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CENTURY CITY, CA-Apartments remain one of the most popular real estate investments in the country, but interest rates remain a concern and a Federal Reserve economist says this is one of the toughest times ever to forecast the economy. Trends like the condo conversion craze are driving prices even higher, but strong demand suggests that the market will continue to favor sellers for some time to come. These were just some of the themes sounded Tuesday at Apartments 2005, the annual multifamily market review and forecast presented by the RealShare Conference division of Real Estate Media Inc. and the Real Estate Conference Group. The event, at the Century Plaza Hotel, drew 1,200 owners, investors, developers, brokers, lenders and professionals who are involved in the multifamily market and related activities.The all-day conference and networking event kicked off with opening remarks from Jonathan Schein, president and CEO of Real Estate Media, who called apartments “still pretty much the hottest real estate investment in the country.” Speakers throughout the day reflected this theme, observing that owners, investors and lenders just can’t seem to get enough of apartments.The multifamily market has benefited from a US economy that has remained strong for several years, according to senior economist Gary Zimmerman of the Federal Reserve Bank of San Francisco. Zimmerman cited statistics showing a growing economy, an improving unemployment picture and federal monetary policies like low interest rates that have been stimulating the economy. But Zimmerman pointed to uncertainties as well, saying that the devastation wreaked by hurricanes Katrina and Rita will have economic impacts that are as yet unknown. Natural disasters typically produce temporary shocks to the economy, Zimmerman said, but those shocks sometimes subside and turn into increased economic activity when insurance payments and federal funds begin flowing into a stricken area.Inflation risks thus far “have not been too great,” but that could change, Zimmerman noted, and the country will be coping with even larger budget deficits partly as a result of the disaster relief costs. The upshot of all of the uncertain factors is that “This forecast is really a tough one,” Zimmerman said.Another member of the economics panel, Brett Johnson of RBC Capital Markets, called apartment industry fundamentals “good but not great,” noting among other things that condo conversion buyers are reducing the apartment supply. The condo conversion buyers also make it difficult for publicly held REITs to compete for apartments because the condo converters can pay higher prices, Johnson pointed out.Laurie Lustig-Bower, an EVP with CB Richard Ellis, elaborated on the impact of condo conversion buyers, noting that “25% of all apartment sales are going to condo converters.” Competition has pushed average cap rates to slightly more than 6.2% nationwide, but that average is even lower in Southern California, running at about 4.5% to 5%, Lustig-Bower said.Although economic factors dominated the remarks of many of the speakers at Tuesday’s conference, Harvey Green of Marcus & Millichap pointed out that “there is a lot of movement in the market that isn’t driven by yield considerations.” Green, Encino-based president and CEO of Marcus & Millichap, delivered his comments during a session titled “Inside the Real Estate Mind” in which he was interviewed by Michael G. Desiato, editor-in-chief of Real Estate Media Inc.Green noted that many investors, notably Baby Boomers and longtime owners of apartment buildings, may sell or make other changes in their portfolios because of “life-style decisions” rather than strictly economic criteria. His comments about the apartment market were part of a wide-ranging discussion with Desiato in which Green described the changes in the apartment market and the brokerage world during his 35 years in the business.

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