BY KATHERINE HIGGINS
Even though North Bay rents are soft, the market for apartment properties is the hottest it's been in five years. Low interest rates are attracting investors to real estate, and owners who are frustrated with the soft rental market are selling their properties in record numbers. Many of these owners are trading into net leased properties that require no management and guarantee a rate of return over a 10- to 25-year period.
Marin County apartment rents took serious hits this past year, falling dramatically to 1998 levels and leaving local landlords scrambling to keep their buildings filled. In Sonoma County, the drop was less severe and only registered minor changes at less than 1% throughout 2003.
Average peak rents in Marin were more than $1,600 per month in the second quarter of 2002. A steady slide has been taking place since then, with average rents at $1,480 in the last quarter of 2003. The current vacancy factor is hovering near 6%, according to Novato-based apartment survey group RealFacts.
To deal with the large number of vacancies, apartment owners and operators are continuing to offer incentives to keep their buildings filled. Free rent, utility credits, and lower deposit requirements are routinely being offered to prospective tenants.
“We are even renting to people with less than stellar credit,” one property manager reports, ”because there is such a small pool of renters, and owners are getting anxious.”
In some cases, property managers are accepting temporary tenants on month-to-month arrangements, something unheard of in the past when multiple applications were the norm in Marin County.
To attract tenants, many property owners and managers have been taking a proactive approach.
“We seemed to have turned the corner on rents,” says one San Anselmo owner of a six-unit building, “but it hasn't been without sacrifice. We've had to upgrade apartments, give big rent concessions, and pretty much aggressively go after potential tenants.”
In Sonoma County, where the vacancy factor has hit a five-year high of more than 8%, apartment owners and operators have moved swiftly to offer move-in specials to prospective tenants to keep their buildings filled.
But with interest rates hovering near 40-year lows, it's much easier for renters to qualify for low interest loans and buy their first home. In Sonoma County, entry-level houses can be found in the $200,000-$300,000 range, with the mortgage payments at the same or near the level of the average monthly rent of $1,100 per month.
“It only makes sense that renters should buy homes,” says one sympathetic property manager. “It's the American dream.”
Meanwhile, apartment brokers have been busy selling buildings at 4%-6% returns, even though many of these properties are one-third vacant or have significant deferred maintenance issues. Last year, two of Marin County's largest apartment portfolios went on the block, resulting in multiple sales of smaller apartment buildings (3-15 units) that had been held by the same two owners for over 20 years.
North Bay brokers expect to see more of the same in 2004, with investors still leery of the stock market and attracted to the record low interest rates. As long as there are properties to sell, buyers will be lined up to purchase apartment investments for the long term.
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KATHERINE HIGGINS is owner/broker at HIGGINS & Associates in Larkspur; KATHERINE@kHIGGINS.com. |