For much of the past few years, apartments were the neglected stepchild of the housing boom.
Apartments often ended up on the losing end when it came time to decide what to build, getting passed over for condominiums. Several apartment developments even went condo during or after construction.
Now that home sales are in their second year of a slowdown, apartments could be back.
“The market is beginning to swing back,” said Patrick Simons, executive vice president and chief development officer for Atherton-Newport Investments LLC, an Irvine-based developer that both buys apartments and builds infill complexes.
“Pricing is beginning to make a lot more sense” for apartments, he said.
Atherton-Newport, which has been eyeing apartments in Seattle, Las Vegas, Phoenix and Miami in the past year, sold its last Southern California complex last year. Now, it’s looking to get back in, Simons said.
“Land owners are becoming more realistic on (land) prices here,” he said.
The company is looking to spend about $600 million on deals across the country in 2007, up from $425 million last year. About a quarter of this year’s deals could be here in Southern California, according to Simons.
But it could be a while before there’s a sustained pickup in apartments.
Developers are expected to add about 1,900 apartments this year, according to a report from the Irvine office of Marcus & Millichap Real Estate Investment Brokerage Co.
That’s the same amount as last year. There were roughly 1,500 apartments that came on the market in 2005, and 2,100 were added in 2004.
The lack of construction,and housing prices that still are out of reach for the majority of residents,makes OC’s apartment market one of the best in the country for landlords.
Marcus & Millichap expects rents to increase 6% this year, the second strongest gain in the country. OC trails only New York, where rents are seen going up 6.5%.
Slowing home sales could impact the apartment market as condo conversions dry up and apartments stay on the market.
The most notable example: In December, Trammell Crow Co. sold a 278-apartment complex in Orange to UBS Financial Services Inc. for $91.5 million.
The apartments were set to be sold as condos by Hovnanian Enterprises Inc.’s K. Hovnanian Homes, but the builder backed out of a deal in August.
Irvine-based Standard Pacific Corp. late last year backed out of a $34 million condo conversion project in downtown Los Angeles after slow sales. The homes turned back into apartments.
Still, the local market hasn’t been hit by a big number of unsold condo units coming back on the market as apartments, according to market watchers.
The biggest apartment projects under way remain in Irvine.
The Irvine Company is nearing completion on the first two sections of The Village, a complex opening across the street from Irvine Spectrum Center. The complex, built in four sections, will total about 1,550 apartment units when complete.
Also in Irvine, a 290-apartment project at Main Street and Jamboree Road long has been delayed after a good chunk of the construction was already completed.
Legacy Partners Inc. of Foster City, which had been leading the development, recently sold the site to Camden Property Trust of Houston. Camden is set to take over construction of the project and manage the apartments.
For the Irvine Co.’s next apartment project, it is looking for its first deal in Costa Mesa. It plans an 890-unit apartment complex along Anton Boulevard, near South Coast Plaza Town Center.
Grading work has begun for the project, known as The Enclave. Construction could begin later this year.
The 40-acre project is slated for undeveloped land held by the Sakioka family. The Irvine Co. would lease the land and be responsible for paying the city about $1.7 million in park fees.
