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Report projects higher apartment sales for county in '12

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Voit Real Estate Services reported that at the current pace, more than 300 apartment transactions of five units or greater will be completed in the county this year — the most since 2008.

The apartment market was discussed during a recent session co-sponsored by the San Diego County Apartment Association and the San Diego Chapter of the Certified Commercial Investment Member (CCIM) organization at the Doubletree Hotel in Mission Valley.

Robert Vallera, a Voit Real Estate Services senior vice president who moderated the program, said “We really are in the sweet spot right now in the apartment industry.”

“We are building quality rental housing and we are putting construction workers back to work,” Vallera added.

Vallera said that the rental market's strength is being fueled by 70,800 jobs added in San Diego County since the economy bottomed out in 2009.

The rental vacancy rate is currently running at about 4.5 percent according to MarketPointe Realty Advisors, with a 5 percent level considered as ideal by the industry.

“The North County Coastal area is really the star, the central area is strong and the East County and the South Bay are lagging behind as those areas haven’t recovered as quickly,” Vallera said.

Large investors — such as a REIT — or individual investors have scrambled to find properties in which to invest.

Vallera said the problem is that with low vacancies and climbing rents, there is little motivation to sell.

That lack of inventory is showing up in the numbers. While Voit reported the average number of units per transaction was 30 in 2011, the figure is projected to be 24 units in 2012.

Vallera said if he does have a concern it is what will happen at the first of next year.

“Come Jan. 1 we will have a new tax rate, including the 3.7 percent Obamacare tax [on unearned income] — so clearly, the economy isn’t out of the woods yet,” Vallera said.

Mark Delfino, managing director of the HoyleCohen LLC wealth management firm, said that commercial property prices — which includes apartments — fell by about 47 percent from peak to trough nationally during the downturn.

He added that 50 percent of commercial property loans are still underwater.

While these are cause for concern, Delfino suggested there is a lot to like about San Diego County’s apartment market in particular.

“Below the radar properties can provide opportunities and in Austin and in San Diego, there aren’t a lot of places to build,”

Brian Hansen, the Woods Partners Southern California director — whose firm just developed the 379-unit Alta San Diego apartments in the San Diego Spectrum in Kearny Mesa — said opportunities abound here and across the country.

Hansen said his Georgia-based firm not only recently started 27 new apartment developments comprising 6,220 units — CBRE (NYSE: CBG) is a partner on these — it has acquired 15 multifamily properties comprising 6,220 units since 2010.

All told, Hansen said his firm has ownership interests in 71 properties comprising more than 18,000 units.

“We were a little bit concerned about Kearny Mesa (due to the freeway traffic) but it has worked out really well for us," Hansen said. "People really are craving the luxury product.”

He added that if Alta were put on the market, it could command as much as $135 million.

When asked if Alta could eventually become a condominium, Hansen said unlike many of San Diego’s newer apartment properties, “none of ours in San Diego have condo maps.”

He suggested strong leasing should make such a conversion unnecessary.

Jonathan Segal — a downtown apartment and condominium developer, and an architect — said just because a property is filled today, doesn’t mean it will be tomorrow.

“Our turnover is getting crazy," Segal said. "People are going out and buying houses.”

Segal, who has built small- to medium-sized multifamily projects in Little Italy — said the more troubling issue is the disappearance of redevelopment agencies.

“The only thing we have to make a project work these days is a density bonus,” Segal added.

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