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San Diego holds its own in residential, commercial sectors

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While San Diego County may not be the country's strongest region in terms of residential and commercial property investment, a joint report by the Urban Land Institute and PricewaterhouseCoopers suggests the county is holding its own.

Although only ranked 15th in the country in terms commercial real property desirability, the county is nevertheless expected to fare somewhat better than the national average in terms of investment and development strength.

San Diego’s homebuilding sector is also projected to perform better over the next year than most other medium-sized markets across the country, according to the report.

Nationally, homeownership rates that reached nearly 70 percent immediately prior to the recession, are now projected to drop to about 65 percent by later next year, the report statexd.

Two reasons are cited: One is the recession itself. Secondly, people have postponed homeownership because either they can’t qualify, or they could qualify but are electing not to assume the financial burden.

In contrast to many other areas around the country, San Diego County is about evenly split between homeowners and renters, with renters holding about 5 percent edge by many accounts.

The report said while this region took a major hit during the recession and and is still feeling the impact, it is still projected to experience a net gain of more than 40,000 jobs between 2007 and the end of 2013.

These jobs, along with creating a demand for housing will presumably foster demand for retail services as well.

A total of 42.7 percent of investors surveyed said that now is a good time to buy retail real estate in San Diego County, another 44 percent said it should be held and 13.3 percent said it is a good time to sell.

At the beginning of October, a Kleege Enterprises entity paid $27.3 million for the 127,175-square-foot Clairemont Village Shopping Center in Clairemont Mesa.

San Francisco had the strongest retail property market, according to the survey, with 62.5 percent saying that this is an excellent time to buy. In Atlanta by contrast, only 17 percent of investors had such a positive outlook.

From the Westin Emerald Plaza to the Marriott Del Mar, San Diego has seen the acquisition of numerous hotel properties in recent months.

About 40 percent of the investors surveyed concluded this is a good time buy hotels in San Diego County, 48 percent said to hold them and 11.7 percent said this is a good time to sell.

The CoStar Group (Nasdaq: CSGP) reported that on Oct. 1, a unit of The Blackstone Group (NYSE: BX) concluded the $1.9 billion acquisition of 120 Motel 6 properties across the country, including a 136-room property at 3708 Plaza Blvd., a 105-room property at 1546 Second Ave. in downtown San Diego a 142-room Motel 6 at 6117 Paseo del Norte in Carlsbad and a 135-room Motel 6 at 41900 Moreno Road in Temecula.

According to the survey, New York City had the strongest hotel market, with 56.9 percent of the investor respondents believing that now is a good time to buy them there.

Contrast that with investors in Phoenix, where only 16.9 percent said it was a good time to buy hotels in that market.

In another asset class the survey found that 39.7 percent of investors thought this is a time to buy San Diego County office properties, 49.5 percent said to hold onto them and 11.3 percent of the investors were recommending a sale.

Along with the Motel 6 properties, Blackstone Group has been busy in San Diego County on the office side as well.

In early October, Blackstone Group announced that it would be increasing its stake in an entity that owns a 31-property nationwide office portfolio that includes eight buildings totaling more than 365,000 square feet in San Diego.

The restructuring of the debt was led by SL Green Realty Corp. (NYSE: SLG).

The local properties are in Sorrento Valley, Governor Park, Carmel Valley, Rancho Bernardo and Carmel Mountain Ranch.

New York City’s office market was also the most desired nationally with 53.4 percent saying that this is a good time to buy an office building there.

Contrast that with Philadelphia, where only 11.3 percent of the respondents said this is a good time to buy in that market.

With industrial submarkets performing differently within San Diego County and a lot of different opinions, it may be difficult to tell whether or not investors believe this area is improving.

While 38.89 percent of the respondents recommended buying industrial real estate in the county, another 48.61 percent recommended holding on and 12.5 percent recommended selling.

Whether or not a submarket is a good one depends on the perspective. In Otay Mesa,where about 2.5 million square feet of industrial space is still vacant, it might not be good news for most landlords.

However, recent sales suggest purchases at bargain basement prices might make sense for a long-term hold.

The current situation in Otay is also very good for tenants who, in many instances, are paying near record-low rents of less than 50 cents per square foot .

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