Dueling Projections Disagreement rises over the top markets for 2005. If you own apartments in Southern California, chances are you already feel pretty good about your investment. So does Marcus & Millichap, whose national apartment report lists San Bernardino-Riverside, San Diego, Orange County, and Los Angeles among its top five markets in the country.
“You’ve had solid employment growth and 180 degrees of the compass where you can’t develop because of the ocean,” says Linwood Thompson, managing director for Marcus & Millichap’s National Multi Housing Group. “The availability of land and the attitude of government and neighborhood groups make it much more complicated, time-consuming, and expensive to develop a raw piece of land.”
Given such trends, it’s an attractive region for apartment firms. “BRE is concentrating its development in Southern California because we believe in its economic diversity and strength,” says Deirdre A. Kuring, executive vice president of asset management with BRE.
Still, Texas-based M/PF YieldStar says apartment owners should look east. The firm rates Albuquerque, N.M., El Paso, Texas, and Tucson, Ariz., as its top three apartment spots. They “are very small markets,” says Greg Willett, vice president of research and analysis for M/PF YieldStar. “It really doesn’t take too much demand to keep them full. The economic outlooks are pretty positive, and none of them really have any sort of construction going at all.”
Construction plays a large factor in M/PF’s projections, which are weighted to markets that don’t add units. Marcus & Millichap balances construction in absolute terms, the percentage increase in apartment stock, the relationship between jobs and construction, and single-family home affordability.
–Les Shaver
Executive Feedback
Are condo conversions a threat or an opportunity for your company?
A: “Both. They are a threat in that converters pay more than investors for existing properties, eliminating our acquisition opportunities. They also provide low-cost housing alternatives. Conversely, conversions reduce rental supply, eventually driving up apartment rents.” —John E. Smith, senior vice president of acquisitions/ dispositions, HOME Properties
A: “We feel that the condo conversion movement is a mild, yet tangential, competition to our business of developing urban infill product. Generally, the conversion product that we have seen is inferior in design, given its original design and use as rental product. We find that the condo conversion product can be priced in a very affordable price band, which will compete to some extent with our smaller, more affordable urban infill product, yet we have the advantage of delivering a superior and newly built product with new systems.” —Scott K. Choppin, managing partner, Urban Pacific Builders
A: The conversion of rental to condo deals has not adversely affected us because most of the apartment product has been in “B” locations with cookie-cutter mainstream design. Our condominiums focus on the luxury empty-nester and the “patina grunge” urban edge markets.” —Lamont Hoffman, CEO, PN Hoffman