Evolving Beyond a 'Bedroom Community'

TEMECULA, CA—Temecula is coming into its own via the wine and R&D industries, which are driving unemployment and vacancies down and raising rents, Arbor Commercial's VP in the California office Greg Gillam tells GlobeSt.com. Arbor recently closed on a $39.4-million acquisition loan for the 320-unit Acacia Park Apartments here. We spoke exclusively with Gillam about the Temecula market, how it's grown and what is attracting tenants and investors to this former strictly bedroom community outside of San Diego.

GlobeSt.com: What is the capital markets' view of Temecula for multifamily loans?

Gillam: They look at it positively. There's a shortage of new housing in Temecula, and single-family housing construction has risen 40% since last year. And even though there's more single-family housing construction, this bodes well for the apartment market because a lot of people still can't afford to buy a single-family house. Temecula was truly a bedroom community for Anaheim and San Diego, and now it's not just that. It has its own R&D base now, and wine industry has really boomed. The retail sector has at least doubled space in that area because there are so many families living and working there.

GlobeSt.com: What is attractive about this submarket to buyers?

Gillam: Rents have increased—some market information says rents have increased steadily there for the last three years, between 2% and 5%. A good-quality, two-bedroom apartment in Temecula now runs between $1,100 and $1,300 per month. That's an affordable price for many people, and vacancy in the overall Temecula market is at 5% max.

A lot of services firms, some even electronics firms that do back-room assembly and even more on the development side have been attracted to this market. Obviously, it's less costly to build a building in Temecula than in San Diego, plus these companies like the workforce. It's an educated, mid-income workforce. The industry views it as an attractive place, especially in view of the cost vs. Anaheim and San Diego. The other big part of the market is, to some extent, the shipping industry. There's a warehouse market in Temecula now where goods are shipped before being distributed across the US, especially to Anaheim and San Diego. There's also a Costco there now.

GlobeSt.com: Is there opportunity for more multifamily development in this market as well as acquisitions?

Gillam: As a result of the 5%-or-less vacancy, there's demand. There's land available to build them, and some single-family developers will include some rental units in their developments. It's required by the City, but it also makes economic sense. It's good to build apartments and hold them for the long term.

GlobeSt.com: What else should our readers know about the Temecula submarket?

Gillam: The unemployment rate in Temecula is below 5%, which is one of the lowest rates in Riverside County. There is a strong employment base driving the single-family market, and even more driving the apartment market.