Fresno, Calif.—Rising home prices and low multi-family housing production are combining to create an improving apartment market in this Central Valley community.
The overall occupancy rate is about 95 percent, and rents have been going up roughly 5 percent annually for the last few years, reported Mark Mimms, a senior adviser at Sperry Van Ness, an investment brokerage firm.
Mimms, who is based in Fresno, said housing prices in the area began shooting up around 2003, and land prices have almost doubled since then. The median Fresno County home price shot up 9.3 percent in June from a year earlier to $306,000, according to the latest figures from the California Association of Realtors. The median price in the city limits was lower at $293,000, but that’s also a 10 percent increase from June 2005.
“People came in and started buying apartments because they knew if costs went up people were going to have to rent,” he said. Mimms reported that there were 18 transactions in a recent 12-month period, mostly for Class B properties. The average cost was $79,815 per unit, and the average cap rate was about 6.41 percent.
In early August, he counted 29 developments on the market, though he added that activity had slowed recently because of rising interest rates.
Mimms recently represented Bascom Partners of Irvine, Calif., in the $6.5 million sale of Ridge Point Apartments, a 96-unit community, to a private investor from Oakland. Built in 1974, the complex was 97 percent occupied. Monthly rents ranged from $565 to $675.
Although construction activity has been pretty modest in this agricultural community, that started to change last year. In 2005, there were 1,274 units permitted, the highest in about five years, according to Michael Sigala, Fresno housing and community development manager.
Others are also seeing the market pick up.
“The Fresno market has been good for the last five years,” said Michael Goldfarb, chief operating officer at Manco Abbott, a Fresno-based firm that manages about 5,000 rental units.
“Fresno was probably the last area within the state to be discovered by different developers. We are starting to have investors from Los Angeles and San Francisco looking to develop or renovate.”
There’s good demand for the newer properties, said Goldfarb, whose apartment communities include the recently built Cotswolds and Villa Lucia developments.
Cotswolds is a 188-unit complex in northeast Fresno. Developed by local builder Leo Wilson Homes, the property features tiled roofs and direct-access garages. Monthly rents range from about $1,200 to $1,650, which is at the higher end of the region’s rent scale.
“It’s a very successful property,” Goldfarb said, noting its location in a high-demand area, where new retail and offices buildings are springing up.
When Goldfarb arrived in Fresno about 15 years ago, people often asked him why he moved to the city. “I thought it had a lot of potential,” he said. “It’s always been a less expensive place to live, and it still is, but it’s coming [into] its own.”
He pointed out, however, that Fresno remains an agricultural community, which means that lower-wage workers continue to be a significant part of the population.
And job growth tends to be much more sluggish in Central California than on the coasts, as can be seen in the double-digit unemployment rates that Fresno has endured in recent years. Still, employment gains over the last two years have lowered the jobless rate to near a five-year low. In June, the unemployment rate in the Fresno metropolitan area was about 8 percent, according to the U.S. Department of Labor. The national rate was 4.8 percent.
Fresno’s Sigala said he is seeing some out-of-town developers show interest in developing affordable housing developments in Fresno, including low-income housing tax credit deals.
Fresno Mayor Alan Autry recently called for 10,000 new affordable housing units to be built in the city by 2010. As part of that effort, he said he would establish a panel to support partnerships that would be involved in smart-growth, infill, and transitional housing developments.