San Diego Union-Tribune (Sunday)
DESPITE SLOWED RENT GROWTH, DEVELOPERS KEEP BUILDING
Roughly 4,000 new apartments are expected to hit the market this year in county as investors eye S.D. area
San Diego’s rent growth slowed in 2020 and all it took was a global pandemic. For the first time in roughly 10 years, rent prices did not go up for much of San Diego County — especially in the months directly following COVID-19 hitting the United States. Rents eventually stabilized but it wasn’t an eye-popping amount. The price of a one-bedroom apartment increased 2.9 percent in 12 months as of February, said rental website Zumper.
Landlords had more than just slowed rent growth to worry about in 2020. A patchwork of laws prevented eviction of tenants who had suffered income losses due to COVID-19, and 2020 was the first time that San Diego County was under any rent control law — a statewide effort that limits yearly increases here to around 7 percent.
All of this makes what is happening right now surprising. There are more than 4,000 new apartments set to open this year and developers show no sign of slowing down. Predicting how many new units will come out in a given year can be tricky because one large project being delayed can skew the total.
However, if the total number of projected apartments are built in 2021, it could be one of the biggest years for multifamily construction in recent memory.
Darcy Miramontes, a San Diego managing director at real estate firm JLL, said San Diego County has a lot of things going for it that keep rent prices stable through tough times. She said the region is geographically constrained and has a rising population with a diversified economy, so it makes sense there would be upward pressure on rents.
“San Diego is a fundamentally strong multihousing market,” she said.
Miramontes also said the cost of living is high enough in the county — median home prices were up 9.4 percent annually as of January — that many families decide to rent.
At the same time, Zumper said the price of a one-bedroom in San Diego was up 2.9 percent as other markets across the nation experienced declines. San Francisco was down 23.9 percent, New York down 21.7 percent, Boston down 19.2 percent, Seattle down 14.8 percent and Miami down 9.1 percent.
Analysts say this makes San Diego
a more favorable place for residential investors while other markets have had to cut revenue projections.
Investors are clearly making moves to get into the San Diego market, as proven by the latest multifamily report from real estate firm CBRE. It said there was $1.16 billion in multifamily transactions in the fourth quarter of 2020, a skyrocketing number after three quarters of declining sales.
The sale of the 679-unit Vantage Pointe complex downtown for $312.5 million was the biggest transaction, selling for $460,236 per unit. It was followed by the 549-unit Broadstone Coronado on the Bay for $209.5 million, or $381,603 per unit. Vantage Pointe was built in 2009 and Broadstone Coronado in 1970.
Part of the reason totals for this year look so high is several large projects are near completion after years of planning and construction. There is The Society in Mission Valley, a Holland Residential project with 455 units (it will reach 840 apartments at full build-out); Vive Lux in Kearny Mesa, a Sunroad project with 442 units; and Diega, a Bosa Development project that will become downtown’s tallest residential building and include around 617 units.
Yet a lot of the reason for increased apartment totals falls on smaller projects, from six to 10 apartments, spread out among many of the traditionally single-family neighborhoods surrounding downtown.
Georgia Street apartments
Urban infill has been a large factor in boosting apartment numbers throughout the county, especially in areas considered up-and-coming spots.
On Tuesday, developer Darren Bwy was putting the finishing touches on a 10unit building on Georgia Street in University Heights near a popular stretch of restaurants and coffee shops on Park Boulevard.
The minimalist, white apartment complex, designed by architect Christopher Sawaya, managed to fit a three-story building with parking into a spot that had been previously been occupied by a dilapidated, roughly 100-year-old singlefamily home.
Bwy insists that the slowdown in rent last year never swayed his faith in the project, in part, because it is in an area where a lot of young professionals and couples want to live.
“I could see the bigger picture,” he said.
Bwy spent about $4 million on the project and is confident it can produce strong rent returns. Part of that belief is that most apartments in University Heights tend to be older and not have any amenities — even things considered basic in new complexes, such as washer and dryers or parking — unlike what he is offering.
Sawaya didn’t design the building knowing COVID-19 was coming, but it is easy to see how the complex may lend itself to stay-at-home workers. A lot of the design was based on using San Diego’s natural environment with large, sliding windows and balconies. Sawaya, and many local architects, have pointed to the benefits of having a lot of airflow — instead of feeling trapped inside a building.
The apartments at 4375 Georgia St. are set to open around May 1 with rents ranging from $2,500 to $3,800 a month depending on size and number of bedrooms. That is a bit higher than the average asking rent in San
Diego County — around an average $1,886 a month, said Costar — but is comparable to similar projects. For example, the year-old BLVD North Park building that is a short walk from the Georgia Street complex rents for an average $2,350 a month for a one-bedroom and $3,148 for a two-bedroom.
Vive Lux
One of the biggest projects to open this year is still a busy construction site in Kearny Mesa. On Wednesday, dozens of workers were hard at work finishing the 442-unit Vive Lux building to get it open in the next three to six months.
The Sunroad project is part of a larger group of developments that have redeveloped a former General Atomics complex that used to manufacture Atlas rockets. The San Diego-based company has also built and owns two other apartment complexes at the site, Ariva with 253 units (completed in 2014) and Vive with 550 apartments (completed in 2017). Vive Lux will be its final residential project at the site.
Dan Feldman, Sunroad’s president of asset management, said the three apartments cost more than $300 million and faced challenges last year as slowdowns related to COVID-19 delayed the shipping of materials.
Vive Lux will be similar to Sunroad’s other two buildings at the site in that there will a host of amenities likely to attract affluent renters: Pools, conference rooms, barbecue pits, gyms, an arcade, one parking spot per bedroom, and a coffee shop and restaurant called Park Social.
Sunroad adapted to the pandemic by increasing outside gym areas and expanding wireless Internet coverage throughout outside common areas, something they said has been appreciated by stay-at-home workers.
“They can work in different areas so it feels like a different office every time,” said Vive property manager Bernadette Umale.
Like many local developers, if Feldman was nervous about rent slowdowns, he wasn’t showing it. He said Sunroad’s strategy is to be a long-term holder of properties so he wasn’t worried about what may be a temporary problem.
It is still likely a few months before Sunroad starts leasing Vive Lux but rents are estimated to start at $1,900 a month for a studio (average 600 square feet); $2,200 for a one-bedroom (average 800 square feet); $2,800 for a two-bedroom (average 1,050 square feet); and around $4,000 a month for a three-bedroom (average 1,350 square feet).
By the numbers
San Diego County multifamily building has averaged around 4,953 units a year since 2010. There is a strong chance 2021 could exceed the average.
Yet projections at the start of the year can often change for a host of reasons: Labor and material shortages, changing permitting situations and weather.
Multifamily construction numbers, from the Real Estate Research Council of Southern California, include townhouse and condos so it isn’t a perfect apples-to-apples comparison. There has been a sizable number of townhouse communities opening the past few years, especially in Chula Vista’s Otay Ranch community. Also, it is common for large planned apartment communities that include more than 500 units to be slightly delayed and end up lowering overall construction figures by the end of a year.
Apartment developers have reason to continue to pursue new projects when factoring in rent totals over the last decade, despite a rough pandemic year.
The average rent in San Diego County — including all types and neighborhoods — was around $1,886 a month in late February, said Costar based on its database of more than 260,000 apartments. That is after years of considerable rent growth as the region climbed out of the Great Recession. Since the fourth quarter of 2014, rent has increased 28.5 percent.
In the third quarter of 2015, rents had increased 7.2 percent in a year, which was the highest annual amount in the Costar database going back to 2001.
phillip.molnar@sduniontribune.com Twitter: @Phillipmolnar