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Apartment sales in SD County in 3Q continue improvement

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Third quarter apartment sales in San Diego County continue to improve with a strengthening economy, despite many landlords opting to hold onto their properties.

Jones Lang LaSalle (NYSE: JLL) reported the multifamily dollar sales volume in San Diego County has increased 34 percent on average each year since 2009.

The multifamily transaction volume stood at $492 million through the first three quarters of the year, and there have been transactions in the region since then.

Major October transactions in San Diego County included local partnership 800 East Lexington L.P., paying $11.5 million for the 79-unit Lexington Park Apartments in El Cajon, and the San Diego Housing Commission paying $6.38 million to acquire the 71-unit Park Crest senior housing complex at 5330 Orange Ave. in the College Area.

In neighboring Riverside County, a partnership controlled by JRK Property Holdings of Los Angeles, paid a reported $52 million for the 236-unit Arbors at California Oaks apartments in Murrieta.

JLL also reported that 93 percent of financing for apartment transactions in the third quarter in San Diego County were provided by private lenders.

Other factors are influencing the apartment market here. Cap rates in the San Diego market have continued to compress, dropping 1 percent on average annually since 2009, according to JLL.

Secondly, San Diego has added 28,000 jobs in the past year -- helping to spur the recovery.

Lastly, with a limited number of apartment properties and multiple bidders on most, the market here is projected to only get stronger.

“San Diego’s high barrier-to-entry fundamentals and its location amplifies its economic recovery,” said Darcy Miramontes, a JLL executive vice president.

“The market is coming back, and we’re seeing population growth positively impact the multifamily investor demand," she said. "Tourism has also had a positive effect on the service industries, while construction and finance sectors re-emerge as key sectors that were constrained in the economic expansion.”

Nationally, The CoStar Group (Nasdaq: CSGP) reported multifamily sales are the only “commercial” property type to report year-over-year gains in sales volume.

The total national dollar value sold in the first nine months of 2012 is up 20 percent over 2011, at $53.41 billion versus $44.62 billion for the same period a year earlier.

CoStar, citing National Multi-Housing Council (NMHC) data, reported that the multifamily market is pretty much strengthening across the country, and has continued to improve for the seventh quarter in a row.

The NMHC report stated while there was some moderation in the second quarter, apartments as an investment class will still be on an upward trajectory across the country for at least the next two years.

The NMHC surveys market tightness, sales volume, equity financing and debt financing, all of which indicated growth from the second quarter.

"Even after nearly three years of recovery, apartment markets around the country remain strong as more report tightening conditions than not," NMHC chief economist Mark Obrinsky said in a statement.

"The dynamic that began in 2010 remains in place: the increase in prospective apartment residents continues to outpace the pickup in new apartments completed," Obrinsky said. "While development activity has picked up considerably since the trough, financing for both acquisition and construction remains constrained, flowing mainly to the best properties in the top markets."

The good news for San Diego is that most surveys -- even during the recession -- placed this region near the top of the list in terms of apartment investment strength.
While numerous apartment projects, including Garden Communities’ 1,800-unit Casa Mira View development in Mira Mesa, have been bankrolled and are currently under way in this county, CoStar noted that only 8 percent of respondents nationwide reported that construction financing was readily available.

With limited construction financing, lower vacancies, higher rents and reluctance by many to jump into the single-family market, CoStar concluded the multifamily market will only get stronger -- here and across the county.

Finally, with a projected 1.7 million new renter households projected to be added nationally between now and 2015, both JLL and CoStar reported that multifamily will continue to be a stellar asset class.

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