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Going Up: Apartment Projects on the Rise Locally

Job growth prospects, a rise in the number of apartment seekers, and an improving financing climate are prompting Wood Partners and other companies to move forward with new apartment construction projects in San Diego County.

Wood Partners is in the midst of building a 379-apartment complex in Kearny Mesa, which it started in late 2010, and by mid-July the Atlanta-based company plans to break ground on a 108-unit luxury apartment community in San Marcos.

Reflecting a longtime scarcity in new apartment construction locally, the developer notes that its building permit for the $20 million San Marcos project was the first issued for a market-rate apartment development in that city in more than six years.

Low supply and rising rents have made existing apartment buildings around the county popular with investors, and the same factors are now putting new local construction into gear. “It’s a little easier to finance a project since the apartment fundamentals are good here,” said Brian Hansen, Wood Partners’ director of development for Southern California.

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In a recent 2011 outlook report, the brokerage firm Marcus & Millichap noted that by year end, 1,090 new rental units will come online in San Diego County. That’s a 0.6 percent increase in the inventory, but still 40 percent below the 10-year average for the region.

In 2010, approximately 640 units were added countywide. The first of the new San Marcos units are expected to be available for rent in May, with projects by other developers expected to be completed between 2013 and 2015 throughout the county.

A Key Market

Several developers have apartments planned in downtown San Diego. In May, Phoenix-based Alliance Residential acquired a 1.3-acre site in Little Italy — previously entitled for condominiums under a prior developer that was unable to obtain financing — where it plans to build Broadstone Little Italy. The 201-unit luxury apartment community, where construction is set to begin this year, will have 9,000 square feet of ground-floor retail space.

Michael Yanicelli, a Southern California managing director for Alliance Residential, said the developer sees the region as a key market to serve a growing contingent of “echo-boomers” — children of baby boomers — who are entering the workforce and setting up their own households.

Those younger consumers often prefer to live in denser urban areas close to their workplaces, entertainment venues and public transportation, so they can limit their drive times. Also adding to local rental demand, said Yanicelli, are baby boomers who have either been priced out of the single-family housing market, or are simply downsizing their living arrangements after their children leave the nest.

According to Marcus & Millichap, about 1,100 apartment units in three projects were under construction in San Diego County during the first quarter of 2011. The local planning pipeline contains nearly 3,600 apartment units and more than 4,500 condo units under consideration.

The brokerage firm projects that demand will be fueled by an expected addition of 23,400 jobs in the region by year’s end, generated largely in the professional and business services sector.

Building in Primary Job Hubs

While exact numbers for projects in the works were not available, Chris Larson, a senior planner with the City of San Diego, said the city has generally seen an uptick in the past year among developers submitting proposals or making initial inquiries about apartment projects.

Larson said most new apartments in the works generally are located in or near the city’s primary job hubs, such as Kearny Mesa, Mira Mesa, Sorrento Mesa and the University Towne Center area. In some districts, such as the area near San Diego State University, projects that originally were planned as for-sale condos are being revised as apartments.

Darcy Miramontes, an executive vice president in the San Diego office of brokerage firm Jones Lang LaSalle, said a favorable financing climate for well-capitalized builders, amid tight apartment supply relative to demand, has prompted several apartment operators with a longtime local presence to pursue new ground-up construction.

Those include San Diego-based Garden Communities Inc., which is building a luxury apartment community off Interstate 15 in Mira Mesa, and national apartment builders such as Colorado-based Archstone and Florida-based Atlantic and Pacific Cos.

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