With low vacancies, Valley apartment sales strong

Source: The Business Journal
Written by Chuck Harvey

A move by Fresno-Clovis residents toward rental housing has kept vacancies down and sales of apartment buildings strong and competitive. However, low rents, which have attracted many residents to apartments, have also slowed interest in construction of new apartment projects. Still, some large higher-end apartments are being built on the belief that economy of scale will make the investment in apartment construction profitable. Phoenix-based Hendricks Berkadia Apartment Real Estate Advisors predicts that new apartment completions in the Central Valley will trend up to nearly 1,800 units in 2013, subsiding to about 1,250 units in 2014. The firm also predicts that occupancy will continue to improve. It expects the average vacancy rate will fall below 5 percent late this year and continue dropping to about 4 percent in 2014. Tight home market For residents, a lack of resale home availability in the resale market has bolstered interest in apartments. But attractive rents and availability of energy efficient apartments has also helped fill rental units. Apartment vacancies have dropped, especially for low-income and upscale apartments. Experts estimate that 55 percent of Fresno-Clovis area residents now rent, while 45 percent own homes. Apartment vacancies in Fresno County fell from 6 percent in 2011 to 5.4 percent in 2012. Average rent rose from $802 per month to $825 over the same period. Besides falling vacancies, buyer-investors are attracted to reasonable apartment prices and record-low interest rates that make mortgaged apartment purchases more cost effective. That has reduced the number of apartment buildings for sale. “There are not many available, but owners will sell if the price is right,” said Ron Stumpf, broker with Ron Stumpf & Co. In 2012, 17 major apartment transactions of more than $500,000 took place in Fresno. Average price per unit was about $50,000 according to Hendricks Berkadia Apartment Real Estate Advisors. Stumpf said apartment prices have been rising by about 10 percent a year. He said pricing peaked in 2006-2007 and hit bottom in 2011. Tower District has highest prices Although much of new apartment construction is in north Fresno and Clovis, Stumpf said the highest price per unit for apartments is in the Tower District of old Fresno. Many of the existing apartments there are older and harder to maintain, he said. Still it’s where many residents want to live, Stumpf said. The Fig Garden area of Fresno to the north is also a popular place to rent, he added. Wherever the location, buyers have to be sensitive to the things that attract renters. Prospective apartment renters want a dwelling that is energy efficient, is well located and has some upscale features like plush upgraded carpeting. “Locally, people are renting apartments 10 times faster than they were two years ago,” said Brad Hardie, president and owner of Regency Property Management in Fresno. “Apartments renting for $500 to $550 (a month) with one or two beds are doing really good. “We are blowing them out” Regency Property Management manages about 1,300 apartment units in the area. In fixing up apartments, the company spends several thousands dollars on upgraded features that make the apartment more attractive, Hardie said. He said the payoff is a low vacancy level, he said. Vacancies moving lower An example is the 106-unit Stonemark Homes apartment complex in Fresno. Managed by Regency Property Management, the apartments currently have only two vacant units. Hardie said that although Fresno has plenty of apartment inventory, owners keep them rented out by lowing rent slightly and providing some extra features. “With nice carpet and paint and lower rent, we see bigger demand,” he said. Generally, renters are willing to pay $550 to $700 a month for two beds and $895 to $1,100 per month for three beds, Hardie said. He said most apartments will fill up if the owner goes the extra step and markets it correctly. In terms of what is the best size of an apartment building for greatest profitability, disagreement exists. Hardie insists that smaller apartment buildings are in greater demand than larger ones. He believes that a 10-unit to 15-unit building provides the best bang for the buck. That is because as apartments get larger, so do the costs to run them. “Water bills and management fees go up,” he said. Big or small Robin Kane, founder of RCK Organization and senior vice president of Hendrics & Partners in Fresno, sees it differently. “Buyers are looking for larger properties,” he said. Kane points out that economies of scale and a lower cost per door for larger apartments makes them the better deal. Meanwhile the cost of purchasing an apartment building has crept upward. A four-plex that cost $30,000 a door last year costs $50,000 a door this year, Hardie said. That’s because of high demand, he said. At the same time, rents have held fairly steady. Kane said low-income apartments sell extremely well, but buyers normally need incentives or a tax break to profit from them. Overall, the apartment market has enjoyed some good years, Kane said. “It has been pretty robust,” he said. “It started when the recession hit.” And faced with higher payroll taxes and soaring gasoline prices, lower priced apartments are attractive to families, he said. That has bolstered demand among investor-buyers, Kane said. Purchases of apartments by investors almost doubled from 2010 to 2012, he said. Purchases by investors are up about 30 percent this year. Kane pointed out that Hendrics & Partners handled the largest apartment sale so far this year. It involved the sale of four Fresno apartment complexes — Cedar Creek, Redwood Canyon, Sequoia Ride and Sycamore Heights — from Decron Properties of Los Angeles to Omninet Capital of Beverly Hills for $14.7 million. Continue to thrive Adam Goldfarb, vice president of the multifamily division of management firm Manco Abbott in Fresno, agrees that the local apartment and rental home market is alive and well. “It has been strong for a while,” he said. “This is the busy season and there ‘s a lot of turnover. Still, apartments seem to fill up with new people.” Manco Abbott manages several new apartments including the 100-unit, 55-and-over development called The Fountains at Alluvial at Fowler and Alluvial avenues in Clovis and the 122-unit The Shires Luxury Apartments near Nees Avenue and 9th Street in Clovis. The Fountains at Alluvial offers one- to-three bedroom units ranging from 900 square feet to 2,026 square feet with rents from $1,130 to $1,725. It is still being constructed and is about one-third rented, Goldfarb said. The Shires Luxury Apartments features one- to three-bedroom units from 932 square feet to 1,455 square feet with rents from $1,200 to $1,600. Goldfarb said The Shires has features like garages, indoor laundry and ceramic floor tiles, which are not usually found in apartments. Goldfarb added that in all, Manco Abbott manages 4,000 apartment units in the area. And 75 percent of its tenants are under the age of 34. Most of those people rent apartments out of choice and not because they lost a home or are unable to purchase a home, Goldfarb said.

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