The lure of easy profits brought a surge in apartment conversions to condominiums, often before projects even finished.
Now with home sales declining, the tide could be shifting in some cities.
Expect to see some developers do “reverse conversions,” where projects originally intended as condominiums end up being rented as apartments, said Bill Montgomery, president of Irvine-based Sares-Regis Group, a developer and owner of apartments and condos.
San Diego could see reversals, Montgomery said at the Southern California Real Estate Conference in Anaheim earlier this month.
About 100 housing projects are planned or under way in San Diego, most of them condos.
With signs of a cooling housing market, developers there could have trouble selling all those condos, he said.
Sares-Regis has shied away from building apartments in San Diego since early 2005, because of what Montgomery called an overheated market.
It’s a scene similar to what is going on now in downtown Los Angeles, which Montgomery described as a “food fight.”
A shakeout could be what’s needed to kick-start apartment development, Montgomery said.
Sares-Regis hasn’t been able to justify building apartments in Orange County when condos sell for upward of $600 per square foot.
“We’re having a hard time building apartments here,” he said.
Trends could favor apartments, according to Montgomery.
The county has a growing base of office workers who are more likely to rent than buy locally, he said.
Speaking of Apartments
Irvine’s Bascom Group LLP was involved in $314 million worth of apartment deals in the past month, including a sale here and a buy in Denver.
The company sold Creekside Meadows, a 628-unit complex in Tustin, for $123 million.
The price for the 70-building complex works out to $196,000 per unit,a lot for apartments built in the early 1970s.
Seattle-based Security Properties Inc.,with backing from the State of Illinois Public Pension Fund,bought Creekside.
In Denver, Bascom bought the Breakers Resort, a 1,523-unit luxury apartment complex.
The price was $190.5 million, or $125,000 per apartment.
The sale is believed to be one of the pricier apartment deals in Denver. The sellers were Feld Co. and Koelbel & Co., which built the complex in 1989.
Bascom owned about 21,000 apartments before the latest deals. It goes after apartments in California, Arizona, Hawaii, the Pacific Northwest, Colorado, Utah and Texas. It also owns about 3.1 million square feet of office and industrial space.
More Apartments
Irvine-based Atherton-Newport Investments LLC closed on its largest investment to date this month.
The company, founded in 2001, paid a private investor $114 million for seven complexes in the Seattle area, totaling about 1,215 apartments.
Atherton-Newport owned about 3,800 apartments prior to the deal.
The Seattle deal had been in the works since late last year.
The properties were “underperforming and will be rehabilitated and repositioned,” according to Atherton.
Besides Seattle, Atherton is looking to buy in California, Florida, New York, Connecticut, Nevada and Phoenix. The company has made two apartment and two land acquisition deals in OC.
Newport Beach-based real estate investment bank Buchanan Street Partners is keeping busy buying property and helping developers finance their own projects.
The company just completed its first deal in Charlotte, N.C., getting a stake in seven office buildings in the southwestern part of the city.
Along with Charlotte’s Beacon Partners, Buchanan Street bought the 240,000-square-foot Arrowhead Office Park, a three-building complex, from Faison & Associates of Charlotte.
Buchanan Street also grabbed a stake in the Atrium Corporate Center, a four-building, 151,000-square-foot complex already owned by Beacon Partners.
The deals add up to $38 million, including about $5 million in tenant improvements Buchanan Street plans to put into the buildings, said Bob Dougherty, senior vice president of the company’s investment management division.
The buildings are about 60% full, which partly explains the un-OC like sales figures. The buildings went for about $77 per square foot.
Buchanan Street sees the Charlotte office market rebounding, Dougherty said.
Buchanan Street kicked in about $7 million of its own money for the Charlotte deal. Beacon Partners added $1 million.
On the loan-making side, Buchanan Street is arranging $110 million in financing for a 20-story office tower in Bellevue, Wash., for office developer Hines Interests LP of Houston.
Hines and Washington Capital Management are developing the 465,244-square-foot building.
Buchanan Street arranged $85 million in financing for Hines’ 2211 Michelson office tower in Irvine.
It also helped Hines close on a land deal in La Jolla.
