Sule Aygoren Carranzais managing editor ofRealEstate Forum.

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SAN DIEGO-For the third consecutive year, apartment sales slowedin the metro area as the market continued to correct itselffollowing the record activity levels achieved in 2001 through 2004.According to Cushman & Wakefield, 482 properties changed handsin 2007, down 30.8% from the prior year, when 696 communitieschanged hands. Compare those figures to the 1,339 deals that tookplace in 2004--35% more than last year. In fact, last year's tallywas the lowest annual total since 1993, when 449 asses traded.

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Not surprisingly, a slowing condominium market is a main culpritin the declining sales activity. As George Carlson, Cushman &Wakefield's associate director and apartment specialist, tells it,"The market is correcting itself following several years of recorddemand for units, including those for conversion to condominiums.Prices skyrocketed and cap rates declined, and while condoconversion activity has slowed significantly, prices are stillviewed as too high by some investors--particularly by smaller,local buyers."

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Still, investors are confident in the overall strength of themarket and are therefore hesitant to shed their assets. "Apartmentowners recognize that the San Diego County market is one of thestrongest in the nation," the executive says, adding that a growinglocal economy and the expensive price of housing are working inapartments' favor. Because of this, "many owners are reluctant tosell and have shifted their strategy to maximizing cash flowthrough higher rental occupancy and rates."

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For the deals that are taking place, buyers, particularlyinstitutions, are willing to pay premium prices for expected upsidepotential. While the amount of properties that sold declined, thetotal number of units that were bought was down barely 2.2%.

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"It's a direct result of renewed institutional interest,particularly in the third quarter," Carlson says. More than half ofthe 2,291 units that traded during between June and September werein communities with 100 to 500 units, he points out. In the finalthree months of 2007, 1,309 of the 2,601 units that were sold werein complexes with more than 100 units.

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Among the properties bought by institutions in the fourthquarter are the 332-unit Regents La Jolla in La Jolla, which soldfor $106.4million ($320,482 per unit); the 456-unit WaterleafApartments in Vista, which fetched $69 million ($151,318); the193-unit Township at Old Poway, which traded for $33.7 million($174,611); and the 328-unit Mission Village Apartments inEscondido, which sold for $27 million ($82,317).

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A bulk of the properties (32%) that changed hands at the end ofthe year were in the Inland North region of San Diego County, with68 deals involving 3,446 units and Golden Hill, with 42 assets and306 units. By number of units, Chula Vista topped the list with1,423 residences.

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