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Demand for Apartments a Catalyst for Revitalization

Rising demand for local apartments is helping nudge forward some long-discussed plans to revitalize National City’s downtown, which stalled when the recession hit.

Leasing representatives say about a third of the 170 units have been leased since early 2010 at Bayview Tower, a converted former Red Lion hotel now owned by San Diego-based Pacifica Cos. and being offered as rental and for-sale condos. A restaurant called Corner Café and a dentist office will soon open on the building’s ground floor, with talks under way with potential tenants to fill the remaining four retail slots.

According to Brad Raulston, the city’s executive director of community development, local developer Mark Schmidt has taken out building permits for a long-planned project called Park Lofts, which would include approximately 220 apartments near the city’s public library on National City Boulevard.

Leasing and sales are also proceeding under new operators at two existing condo developments in the downtown area that had been taken over by their lenders — Embarcadero Bank and East West Bank — prior to their completion as the housing market cratered in 2007 and 2008.

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Raulston said the apparent progress on those developments can be considered “a good sign,” since those and other projects planned around the city had virtually ground to a halt at the height of the recession. The city has been receiving increased inquiries in recent months about the status of certain locations, some in conjunction with ongoing downtown civic improvements.

He said some projects envisioned as condos before the recession could be reborn in coming months as apartment and mixed-use projects.

Climate Favors Apartments

Experts note that improving regional apartment fundamentals, including limited supply and ample financing available to well-capitalized developers, are favoring apartments over condos and single-family offerings at the moment.

“Developers are finding that it’s difficult to make the larger housing projects pencil-out, but it does look like the apartment developers are getting back into the market,” Raulston said.

Projects in the pipeline countywide indicate continuing momentum for apartment construction. According to the Construction Industry Research Board, a nonprofit research organization, San Diego County builders took out construction permits valued at $252.9 million in the first seven months of 2011 for a total of 1,940 multifamily units.

Those figures more than doubled the $106.5 million worth of permits for 844 units in the comparable period of 2010.

The brokerage firm Marcus & Millichap recently forecast that the approximately 1,100 county apartments coming on line this year will be well below the annual average of the past decade. Meanwhile, rising demand is expected to drop the countywide vacancy rate to 3.4 percent, among the lowest for U.S. metro areas, with asking rents rising 3.9 percent from a year ago.

Mark Hoiseth, vice president of sales and marketing for Home Builder’s Marketing Services, which is handling Bayview sales and leasing for Pacifica, said that project and others nearby have attracted interest from military and defense-related personnel who commute to facilities in the South Bay region.

Planning Mixed-Use Project

According to Ian Blake, a purchasing agent at Pacifica Cos., the firm is in the planning stages of what would be a small mixed-use project with about 10 dwelling units and one or two commercial spaces. The site is on East 18th Street, just east of Interstate 805.

Blake said the city recently modified its zoning ordinances to help promote development, so density, setback and parking requirements are more feasible at the proposed site.

However, even with zoning more favorable in parts of the city, there are land costs to contend with, and some properties became financially “upside down” under their prior owners during the recession, which could make acquisitions difficult in the current environment.

“I think land cost will be one of the biggest obstacles to development and redevelopment,” Blake said.

National City earlier this year issued $40 million in bonds to fund future civic improvements, including about $5 million for downtown enhancements set to begin later this year. Raulston said changes are planned to make the district more pedestrian friendly, including adding parking, reducing lanes on some streets from four to two, and easing access to the local trolley station.

He said construction could begin within two years on Paradise Creek, a new affordable apartment community with about 200 units near downtown, being developed by a group including Related Cos.

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