IRVINE, CA—Long-time apartment-building owners need to be convinced to put their properties on the market in order to revitalize Orange County’s multifamily stock, said panelists at RealShare Orange County here last week. The lack of inventory for sale and the need for value-add properties in the region were two of the major topics up for discussion during the “Multifamily in OC: What’s Next?” panel.
Moderator Stewart Weston, senior director, Institutional Property Advisors, with Marcus & Millichap, asked panelists where they were investing in Orange County, to which Ray Eldridge, SVP of CBRE, answered, “Everywhere.” Wendy Hejna, SVP of Intervest, said the Garden Grove/Anaheim area looks promising to her firm, while Greg Reed of SVP, originations for Capital One Multifamily Finance, said his firm looks for older neighborhoods where value-add properties are plentiful.
Alexa Mizrahi, loan originator for Lone Oak Fund, echoed Reed’s sentiments, adding that properties held by the same owner for a long time are where the opportunities lie. Richard Castillo, VP of MVE & Partners Inc., gave a different answer, saying his firm works in the Spectrum, Anaheim, Platinum Triangle, Newport Beach and Huntington Beach, where higher-density multifamily can be built.
Panelists said Orange County multifamily differs from Los Angeles in that employment growth hasn’t been as strong here as it has been in L.A. In addition, the Irvine Co. owns a much larger percentage of units than other Orange County owners, which slows trade volume. Eldridge said the Orange County MSA is similar to San Diego in that there are roughly a million people, but the Irvine Co. owns 20% of the inventory. However, Reed said, “It’s easier to lend in Orange County than ever before because of the high equity placed on properties, from 30% to 50%” in many cases.
Hejna pointed out the need to get older owners to sell in order to gentrify, and Castillo added the level of amenities that support a certain lifestyle is what’s happening in Orange County multifamily. Restaurant and bar amenities, pet-friendly policies and services galore are a major component of these redevelopments. Weston said the need to develop living spaces for both empty-nesters and Millennials who can’t afford high rents is strong, and the one basic amenity that should be in every building is free Wi-Fi.
On the finance side, Eldridge said he’s seeing a lot of floating-rate debt out there, and Reed said there’s a bigger push for flexible, shorter-term prepay loans. Mizrahi added the influx of foreign capital is another reason for the increased trading competition, since these buyers are willing to pay more than domestic buyers in order to get money out of their country.
Most panelists were optimistic that interest rates would remain low for the next two to three years, but Mizrahi was more cautious, saying they have to rise as the cycle demands. “As long as rates stay low, I don’t see a pushback on rents,” said Reed. “It took a long time for the workforce to diversify, and now it has done so. We have a lot less reliance on real estate, and more on medical, tech and other areas.”
Reed added that affordability has always been a huge issue in Orange County, “but I’ not all that worried about it. People will pay more to live in Orange County.”
A quick survey of which quarter we’re in revealed answers of the second or third quarter, with Ben Truehart, VP of product management and marketing for PayLease, saying it’s the beginning of the second quarter.