Investors may be looking to buy apartment complexes again, but owners aren’t quite ready to sell.
This disparity is creating what brokers call a “scarcity premium” as rents and occupancy stabilize in Orange County.
The situation slowly is pushing prices up for apartments after a downturn that wasn’t as severe as expected, according to brokers.
“People have become more impatient with their money and (sales) volume has increased a little bit,” said Joseph Cesta, regional manager of Marcus & Millichap Real Estate Investment Services Inc.’s Newport Beach office. “Part of the issue is that there is not a whole lot of (apartments) on the market.”
When apartments are listed for sale, they’re seeing multiple potential buyers, according to Cesta.
Hesitancy by owners to put apartments up for sale likely is the result of economic uncertainty, he added. Potential sellers also may be on the fence about selling because they’re likely to have a tough time finding another building to put sale proceeds into for tax purposes, Cesta said.
At the same time, buyers waiting since last year to put money on distressed assets have been sorely disappointed with the lack of fire sales, according to brokers. That’s not likely to change as few expect the market to be flooded by lender-owned apartments in the future.
“We dodged that bullet,” said Raymond Eldridge, senior vice president in the Newport Beach office of CB Richard Ellis Group Inc. “People were anticipating blood in the streets just because of the correction in the market. But it hit office, industrial and retail different than it did multifamily. We’re over the hump.”
The average price for an OC apartment now is up 5% from a year earlier to $162,400 per unit, according to a report from Marcus & Millichap.
Of the 90 OC apartment sales closed so far this year, Marcus & Millichap brokers closed 17. Eleven of those Marcus & Millichap deals were worth more than $3 million. Two were worth more than $14 million, according to Cesta.
Meanwhile, capitalization rates—or ex-pected returns from rents—are 6% to 6.5% for apartments here. Many expect cap rates to continue to fall during the remainder of the year as competition among buyers remains stiff.
The 628-unit Creekside Meadows in Tustin, with a listing price of $100 million, is in escrow. If the deal closes, it would be one of the few sizable local deals this year, following Essex Property Trust Inc.’s $128 million purchase in March of the 349-unit Skyline Towers in Santa Ana.
Sales are expected to pick up in the second half of the year as additional apartments are listed and rents continue to recover from the steep declines of the downturn, Eldridge said.
“Most of the people we’re talking to are seeing concessions waning and property managers are starting to raise rents,” he said. “A lot’s going to depend on job growth, and (when that will happen) is anybody’s guess. But there was a time when residents weren’t sure how significant the economic situation was going to be. So there was doubling up and moving back home. It seems like that’s subsided a bit.”
While asking rents for OC apartments still are down from the peak and even from last year, average rents have started to creep up slowly.
The average apartment rent in the county was $1,482 at the end of the second quarter, according to Novato-based market tracker RealFacts. That was up slightly from the first quarter’s average of $1,478 and the fourth quarter’s $1,473.
Rent increases vary by city. Rancho Santa Margarita, Irvine and Huntington Beach saw gains from the first to second quarters. Fullerton, La Habra and Anaheim saw rents decline.
“It seems the bottom of the market was the fourth quarter,” said Sarah Bridge, owner of RealFacts. “Now, for the past two quarters, rents have gone up, though nothing tremendous. We’re going to see continued improvements.”
Occupancy of local apartments is at 94.3%, a sign that rents may be going higher, ac-cording to Bridge. Apartments have continued to fill up since the second quarter of 2009.
“We’re going to see continued rent increases in the future,” Bridge predicted. “But there’s still a lot of ground to be made up for the losses sustained over the last couple of years.”
OC rents actually are predicted to end the year down, albeit slightly, falling 0.9% from 2009, according to Marcus & Millichap.
The largely flat rent projection is a big reversal of 2009’s 6.9% drop.
“We’re seeing stabilization and I expect rents to continue to stabilize,” Cesta said. “But this all depends on what happens with the national economy.”
Hamanaka is a freelance reporter based in Fullerton.
