Scott Morrison, a senior vice president at Irvine-based Legacy Partners Residential Inc., agrees with Shelton that job losses
have a significant impact on the housing market in Southern
California. He notes that both those who have lost their jobs
and those who are still employed are insecure in today’s economy and do not want to commit to a lease, thereby choosing to
stay where they are. “There is a lot of doubling up, or residents
and kids moving back home to help their parents,” he says. “The
‘shadow market’ or ‘gray market’ of rental homes and condos is
having an impact on the supply of apartments.”
Morrison says that the Legacy Partners apartment portfolio
“will definitely increase in the next 12 months.” Even though
37.8% of the respondents to RESOCAL’s multifamily survey, like
Shelton and Morrison, said they plan on increasing the size of
their portfolios in the next 12 months, 48.9% replied that they will
simply maintain their current number of assets. Another 13.3%
said they would decrease their holdings. “We would love to increase, but
can’t find sellers—whether private
or institutional—who are willing to
sell at pricing that can be financed
today,” said an owner/developer.
and asset managers switching management companies “to see if
the grass is greener on the other side or make a change because
they want a fresh look.” He adds that another opportunity for
growth is the addition of “RONDOs” or “Rental Condominium
Projects being converted to Apartments.”
According to survey results, roughly 57.1% believe that distressed
properties will provide the most growth opportunity. Approximately
17.6% said acquisitions, 12.1% said development of existing assets,
11% said urban infill development and 2.2% said new development.
One private equity respondent stated that his firm expects that most
redevelopment will be of distressed properties.
Staying Afloat in the Near Term
Even though the region may be navigating some choppy waters, owners and property managers are confident they will
retain most of their tenants in the next year. An overwhelming
80.7% said that they expect to hold on to those occupants they
already have.
Owners and property managers—in order to stay afloat—are
figuring out ways to stay competitive and continue to attract
and retain tenants in the next
12 months. Approximately 47.2%
of respondents are doing so
through incentives, while 31.5%
said through rent decreases, and
9% said installing amenities.
Roughly 12.4% said other, which
included focusing on tenant
needs and customer service, and
a few property managers/owners
said improving management is
their number one way to compete going forward. Owners have
also increased advertising budgets, says Marcus & Millichap’s
Harris, adding that he has even
seen rental concessions as well as
move-in giveaways, including new
iPods, televisions and the like.
Western National intends to remain competitive by out-hustling
and out-managing the market.
The firm will achieve that by hav-
ing “better people, better training, better systems and procedures
and a better platform for operating efficiencies,” Shelton says.
“Customer service will continue to be our number one tool in attracting and retaining residents.”
Morrison says that resident retention has decreased slightly due
to job losses and residents doubling up, but notes that the firm is
keeping its rents competitive. The firm is also looking to its customer service, and flexibility in allowing longer lease terms such
as 13 to 18 months to attract and retain its tenants.
As for rents during the 2009 calendar year, Marcus & Millichap’s Harris points out that in supply-constrained infill
markets, rents will likely be flat or experience slightly negative
“... until job growth returns to a normal
level, we should expect to see continued
softness in the multifamily sector.”
—Thomas Shelton, president of Western National Property Management, who is based in the Irvine office.
Areas for Growth
As the effects of the recession
continue to filter through the
multifamily sector, there will be
a continued downturn in operating fundamentals in 2009, according to Ron Harris, a senior
vice president and senior director
of Marcus & Millichap’s national
multihousing group, based in the
Los Angeles office. “However, owners who have long-term ownership
horizons will find great opportunities in A/B locations that still have
strong underlying market drivers.”
Harris notes that the traditional Southern California multifamily strongholds—coastal Los
Angeles areas, some coastal Orange County areas and San Diego
County—will continue to perform
well, as will established urban areas with cultural amenities
and jobs, such as Hollywood. “These areas will be much less
affected by the current recession and will be the first areas to
see rent growth and cap-rate compression when the economy
stabilizes,” he says.
Owners are “looking to simultaneously increase their
portfolios in infill markets with high barriers to entry and
established employment centers, and decrease their holdings in markets where they feel exposure both to the softening single-family housing market and the recession,”
explains Harris.
Legacy’s Morrison says that he has seen apartment owners
“The ‘shadow market’ or ‘gray market’ of
rental homes and condos area having an
impact on the supply of apartments.”
—Scott Morrison, a senior vice president at Irvine-based Legacy
Partners Residential Inc.
“In areas that have seen a glut of multifamily
development ... effective rents will decrease
considerably in 2009.”
—Ron Harris, a senior vice president and senior director of Marcus &
Millichap’s national multihousing group, based in the Los Angeles office.
