Continuing High-End Weakness Seen for Apartment Market in 2002
Master Development Sells Spec Buildings; New Lowe Unit Lands Its First Project
REAL ESTATE
by Daniel D. Williams
The Newport Beach office of Encino-based Marcus & Millichap Real Estate Investment Brokerage Co. has released its annual Apartment Research Report. The report indicates that a weakness in luxury apartments is dragging down the market.
“Luxury apartment owners may have pushed rents too hard in a slowing economy, which would explain a vacancy rate that is currently more than double what it (was) a year ago,” said John Przybyla, Orange County regional manager. “Coming at a time when the economy is faltering, potential renters have become unwilling to absorb the new increases. In markets with a large number of luxury apartments, rents are expected to flatten this year as the local economy enters recession-like conditions.”
According to the report, key economic indicators will put a further drag on the apartment market. First up, job growth is projected to slow to a crawl in 2002. Early figures say jobs will grow only 1.5% this year, or 21,000 new jobs. And unemployment will reach 3.7%, a level last seen in 1997.
Due to rising land costs, development will add only 3,100 apartment units this year. The vast majority of new projects will be high-end product, the exception being low-income housing development in San Clemente.
Marcus & Millichap predicts that the overall apartment vacancy rate will rise 0.3 percentage points during 2002, with the luxury segment taking the brunt of the increase. The vacancy rate now stands at 4%, with Irvine and its high density of luxury apartments at the 9% level.
Rents will continue to climb, but at a decreasing rate. South County rates will remain relatively stagnant, but the central and north county areas have room to grow and will push overall rents up 2.1%, to $1,235 per month.
One positive indicator has been the volume of apartment sales in the last six months. Lower interest rates attracted new investors to the market, but market uncertainty and possible interest rate hikes should nudge transaction volume down again.
COMMERCIAL
Newport Beach-based Master Develop-ment Corp. completed the sale of Skylab Corporate Center, a two-building, 107,600-square-foot speculative industrial project within the 100-acre master-planned Boeing Space Systems Campus in Huntington Beach.
MDC sold the facility to Morgan Concepts LLC, a sheet-metal fabricator, for $4 million. In October 2000, MDC sold the first building to Pacific Shoe Corp., a shoe and leather goods importer from Spain and Italy.
Originally, Morgan Concepts signed an eight-year lease at $2.7 million, but the lease held an option for the manufacturer to buy. The facility is at 5921 Skylab Road, near Bolsa Avenue and Springdale Street.
Wayne Lambert of Colliers Seeley represented Morgan Concepts, while Brad Bierbaum of CB Richard Ellis, Anaheim represented MDC.
Lowe Gets Specialty Labs Project
The Orange County office of Lowe Enterprises landed the development and construction management deal on a 200,000-square-foot build-to-suit in Valencia for Specialty Laboratories Inc.’s new corporate headquarters and testing facilities. Specialty Laboratories tests for irregularities in blood and other bodily fluids.
Project costs and financial considerations on the deal were not released, but a Lowe spokesman said the setup would be similar to the build-to-suit Lowe established for Verizon Wireless’ corporate headquarters in Irvine.
Lowe Enterprises will manage the project through its newly formed Corporate Development Services Group. Stan Wendzel and Brad Hillgren launched the Corporate Development Services Group in December, and the Specialty Labs project is the first for the new group, which Lowe formed to work with companies looking to expand or relocate into a new facility. Wendzel and Hillgren’s group locates land opportunities and develops projects for companies to lease, own outright or own through synthetic lease financing.
Gerald Porter and Reid McCartney of CRESA Partners in Los Angeles handled the transaction.
Bits and Pieces:
The team of Louis Tomaselli and Mitch Zehner were named Voit Commercial Brokerage’s highest producing commercial brokers in the Southern California region for the third consecutive year. Tomaselli and Zehner combined for 113 transactions totaling $216 million for the year. The brokers work out of the Anaheim Metro office G REIT Inc., a Santa Ana-based real estate investment firm, plans a June public stock offering to raise an estimated $110 million. However, the shares will not trade on a public market, according to a spokesman with Triple Net Properties, who will manage the fund.
