Price Points
For many Sacramento residents, homeownership is out of the question. The region’s annual median household income is $55,000 and as low as $32,000 in the downtown area. With home prices averaging $400,000 in Sacramento, qualifying for a home loan can be next to impossible for many people. The general lack of alternative housing options for Sacramento residents has prompted apartment owners to increase rental rates. In the third quarter of 2005, rents climbed nearly 2 percent and concessions subsided. Vacancies in the Sacramento region were down to 7.5 percent as of last October, compared to vacancies as high as 12 percent in some submarkets at 2005’s beginning.
Rents for Class B and C apartment buildings constructed between the 1970s and 1980s average $700 per month for a one-bedroom and $825 per month for a two-bedroom. The Arden Arcade and Carmichael submarkets house most of these units, which are trading on average in the $80,000 to mid-$90,000 range. For example, in September 2005, a 52-unit Carmichael apartment complex built in 1973 exchanged hands for $85,000 per unit.
Growing submarkets like East Folsom, Natomas, Roseville, Elk Grove, and El Dorado Hills contain the majority of newer, luxury Class A apartments. Monthly rents for such units in these areas average $950 for a one-bedroom and $1,400 for a two-bedroom. Not surprisingly, buying such properties is also more expensive, with luxury apartments trading for upwards of $100,000 per unit. In June 2005, Gerson Baker & Associates paid $138,038 per door for The Falls at Willow Creek, a 426-unit property constructed in 2004 in Fulton.
Housing Options
The high price of homeownership has sparked a new wave of condo development in Sacramento. At an average of $257,000 per unit, new condos are providing a much-needed housing option for many residents and a new business opportunity for multifamily companies.
But many believe condo conversions are more affordable, and thereby, more sensible in Sacramento. “There is a need for more affordable housing, and condo conversion units fill that void,” says Timothy Jones, a partner of Parkview Townhomes in Yuba City, Calif., which is converting Parkview Townhomes, a 43-unit condo conversion project in Carmichael.
While some locals are getting involved in small projects, most of the major players are coming from San Diego and other areas of Southern California, which have become oversaturated with conversions. San Diego-based Brenson Corp., for example, is currently selling The Villas, a 200-unit condo conversion project in Roseville. Units are selling in the mid-$200,000s to the low-$300,000s range and are expected to be completely sold out by the end of March 2006.
Many converters are targeting properties that already have condo maps (even though many of those maps have expired) versus doing a start-to-finish condo conversion. Obtaining a map from the city or county is a lengthy and uncertain process, so it is quicker and easier to convert a property that already has a conversion map, even if it is expired.