Those lucky enough to hold Orange County multifamily real estate know that times are good. Investors and renters want what Orange County owners have: rising rents, high returns, and equity that's growing at a rapid pace.
Compared to the overall Southern California market, Orange County is small but valuable. In 2004, just 4,300 units traded hands compared to 24,000 units in Los Angeles and 8,500 units in the Inland Empire. The O.C.'s average sale price of $138,217 per unit, however, surpassed Los Angeles and the Inland Empire by $18,093 and $43,775 per unit, respectively. Occupancy also rarely dips below 95 percent, regardless of whether the property is oceanfront or inland, Class A, B, or C. On the sales side, listings are experiencing multiple buyers, offers, and counteroffers, in part because of tremendous support from lenders.
“Just as investors are eager to invest in Orange County apartments, lenders are equally eager to lend on them,” says David Susank, vice president in the Irvine office of Johnson Capital, a national real estate capital advisory firm based in Irvine, Calif. “The perceived risk of lending on apartments in Orange County is low relative to other property types and other markets. Apartments in general have fewer delinquencies and defaults than other property types. This, coupled with the strong real estate fundamentals in Orange County, fuels the intense demand we see from lenders and investors.”
Still, multifamily transaction volume dipped in 2004, when many people were essentially in a holding pattern with their assets for a few reasons, including the presidential election and speculation that interest rates might make a big jump.
Though the high cost of coastal properties can favor the larger buyer, the friendly lending environment in Orange County has helped all levels of investors enter this multifamily sub-market, which features 42 miles of waterfront land—the jewel in Orange County's multifamily crown.
The coast represents the overall best product, highest rents, and most attractive quality of life. Renters who can't afford their own home are more than willing to pay the $1,400 per month required for a Class A studio apartment one mile from the beach.
“If we had our choice, we would always buy coastal because people are always going to want to live there. The problem is that there are just not very many of those deals to be had,” says Aaron Pacillio, acquisition manager for Pacific Property Co., a strategic investment firm that since 1998 has acquired approximately $1 billion along the Pacific Coast, virtually all value-added properties. “In any given year in Orange County, maybe one or two large deals over 75 units will be coastal.”
In Line for Irvine
Irvine has its own corporate base and has been building amenities to become one of Orange County's most attractive live/work/play environments. It has also become a hot spot for new amenity-packed luxury multifamily projects.
One such development is The Plaza-Irvine, a joint venture between Opus West and Geoffrey H. Edmunds & Associates and the first high-rise condominium project for the Irvine/Newport Beach area. The Plaza-Irvine will total two 15-story towers at the corner of Jamboree Boulevard and Campus Drive by late 2006. Each tower will have 101 for-sale luxury condominiums ranging from approximately 1,100 to 4,300 square feet.
“This is a whole new product for the marketplace that evolved along with the area's housing demand and lifestyle requirements,” says Paul Marshall, Opus West's senior vice president of real estate development in Southern California. Since releasing units at The Plaza-Irvine, Marshall reports they have secured 80 buyers.