVID-19 pandemic.
The apartment market is “a relatively stable sector for us to move into, similar to what we’ve experienced on the industrial side,” Giffin said. “Even though it’s extremely expensive and we’re seeing a very dynamic market, the fundamentals of housing assets continue to go up.”
Principal: C.J. Stos
Business: Real estate investment
Notable: Stos Partners has acquired 185 buildings, manages more than 4 million square feet of space, and has invested more than $830 million.