Article by Daniel D. Williams Orange County's hot housing market is the headline grabber. But another segment of apartments promises to become increasingly important as the imbalance between tight supply and strong demand for homes gets wider and OC land becomes scarcer for homebuilders. Unlike its housing kin, the apartment market is seeing just modest rent increases across the county. A recent study by the University of Southern California's Lusk Center for Real Estate found that the county's apartment dwellers should see lower rent hikes than their neighbors. Average rents in OC are expected to climb 8% in the next 20 months, according to the study. That compares to rent increases of 12% in Los Angeles County and 15% in the Inland Empire in the same period. OC counts some 225,000 apartment units, with a handful of projects under way. But a future apartment imbalance isn't out of the question. While the county is forecast to add about 2,500 new apartments each quarter, that's only half the rate of three years ago, according to Raphael Bostic, director of the Lusk Centers Casden Forecast. Bostic said high land prices, a lack of land for apartment construction and community resistance to multifamily development,have limited the supply of new units coming on the market. OC residents desire to own a home has helped keep the apartment market from overheating. The occupancy rate for OC apartments is 95%. Still, monthly rents rose just 2% to $1,219 last year, according to Novato-based RealFacts, a residential analysis and consulting group. The tepid increase is a burden for real estate investors and a boon for renters, according to Caroline S. Latham, chief executive of RealFacts. Average rent in Orange County broke the $1,000-a-month barrier in 1999, and for several years showed double-digit increases, she said. But owners aren't throwing up their hands, with just 40% of apartment complexes offering discounts or other incentives to prospective renters, according to RealFacts. And the majority of discounts are incentives to sign leases longer than the standard six-month period, Latham said. Don't look for those rent increases to hit anytime soon. The tight market will not translate into significant increases in rent in Orange County, the Lusk Center's Bostic said. He added that despite the county's unemployment rate being among the regions lowest, a slow economy should keep rents in check, although there are a few spots where big rent increases are expected. The strongest rent growth will come from demand by Hispanic families, with Santa Ana and Anaheim expected to see particularly high increases. Hispanics represent an increasing share of the regions total households, Bostic said. But their relatively low incomes coupled with rapidly increasing single-family home prices keeps them in the rental market. Higher-end areas such as Newport Beach, conversely, are expected to have comparatively slow rent growth. Developers have turned to higher-density projects such as condominiums and apartments to cram more people into OCs dwindling space. Already, high-density projects are in the works for areas where housing is traditional: Taylor Woodrow PLC is building such projects at Banning Ranch (25 units per acre), Ladera Ranch (18 units per acre) and Talega near San Clemente (13 units an acre). OC's highest-profile project is Canadian developer Bosa Development Corp.'s plan for twin 18-story luxury condominiums at Jamboree Road and the San Diego (I-405) Freeway in Irvine. On a 2.3-acre parcel, the Marquee at Park Place project calls for 120 units per tower. It would be OC's first major high-rise residential project if plans, which have been submitted to the city of Irvine, go ahead. Meanwhile, Long Beach-based Urban Pacific Builders LLC, a developer of urban infill housing, recently bought two acres of vacant land at Von Karmen Avenue and DuPont Drive in Irvine. Urban Pacific paid $4 million for the land and has plans for a high-density housing project on the site. Also on tap are smaller projects in Brea, Fullerton, Irvine and Orange that have a mix of verticality or density that is uncommon to OC, according to Richard M. Gollis, a principal with Newport Beach-based consulting firm The Concord Group. On the condo side, there really are dynamics in place, Gollis said. You have an aging population, looking for a lower-maintenance environment, particularly in the Irvine market. The older consumers want the convenience that attached housing provides, Gollis added. There's also a segment that cant afford detached housing,Gollis said. The entry-level market has growth pending and that's an important factor. Sometimes, the best plan for developers is to involve the city in which you're building as in one case in Fullerton. In the resurgent downtown area, work is under way on a luxury apartment and retail complex. The OC office of The Morgan Group Inc. has broken ground on the 183-unit City Pointe Apartments near Harbor Boulevard and Chapman Avenue. The project is a venture of Houston-based Morgan Group and Hartford, Conn.-based Cornerstone Real Estate Advisers Inc. The project had a healthy push from the Fullerton Redevelopment Agency. In a second downtown Fullerton project, San Francisco-based BRE Properties Inc. is building 192 luxury apartments. Known as Pinnacle at Fullerton, the project calls for 9,000 square feet of retail space and a parking garage. The apartments, being built on a vacant lot, are set to be available in 2004. According to a Fullerton official, the two projects carry price tags of about $35 million each and would represent the largest private investment ever made in downtown Fullerton.
February 24, 2003