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Sule Aygoren Carranza is managing editor of Real Estate Forum.

SAN DIEGO-For the third consecutive year, apartment sales slowed in the metro area as the market continued to correct itself following the record activity levels achieved in 2001 through 2004. According to Cushman & Wakefield, 482 properties changed hands in 2007, down 30.8% from the prior year, when 696 communities changed hands. Compare those figures to the 1,339 deals that took place in 2004–35% more than last year. In fact, last year’s tally was the lowest annual total since 1993, when 449 asses traded.

Not surprisingly, a slowing condominium market is a main culprit in 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 record demand for units, including those for conversion to condominiums. Prices skyrocketed and cap rates declined, and while condo conversion activity has slowed significantly, prices are still viewed as too high by some investors–particularly by smaller, local buyers.”

Still, investors are confident in the overall strength of the market and are therefore hesitant to shed their assets. “Apartment owners recognize that the San Diego County market is one of the strongest in the nation,” the executive says, adding that a growing local economy and the expensive price of housing are working in apartments’ favor. Because of this, “many owners are reluctant to sell and have shifted their strategy to maximizing cash flow through higher rental occupancy and rates.”

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

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

Among the properties bought by institutions in the fourth quarter are the 332-unit Regents La Jolla in La Jolla, which sold for $106.4million ($320,482 per unit); the 456-unit Waterleaf Apartments in Vista, which fetched $69 million ($151,318); the 193-unit Township at Old Poway, which traded for $33.7 million ($174,611); and the 328-unit Mission Village Apartments in Escondido, which sold for $27 million ($82,317).

A bulk of the properties (32%) that changed hands at the end of the year were in the Inland North region of San Diego County, with 68 deals involving 3,446 units and Golden Hill, with 42 assets and 306 units. By number of units, Chula Vista topped the list with 1,423 residences.

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