The bustling pace of apartment development in Orange County of late would suggest that there’s no end in sight to new multifamily construction in the region.
In Irvine alone, there are plans either in the works or under construction involving more than 9,000 apartments across the city. That level of development could have a big impact on the city’s population, which last year stood around 215,000 people.
More than 3,000 of those apartments are planned for several sites around the Irvine Spectrum, including land once eyed by Newport Beach-based Irvine Company as potential office sites during the last commercial real estate boom.
Closer to John Wayne Airport, proposals for apartment development include a number of sites now holding older commercial buildings such as the Irvine Corporate Center office complex on Armstrong Avenue near the District at Tustin Legacy shopping center.
Early-stage plans have been filed with the city to turn the nearly 103,000-square-foot office property—which brokerage reports show as being up for sale—into a 334-unit multifamily project, though a time frame hasn’t been specified.
Elsewhere
OC’s apartment push isn’t confined to Irvine.
Several thousand apartments are in the works in Huntington Beach, including multiple sites near the Bella Terra shopping center (see related item in Real Estate, page 91).
Newport Beach-based Lyon Communi-ties last week broke ground on a 300-unit project in the South Coast Metro portion of Santa Ana, at the intersection of MacArthur Boulevard and Main Street. The four- and five-story development, called The Marke, is expected to be completed by the end of next year.
Lyon Communities’ development is one of two new apartment projects planned in the area around Essex Property Trust Inc.’s two-building Skyline at MacArthur Place towers, OC’s tallest residential property.
Palo Alto-based Essex bought the 25-story Skyline buildings in a bank-driven deal in 2010 and this year bought out a partner’s stake in the high-end rental property in a deal that valued the 349-unit Skyline at about $170 million.
Don’t expect Essex to make too many more deals in OC for existing properties like Skyline, said Jeff Rowerdink, first vice president of acquisitions for the apartment investor and developer.
“[Essex is] trying to go after deals that are shovel-ready, because the cost of construction right now is still relatively low,” Rowerdink said at this month’s RealShare Orange County conference in Irvine.
Apartment owners and developers at the conference said they expect multifamily rents in OC to increase 5% or more, year-over-year.
Rising rents, vacancy levels of 5% or less, and still-strong demand for new buildings—particularly in infill locations—has those companies eyeing sites across the county for new development.
Cities have been amenable to getting new multifamily projects approved for construction, as development for other types of commercial properties remains slow.
“It’s a good time to be processing entitlements,” John Condas, a partner at the Irvine office of law firm Allen Matkins, said at RealShare.
Boom Doomed?
How long can the development boom last? Maybe not as long as area builders think, suggests a report out this month by the UCLA Ziman Center for Real Estate.
“[The] boom in multi-family construction will have within it the seeds of its own destruction,” UCLA senior economist David Shulman said in the report.
Supply will begin to outpace demand by 2014 on a national level, the report said. That could put a dent in the rental appreciation most apartment investors and developers expect to see at their properties.
“As rents rise, consumers will shift out of rental into ownership units,” Shulman said. “The American Dream of homeownership may be comatose, but it is not dead, and the wake-up call will come in the form of higher rents.”
Multifamily starts could top 400,000 units on a national basis by 2014, the report projects. About 260,000 apartments are expected to be built this year.
There were about 354,000 multifamily units that started construction at the peak of the last apartment boom in 2005. Volume dropped to a low of 112,000 units in 2009.
