Since San Diego County has been riding high on a wave of demand for local real estate, finding that next exceptional deal has become a severe challenge.

C. Wise

The median cost of housing has increased 50 percent in the last four years, making the median price of a home in today's market top $300,000. Multifamily projects are being snapped up as soon as they are brought to market, and increasingly, even before that. Office, retail and particularly industrial properties are in demand and moving quickly, in spite of increasing office vacancy and available sublet space.

We can all look back on 1994 as the year the window of opportunity began to open to investors and developers. The trouble is, that from the perspective of 1994, most of us were nowhere near as certain that it was a window of opportunity as an endless pit in which to throw one's investment dollars.

By the time 1997 came to an end, the comfort of market consensus was feeling its way into the marketplace. Such is the way of fortune. Timing is everything. As a former real estate professor put it: "The difference between a gourmet dinner and garbage is just time, place and arrangement."

From the perspective of 2002, life is good. Our real estate market has never been this strong and our economy has never been as diversified and vital. The question is: Where do we look for real estate bargains today?

Change of use

Demand for real estate changes with its use. Find something well located and make it bigger, smaller, more useable or more convenient.

Examples would be:

* Convert a deteriorating strip center into a secure business campus;

* Convert two or three beachfront condos into one luxury condo;

* Convert apartments into condos, warehouses into lofts, single family into anything zoning or a conditional-use permit will allow, such as multifamily, congregate care, office and the like.

Find the demand and modify existing product to fill the need. Infill locations are the obvious place to look, but opportunities for the long run are everywhere.

Buy or control land

The foundation for all real estate investment is land. The problem is that the timing for raw land to evolve, through population growth, development entitlements, zone changes and political lobbying is hard to control. Patience is the key, along with political savvy and deep pockets to pay for engineering and application fees to enhance market positioning.

Income producing land will provide the holding power to maximize investment return and reduce risk. Examples include leasing to a grower, salvage yard, equipment storage and the like. In some cases existing improvements can be leased to cover holding costs while the land appreciates.

Great fortunes have been made by those who have used the land for a business purpose, only to find that appreciation in land value far exceeded residual business value. There is only so much land in San Diego County, and an increasing portion is being allocated to non-use status.

Solve management problems

In any market, opportunities exist to provide higher investment performance through management skills. While many properties with "management problems" are still priced too high, opportunities exist to share in the upside potential. In the event a purchase cannot be negotiated at an attractive price, other options would include managing for a share of the equity or leasing the property with an option to purchase or long escrow.

Find a niche

Across the spectrum of investment real estate segments, there are submarkets in which demand is growing and supply is lagging.

According to the American Seniors Housing Association, in 2000 there were approximately 35 million seniors over the age of 65 in America. This figure is forecast to increase to 54 million by the year 2020.

Properties that cater to senior use and ownership, including mixed-use facilities, would benefit from increasing demand.

If senior-sensitive real estate investment isn't your cup of tea, just browse around the magazine rack the next time you are at the grocery store. An amazing variety of special interest groups are represented, all of whom use or own real estate.

Anticipate high-identity areas

As the county attracts increasing numbers of skilled technical and scientific workers, the demand for preferred villages and neighborhoods in which to live, congregate and network will increase dramatically. While the coastline is the obvious choice, neighborhoods with a rural appeal and room to spread out will also be in demand. The need for security, connectivity, peer association and lifestyle services will create enclaves that will push property values far beyond neighboring areas that are out of the High Identity loop.

'Borderline' investments

The extremities of the county, both north and south, provide a dynamic marketplace for growth.

Otay Mesa and South Bay offer development opportunities for residential, commercial and industrial projects at relatively reasonable prices. Indian gaming is introducing an increased employment base and lavish destination resorts to East and North counties resulting in consumer spending and increased payrolls. Fallbrook and Escondido will continue to reap the momentum of growth in Temecula, adding to the rapid appreciation in North County.

One thing is certain. San Diego will continue to grow in the foreseeable future and the opportunities for accumulating wealth in real estate investments will grow along with it. The key is to identify the changing landscape ahead of the crowd and avoid impatience.

Wise, CCIM, is president of Wise Investment Properties Inc. and senior broker associate at Sperry Van Ness, San Diego.