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Monday, Sep 26, 2022
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Conditions Keep Multifamily a Bright Spot in Property Picture

San Diego firms focused on the multifamily sector, including Wermers Cos. and Garden Communities Inc., are among those likely to be kept busy with projects in coming months, as the region continues to experience tight supply amid rising demand for apartments among renters and property investors.

“Is the activity back to where it was in 2004-05? No, but it’s a lot better than a couple years ago,” said Wermers Chief Executive Officer Tom Wermers, whose company develops apartment projects and also provides construction services for other developers.

The family-owned company, started in 1957, is now involved in 17 active apartment projects around the state, with seven under construction and 10 in planning stages. Its current San Diego County slate includes Centrum Parc, a 379-unit Kearny Mesa project being developed by Wood Partners LLC; and the 306-unit Circa 37, which recently broke ground at Sudberry Properties’ Civita mixed-use development in Mission Valley.

Wermers said a confluence of factors has spurred an uptick in apartment fundamentals during the past year. Despite recent U.S. economic upheaval, there are still numerous funding sources and low financing rates available to well-capitalized builders.

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“The banks are talking again, although it’s still tough overall for people to get financing,” said Stuart Posnock, chief executive officer of Garden Communities, which develops apartments nationwide. Its current projects include Casa Mira View, now under construction off Interstate 15 in Mira Mesa.

Expansion Plans

The company is also at work on the multiphase Greenfield Village in Otay Mesa, which will have 600 units, and is planning more apartments at its existing development in the University Towne Center neighborhood.

Posnock said San Diego “never got out of control” with apartment construction — as happened with markets including Las Vegas and Phoenix — and there are barriers to local building including limited land availability.

Also, Posnock said San Diego city planners have generally made a priority of having new apartment communities be self-contained.

Experts note that the supply of San Diego County apartments in recent years has not kept pace with population growth, and demand has been rising lately as consumers opt to rent instead of buy.

The commercial brokerage firm Marcus & Millichap projects that the region’s apartment vacancy rate will return to its pre-recession level by year-end — hitting 3.4 percent, down from 5 percent in the third quarter of 2009. The company says rising employment opportunities are attracting young professionals.

By year’s end, 1,090 new rental units will come online, for a 0.6 percent boost in the local inventory, but that is still 40 percent below the region’s past 10-year average. One result is that asking rents are expected to rise 3.9 percent from year-ago levels, to an average of $1,371.

John Vorsheck, regional manager in the San Diego office of Marcus & Millichap, said San Diego’s apartment vacancy rate remains among the lowest for U.S. metro areas, and the region in recent months has seen a steady rise in apartment property sales.

“There’s just a sense that there’s more interest and more activity than there was a few years ago,” he said.

Despite recent market turmoil and continued skittishness among lenders, the New York-based research firm Integra Realty Resources Inc. says multifamily remains the best-performing commercial real estate sector nationwide, with values expected to rise approximately 3 percent in the next six months. The sector is tracking ahead of lodging and retail, each expected to rise about 1 percent.

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