Multifamily Completions Tumble, Rents Reaccelerate
One exception is rents in Hayward which are at a significant discount to neighboring submarkets, and the Mark provides a relatively affordable option for residents priced out of other Bay Area cities.
HAYWARD, CA—The robust Bay Area metro, underpinned by tremendous growth in the tech, semiconductor and biotech industries, has generated unemployment rates matched only by the late 1990s. Household formation has surged, yet a lack of housing, primarily multifamily units, has pushed vacancy to extremely low levels, according to a fourth quarter multifamily report by Marcus & Millichap.
Additionally, household bundling has become increasingly prevalent, a trendset that will likely accelerate as development slides roughly 30% region-wide. As construction falls, rental rates have stabilized and reaccelerated as tenants vie for the limited number of remaining apartments still available. Rent growth will be most pronounced in commuter locations in second- and third-tier suburbs, where the rental rate remains below the metro average.
Meanwhile, the midterm elections, potential rent-control changes and 2019 multifamily pipeline are driving market sentiment. Amid several potential legal and political changes from the midterm elections, investors are allocating toward long-term holdings, although some cautious sentiment has emerged. The sharp slowdown in construction has prompted significant price appreciation, allowing investors to reposition portfolios toward areas showing significant tenant and rent growth. As the development pipeline builds back up in 2019, opportunities for new construction will create some market dislocations, prompting investors to ensure leasing and portfolio maneuvers are accomplished through the remainder of 2018.
One transaction that fits that category is The Mark, a 150-unit garden-style apartment complex, which sold for $44 million, equating to $293,000 per unit. Institutional Property Advisors represented the seller, a joint venture between The Grupe Company and Hanover Financial. The buyer was New Standard Equities.
“The Mark is well positioned to benefit from its central location near the Bay Area’s top job centers and the region’s steady economic growth,” says Salvatore Saglimbeni, IPA senior director. “Over the past three years, the Bay Area’s annual gross regional product growth rate of 4.3% has been nearly double that of the nation’s.”
Saglimbeni, executive director Stanford Jones, senior director Philip Saglimbeni and senior managing director investments Jon Holmquist of Marcus & Millichap comprised the seller team.
“We are extremely bullish on the operational and value-add upside opportunities at the community as well as The Mark’s proximity to local retail and employers in the immediate neighborhood,” adds Edward Ring, CEO of New Standard Equities. Prior ownership recently invested approximately $2 million in capital improvements and interior upgrades.
The Mark is within a mile of Interstate 880 and Highway 92, giving residents direct access to the Peninsula, Oakland and San Jose. The Hayward BART station is within 1.3 miles.
“Apartment rents in Hayward are currently at a significant discount to neighboring submarkets such as San Francisco, the Peninsula and Silicon Valley,” Salvatore Saglimbeni tells GlobeSt.com. “The Mark is proximate to a diverse employment base that includes world-renowned high-tech companies and provides a relatively affordable option for residents being priced out of other Bay Area cities.”
Marcus & Millichap reports that class-C properties in Hayward/San Leandro/Union City and northeast Contra Costa County posted average effective rent growth of 5.6% to $1,519 per month and 5% to $1,688 per month, respectively.
IPA is a division of Marcus & Millichap.