Drawn by rising rents and strong employment growth, Palo Alto-based real estate investment firm Pacific Property Management has purchased two apartment buildings in Orange County this year and is looking to spend another $80 million in a Southern California buying binge.
“We’re searching on a daily and hourly basis to buy more properties in Orange County,” said Phillip Shuster, regional director of acquisitions for the company’s Southern California operations, stretching from Ventura County to San Diego. “It’s a great market. It’s got good growth, a good employment base and great weather.”
The company has already spent $30 million in Southern California this year. In Orange County, the company recently completed its second buy, having paid $19.9 million to FowlerShore & Flanagan for the 242-unit Slate Creek Apartments in La Habra. The deal follows the January purchase of the 184-unit Brookpark West complex in Buena Park (now called Brookstone) for $12.6 million from Granite Real Estate Investments.
Pamela Woolridge, president of The Research Network Ltd., a Rancho Santa Margarita-based apartment tracking service, said Pacific Property’s bullishness on the OC and Southern California apartment market is not surprising.
“The fact that rents have been moving up for roughly three years gets people’s attention in terms of a growth opportunity for capital,” Woolridge said. “The other side is the (large) availability of money that exists these days.”
After relatively flat growth between 1990 and 1995, when monthly rents rose from $773 to $794 for a typical apartment, OC apartment rents have posted consistently strong gains. In 1996, they jumped on average to $802, then $846 in 1997, $940 in 1998 and $990 last year, according to the Research Network. While final year-to-date figures for this year are not available, Woolridge expects another healthy increase past the $1,000 level.
Besides the strong employment growth, the lack of new development opportunities in Orange County is further increasing rents.
“Unfortunately in Southern California, there aren’t a lot of opportunities for new development, certainly not in Orange and Los Angeles counties,” Woolridge said.
Pacific Property, eager to take advantage of this trend, uses funds from private investors and is focused exclusively on apartments, Shuster said.
“Our company’s strategy is (to acquire) value- added properties,” he said. “We’re looking for properties specifically that are not managed to the max, which means rents are not being maximized or the property needs to be upgraded.”
At the Slate Creek Apartments complex, Pacific Property will spend $600,000 to upgrade and renovate the property, while the newly acquired Buena Park site is set to receive a $1.2 million facelift. In the past, Pacific Property has spent as much as $2 million on upgrades, saying it won’t shy away from properties needing major renovations, Shuster said.
While the company’s war chest will be spent wherever Pacific Property can find what it deems suitable deals in Southern California, Shuster said he is especially eager to find properties in Orange County.
“The rent growth there historically, in the last two to three years, has been extraordinarily good,” he said. “So we’re looking feverishly to buy more in Orange County. I wish we could buy ’em all tomorrow but we can’t.”
Robin Ossenbeck, of Marcus & Millichap brokered the Pacific Property-FowlerShore & Flanagan deal.
