Multifamily Mania Continues in Southern California

Large projects are under way from San Diego to Santa Monica

By Richard Horgan

FANCY IN FAIRFAX: Owner/developer/builder Casden Properties has completed the $250 million Palazzo at Park La Brea in the Fairfax district of Los Angeles. Apartments in the three new buildings will lease for between $2,000 and $6,000 per month (photo courtesy of Casden Properties).

Apartment construction is swelling in the Southern California metropolitan areas of Los Angeles, Orange County, the Inland Empire and San Diego.

About 9,800 new units came online for the year ending in June, and according to Dallas-based M/PF Research Inc., an additional 24,800 units are presently under development. In San Jose, San Francisco and Oakland, about 5,500 units are under development, a slight decline from the previous year’s total of 5,700 completed apartments.

“The activity in Southern California is a big change from what has been seen in those markets recently, but to some degree they’re catching up,” said Greg Willet, M/PF editorial director. “We’ve already seen this same trend in Atlanta, Dallas, Houston and Washington, D.C., the four leading U.S. marketplaces in terms of multifamily development in the urban core.

“It’s one of those situations where Southern California has moved off-cycle with the rest of the country, and what we saw elsewhere in the past three or four years is now happening there.”

Urban Renewal

As of July, MP/F counted 4,581 apartments under construction in greater Los Angeles and downtown San Diego, many of which are rising up as part of high-profile mixed-use and luxury developments.

These include:

• Trio, a $70 million, 304-unit mixed-use project in the Playhouse District of Pasadena. It is being developed by Aliso Viejo-based Shea Properties and Capital & Counties U.S.A. Inc. of San Francisco, in partnership with Irvine-based Thomas P. Cox Architects Inc. and general contractor Wermer’s Multifamily Corp of San Diego.
• Promenade at Rio Vista, Newport Beach-based Greystone Group’s $105 million, 970-unit upscale apartment complex in San Diego’s burgeoning Mission Valley. The two-phase construction is unfolding in partnership with Newport Beach developer PLC Land Co., Greystone Multifamily Builders of Englewood, Colo., and Irvine-based architecture firm McLarand, Vasquez, Emsiek & Partners Inc.
• Gaslamp Square, a $100 million, mixed-use project in downtown San Diego on the block bounded by J Street and Fourth, Fifth and Island avenues. Los Angeles-based Champion Development Group, in partnership with Santa Monica design firm Nadel Architects Inc. and San Francisco general contractor Swinerton Builders, will create 40,000 sq. ft. of retail, 120 apartments, 208 luxury condominiums and 560 subterranean parking spaces.

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In addition to Gaslamp Square, Nadel is currently overseeing more than a dozen other multifamily projects across Southern California, including an ambitious 545-unit development in Marina del Rey (Del Rey Shores). It’s also planning a 14-story, 128-unit high-rise on Wilshire Boulevard just east of Beverly Hills.

Over the years, Nadel has overseen the construction of more than 100,000 units of multifamily housing across the United States and abroad, during which time the firm's president, Herb Nadel, became the owner of a 54-unit complex in Hollywood.

“Rental housing is a very specialized building type and it’s the kind of thing you have to do a lot of to become good at,” Nadel said. “There are lots of ways to go wrong in both the planning and detailing of it. Firms like ours have an advantage because we have a division (headed by Executive Vice President Dale Yonkin) that specializes exclusively in this type of development.”

Future Growth

ON A MISSION: The $105 million Promenade at Rio Vista is a development of Newport Beach-based Greystone Group. The 970-unit, upscale apartment complex is in San Diego’s burgeoning Mission Valley (photo courtesy of Greystone Group).

At a recent multifamily conference in San Francisco sponsored by the Urban Land Institute, a number of prominent California architects discussed emerging trends in the rental apartment construction marketplace.

The panel addressed the findings of experts such as real estate analyst John Martin, who has determined that 87 percent of the net new household growth projected for the United States between the years 2000 and 2010 will be in the categories of married couples without children, single-person households and empty nesters.

“This growing number of renters by choice have high expectations about where they live and what they live in,” said panelist Thomas P. Cox, senior partner with Thomas P. Cox Architects. “They want luxurious amenities, services and a sense of community, the kinds of features most single-family developers have been providing in their neighborhoods and planned communities.

“As a result, many single-family homebuilders are starting to enter into this market as a way to diversify their housing products and markets. A lot of people in real estate development are looking at multifamily housing as a safe haven.”

Cox’s current California projects include Metro 417, a 12-story 277-loft apartment project for Cleveland, Ohio-based Forest City Development that is transforming the old Subway Terminal Building in downtown Los Angeles. The apartments are scheduled for completion in September 2004, while lower floors will be developed for commercial tenants at a later date.

Northern Recession Affecting Average Rent Rates While average apartment rents are increasing in southern California, the opposite is happening in the northern part of the state.

According to San Francisco-based research group RealFacts, the average rent for an apartment in the Inland Empire increased by 2.3 percent ($924 from $903) between March and June of 2003. In Los Angeles County, the increase was 1.7 percent ($1,326 from $1,304), and in Orange County it was 1.2 percent ($1,258 from $1,243). No other market in the western United States exceeded 1 percent rent growth during this time.

At the other end of the spectrum, the Bay Area continued to experience significant declines in average rents. San Jose and Silicon Valley showed a drop in average rents of 3.2 percent ($1,308 from $1,358) for the quarter, while Oakland dropped 1 percent ($1,195 from $1,207) and San Francisco dropped 0.6 percent ($1,554 from $1,563).

Average rents in Silicon Valley have now rolled back to where they were in 1998, erasing all gains made in 1999 and 2000. Over the past year, the average rent has decreased by 11.6 percent ($930 from $1,052) for a studio apartment and 9.7 percent ($1,158 from $1,283) for a one bedroom. These two unit types make up about half the rental housing stock in the market.

Business is on the upswing in the affordable-housing segment. The San Francisco Housing Authority has recently made an effort to add affordable housing to the city’s expensive range of single-family and condominium residences.

North Beach Place, the fifth HUD/HOPE VI-funded project that the agency has undertaken with San Francisco-based general contractor Nibbi Bros., marks the agency’s first foray into the mixed-use arena.

The $70.5 million, 341-unit affordable- and senior- housing project scheduled for completion in October 2004 will feature a 12,000-sq.-ft. Trader Joe’s food store and a 3,000-sq.-ft. business incubator space for tenant use.

Design and construction of North Beach Place is a joint-venture of Nibbi Bros., Columbus, Ohio-based Cahill Construction and the San Francisco-based architecture firms of Paul Barnhart Associates and Full Circle Design Group.

The North Beach district of San Francisco is known for pricey real estate.

“I just finished a job less than a block away from here, Malt House, where three bedroom units are going for $1.6 million and the penthouse went for $3 million,” said Joe Mazzetti, a senior project manager with Nibbi Bros.

“North Beach Place is just half a block away and the people here will be paying somewhere around $400 to $500 per month.”

Across the Bay Bridge in Oakland, city officials are putting the finishing touches on land-entitlement deals that will secure two downtown city blocks for the Uptown, a 1,200 mixed-use development to be developed by Forest City Development.

“It’s going to be made up of four-story structures and a couple of towers,” said Frank Fanelli, real estate division manager for the Community and Economic Development Agency of Oakland. “About 20 percent of the apartments will be affordable housing.

“Things are still tough up here, but when it turns around, we think Oakland will be perfectly positioned, what with this development and our recent acquisition of a 200-acre military base for redevelopment as well.”