ORANGE COUNTY-This county’s apartment market has long performed at the top of the heap nationally, but it faces slowing job growth after years of boom times. That’s just one of the factors at work this year in a multifamily market that may differ significantly from the market of recent years, but studies by apartment specialists see a solid future in the long-term because of fundamentals that work in favor of the county’s apartment investors and owners.

According to Marcus & Millichap, hiring activity is expected to pick up this year, following minimal gains in 2007 due to the housing slump and collapse of the subprime lending market. “Despite some recent local economic slowing, Orange County apartment market fundamentals remain among the strongest in the nation,” the Marcus & Millichap report points out. Hendricks & Partners sounds a similar theme. “While the credit crunch put the breaks on the local economy, local experts predict that as investors become more comfortable with the new limitations, consumers will have an easier time obtaining a mortgage, restoring balance to the market,” a Hendricks & Partners study says. In the near term, it sees the effect of the credit crunch and difficulties consumers are having obtaining financing as a benefit to the apartment market.

Major owners and investors in the Orange County multifamily arena include a number who have long been long-term holders of their properties, most notably the Irvine Co. In fact, the county’s largest landowner recently debuted the first stage of its new 890-unit Enclave at South Coast apartment complex, the largest apartment project to open in Costa Mesa in 15 years. The complex is planned to eventually include 46 three-story buildings on a 40-acre site near the South Coast Plaza shopping complex and other amenities in the South Coast Metro district of Orange County.

Marcus & Millichap says that the emerging demographic trends in the county “support a positive outlook for properties in the metro,” pointing out that much of the market’s employment growth in 2008 will occur in the leisure and hospitality, and retail sectors, where employees tend to be renters. Home prices have declined in recent quarters, but “affordability remains a challenge,” the report notes.

For multifamily investors, the changing economic conditions have pushed cap rates up by about 50 basis points lately, with most properties trading in the low- to mid-5% range, according to the Marcus & Millichap survey. It cites a slowing sales velocity from 2007 that has continued this year, although “pockets of strong investment activity in the market” include Anaheim and Santa Ana.

“Buyers have focused on properties in these higher-yielding inland cities in response to tightening underwriting standards and a greater emphasis on current operating income rather than pro forma,” the report says. The company expects that attractive fundamentals should continue to drive investment activity in the county, but it cautions, “The expectations gap between buyers and sellers will have to narrow for velocity to gain momentum.”

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