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Prebys to pay $36M for two Santee apartment parcels

Developer and philanthropist Conrad Prebys will pay a combined $36 million for two adjacent parcels in Santee, where at least 977 apartments could be built.

Prebys was the winning bidder after a county auction at the end of January at the County Administration Building.

The still county-owned properties at Cottonwood Avenue and Park Center Drive just south of the relocated Edgemoor Hospital include a 22.15-acre parcel that had a minimum bid of $9.5 million. In the face of multiple bidders, Prebys, who founded Progress Construction here, agreed to pay $21 million, more than twice the minimum bid.

Prebys, who could not be reached for this story, then agreed to pay $15 million for the other 11.13-acre parcel that had a minimum bid of just $4.5 million, less than a third of the ultimate price.

"This speaks really well for the economy," said Adam Weinberg, San Diego County's chief of real estate services.

Weinberg said about 12 other people showed up to the auction, but he didn't have their names by press time.

Weinberg said that escrow should close in about 30 days, after a due diligence period.

As explained in the county's auction brochure, the 22.15-acre parcel could yield at least 631 apartments with a density of at least 30 units per acre. The 11.13-acre parcel has a density range of 22 to 30 units per acre, making at least 346 multifamily units under current zoning, and possibly many more.

Prebys, who has just given San Diego State University $20 million for scholarship programs, is required to pay cash for the properties.

As noted in the auction brochure, the properties are near Mission Gorge Road, Santee's primary commercial development corridor with neighborhood and community centers. The parcels are also next to the 55-acre Santee Town Center Park.

Apartment vacancies are throughout the county, including Santee and East County. The San Diego County Apartment Association reported that East County had seen its average vacancy swing from 3.8 percent level in the fall of 2012 to 5.1 percent in the spring of 2013, before going back down to 3.7 percent last fall. A 5 percent level is considered the industry standard for a balanced market.

Russell Valone, MarketPointe Realty Advisors president, said that in a survey of 19 Santee apartment properties with 1,722 units, he arrived at a vacancy rate of 2.3 percent.

"Most of what's out there is crap that was built in the 1970s and 80s," Valone said.

Valone noted while the vacancies are low, market-rate apartment developers still must be able to command high enough rents for their projects to pencil.

Valone, who gasped at the prices Prebys is paying, said while it is difficult to tell how high the rents would need to be, it is safe to say that only a luxury apartment project with lots of amenities would make sense.

MarketPointe reported in its own fall vacancy survey that the average rent for apartments built within the past five years has reached $2,200 per month.

"Most of those have been low-rise and townhome projects," Valone continued, "He (Prebys) would need to get at least $2,200."

Such a rent is a far cry from what Santee apartment landlords are getting today. For example, the 154-unit Town Center Apartments on its website lists a rental rate range of $1,000 to $1,350 for one- to three-bedroom units. That property is owned by a partnership of R&W Management.

When asked how difficult it might be to have an upscale property with upscale rents in an inland community such as Santee, Valone said given the proximity to the extended state Routes 52 and 125 and its Town Center area location, the project should do fine.

Assuming Prebys builds an apartment project on the properties out to at least its minimum allowable zoning, it would be one of the larger such developments in recent years. The only one that is much larger is the eventual 1,800 unit Casa Mira View development by Garden Communities that is currently under construction in Mira Mesa.

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