If there’s an end in sight to Orange County’s apartment construction boom, no one told the developers.
About two dozen larger-sized apartment projects totaling more than 5,000 units are currently under construction in Orange County, with Irvine and Anaheim continuing to lead the charge (see listings, beginning on page 24).
That’s a slightly higher pace of construction than a year ago, but below 2017 levels, brokerage data indicates.
The 5,000 apartments are roughly the same amount of units as new homes that were built and sold in OC last year.
A few speedbumps appear in the horizon. In particular, uncertainty in the market over whether OC’s job growth can keep pace with new construction, and issues of development caps in some areas.
But for now, business is booming.
“Apartment construction and development has remained steady over the past seven years. The rental market continues to improve as homeownership becomes more and more exclusive,” said Jonathan Giannola, regional manager at brokerage Marcus & Millichap.
Job Worries
Nearly 3,600 apartment units are being built in Irvine alone, according to property records from real estate market tracker CoStar Group Inc.
Anaheim’s 820-acre Platinum Triangle isn’t too far behind, CoStar’s data shows. Lennar Corp. recently finished a 400-unit project there called The Core, a few blocks from Angel Stadium, and the Miami-based builder just got city approval to move ahead on another batch of construction nearby on land that’s part of its A-Town development.
A multifamily market report by JLL shows that developers in Orange County have delivered 26,500 units since 2010.
“Healthy leasing activity, sustained job growth and high single-family home prices have built up an increased demand for multifamily construction,” the report said.
A few builders have questioned the area’s potential to add jobs, considering the county’s already historically low unemployment rate.
Company officials with Highland Ranch, Colo.-based UDR Inc. (NYSE:UDR), which had about 13% of its total rental portfolio—about 5,000 units—in OC at the end of the year, in April noted that the county “has had slower job growth” than some other of its core markets.
Job growth here “is projected to pick up a little bit. We’ll see how strong that comes in,” UDR Chief Operating Officer and President Jerry Davis said.
UDR’s portfolio in OC was about 92% leased at the start of this year, compared to 95% for its companywide portfolio of nearly 40,000 units.
The company is still bullish on investments in the area. Earlier this year, UDR exercised an option to buy out its partner’s interest in Anaheim’s Parallel apartment complex, a 386-unit project in the Platinum Triangle that opened last year.
It bought the 51% stake in the community from Scottsdale, Ariz.-based Wolff Co., paying $33.5 million in cash, plus the repayment of $59.8 million in construction-related debt.
The deal for the complex along Katella Avenue, a few blocks from Angel Stadium, values the property at around $480,000 per unit.
IBC, Spectrum, UCI
The Irvine Business Complex has been a hub for new multifamily deliveries, but is nearing a 15,000 unit cap on new residential projects set by the city council in 2010.
The good news for developers is that only about half that amount has already been built, with several large projects either in construction mode or preparing to start in the next few years.
Other IBC developers including San Diego-based Garden Communities still have entitlements for thousands of unbuilt units, not all of which are expected to break ground in the short-term.
There’s plenty of development underway and planned in other areas of OC’s fastest-growing city.
The largest apartment project currently under construction in the region is also in the Irvine Spectrum area: the Irvine Co.’s next phase of its Los Olivos development, on a large parcel at the corner of Bake Parkway and Irvine Center Drive.
About 2,000 units are being built there in the latest phase of development, according to CoStar records.
Irvine Co. recently proposed a student housing development for the University of California-Irvine on 19 acres of the company’s UCI Research Park, a 185-acre office park next to the school.
The 2,800-bed proposal would be the largest housing project for UCI—which has nearly 30,000 undergraduate students—in over a decade.
Anaheim Abounds
Anaheim’s Platinum Triangle has been attracting the attention of apartment developers over the past decade, who took advantage of swaths of land previously occupied by older industrial and office buildings.
Urban redevelopment plans has led to thousands of apartment deliveries in recent years with more on the way: Lennar’s A-Town, LT Global Investment Inc.’s LT Platinum Center and JPI’s Jefferson Stadium Park are projected to bring thousands of more rentals, as well as for-sale, hospitality and retail development to the area.
These three projects, in various stages of development—China-backed LT Global has yet to break ground—represent about $1 billion in planned investment.
The Platinum Triangle Master Land Use Plan, a city-implemented structure to promote development, kickstarted the region’s activity by rezoning the area from industrial to mixed-use in 2004.
The area, when built out, could hold about 17,500 residential units, 9.2 million square feet of office development and another 4.8 million square feet of other commercial property types.
Unlike the IBC, the bulk of those entitlements are yet to be spoken for.
Recent real estate moves by the Samueli family—owners of the Anaheim Ducks—suggest the area around Honda Center could soon be the next area for mega-development, although specifics have yet to be announced.
Notable projects underway include JPI’s Jefferson Stadium Park project, which will account for 1,079 units when built out.
The $364 million development, one block from Angel Stadium, has three phases; leasing has begun for the first two: Jefferson Edge and Jefferson Rise, while the third, Rezo, starts leasing next year. Tenants began moving in last month.
It’s also started building Rev at Platinum Park, a 332-unit complex.
JPI now has its eye on Placentia.
The Business Journal in April was first to report that JPI closed on land about 5 miles north of Angel Stadium, next to Placentia’s forthcoming $35 million Metrolink train station set to open in 2021.
The 5-acre site along the 500 block of West Crowther Avenue will hold JPI’s first Orange County project outside Anaheim.
The land will hold a 418-unit, mixed-use apartment rental project called Centerpointe. It will be one of the largest residential developments in Placentia in several years, and adds to a growing list of new apartment projects within a few miles of California State University-Fullerton.
Market Outlook
Rising housing prices and low single-family supply seem to be feeding into demand for multifamily projects in Orange County.
The monthly premium to own versus rent in Orange County is nearly 60%, the second highest among West Coast markets, according to JLL.
Rents here grew 2.3% in 2018, and are up nearly 29% since 2008.
A 19% increase in apartment units is expected this year. There are 5,118 units under construction in Orange County, JLL’s report shows.
“Even with an influx of supply projected in 2019 vacancies are projected to remain at 4.2% for the market. These projects come at a much-needed time after decades of insufficient supply.”
