(To read more on the multifamily market, click here.)

LOS ANGELES-Southern California’s multifamily market should continue experiencing low vacancies and relatively high, stable rents, panelists at Real Estate Media’s Apartments 2006 conference agreed. But problems with affordability, an overzealous condo craze and municipalities’ involvement in housing means that investors and owners aren’t out of the woods completely.

The conference was held yesterday at the Hollywood and Highland complex, which is home to the annual Academy Awards presentation. Real Estate Media group publisher and editorial director Michael Desiato kicked off the event, making opening remarks to the more than 1,300 attendees, made up of brokers, developers, architects, and people from the financial sector.

Keynote speaker Ric Campo, chairman and CEO of Camden Property Trust, followed, with a bullish outlook on the national apartment market.

“It will be a pretty decent market over the next two to three years, with demand still exceeding net supply and pretty solid rent growth at 4% to 4.5% and cash flow at 7% to 8%,” he said.

Campo had more of a mixed reaction to Southern California’s market, however. “Overall, California will be fine,” he said. “The Northern part outperforms the Southern part because of supply and the real challenge [Southern California faces] with affordable housing. As industry professionals, we need to focus on it primarily because if we don’t then the politicians will do it for us.”

Kitty Wallace, whose panel dealt with deal flow and today’s market characteristics, also saw affordability as a problem, but one without any hard-and-fast solutions.”Affordable housing is changing a lot of what’s going on in Southern California,” said the Sperry Van Ness senior vice president. “There’s clearly a need for affordable housing but it doesn’t pencil because it costs over $200 a foot [to build].”

The conference’s second keynote speaker, Thomas Bannon of the California Apartment Association, reiterated the importance of staying current on politically driven real estate issues and of voting in the upcoming November election. He asserted that many issues facing Southern California developers and investors may be in the hands of the people and, if they pass, in the hands of local municipalities.

“The South Coast Apartment Association is clearly beginning to see…an increase in taxes and whispers of rent control–if someone had said that five years ago, people would have been aghast,” Bannon said. “In Escondido, they just passed an ordinance saying rental property owners and managers have a responsibility to only rent to those individuals who are legally eligible to reside in the United States.”

Talks of a moratorium for condo conversions in cities like Westwood, Brentwood and the San Fernando Valley were also of concern to many panelists. CB Richard Ellis’ Laurie Lustig-Bower, one of Wallace’s fellow panelists, stated that “this [moratorium] is pretty serious…it will be pretty hard to get deals done today because we don’t know if the rules are going to change and we may not know for another six months. Until then, deals will stagnate.”

Not that most investors want to continue throwing money at condo conversions anyway.”The condo price appreciation has slowed in all major southwestern cities,” said Delores Conway, director of the Casden Real Estate Economics Forecast at USC’s Lusk Center and a panelist in the economy panel. “The apartment market has really picked up, with vacancies declining and rates [rising]…there’s also a slowdown in housing purchases and many San Diego condos are reverting back to apartments.”

With home prices at all-time highs, but sales slowing, many panelists said that future rents will continue growing–despite the shrinking home market putting pressure on the apartment industry to keep vacancy rates low. Members of the broker panel said that Southern California would experience a three-year average rent growth of between 5% to 7% annually.

These numbers, according to panelist Heidi McKibben, vice president of Fannie Mae, were “pretty bullish given supply constraints for Southern California.”Apartment REITs also experienced a take off, panelists noted, with investors looking at this kind of space as a cheaper way to own. REITs were up 35% this year, driven by strong fundamentals, growth and NOI’s.

Produced by Real Estate Media, publisher of GlobeSt.com, Real Estate Forum and Real Estate Southern California, the conference featured additional panels on the state of the condo market; the tenant-in-common’s place in the market; how to build development deals that make sense; today’s finance deal environment; how energy related costs and technologies impact apartment operations; and the apartment market’s relationship to mixed-use and urban infill.

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