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[IMGCAP(1)]LOS ANGELES-The recession is depressing rents throughout the Southland, except for San Diego County, and the trend will continue, according to the Seventh Annual Casden Multifamily Conference-Emerging Opportunities in Public-Private Partnerships. Speakers at the event, which was conducted by the University of Southern California’s Lusk Center for Real Estate, explained the factors behind the declining rents and presented their outlooks for the Southern California and US multifamily markets in a series of panel discussions Wednesday.

Against a backdrop of statistics showing that rents fell in Los Angeles, Orange, Riverside and San Bernardino counties in 2008 while rising in San Diego County, Casden forecast director Delores Conway said that multifamily demand should continue to decline with rising unemployment in Southern California this year, except for San Diego, where a 1% increase in rents is expected. She said that rents should begin stabilizing in 2010.

[IMGCAP(2)]Conway was part of a leadoff panel, called “MarketWatch-Multifamily Outlook and 2009 Casden Multifamily Forecast,” that was moderated by Michael Gottlieb, editor of the California Real Estate Journal. Other panel members included chief economist Nancy Sidhu of the Los Angeles Economic Development Corp., and Greg Willett, vice president of M/PF YieldStar.

In response to a question from Gottlieb, who noted that the apartment market traditionally has been a safe haven during hard times and asked if that is holding true this time, Conway remarked that, “Due to unemployment, the fundamentals have gone down a bit more than we expected.” She also projected that unemployment rates will probably continue to rise through the summer and into the fall.

[IMGCAP(3)]Conway pointed out that the Casden Forecast this year expanded its coverage to include San Diego, which turned out to be performing differently from other Southland submarkets. “Rents went up, and although occupancy dropped, it didn’t drop as much as most other submarkets. The apartment market in San Diego is a bellwether…it is healthy here,” Conway said.

Commenting on the US apartment market, Willett told the audience of 180 that, “The US demand picture has gotten ugly.” With only a modest amount of new supply added and the supply numbers heading downward, Willett said, “A piece of good news is that Q1 2009 on the occupancy side actually looked solid…we didn’t get that much worse.”

Willett does not foresee any dramatic shift in occupancy, but he expects that revenues will drop notably this year and that effective rents appear likely to drop 3% to 4%. “In 2011 and 2012, many people have had an aggressive forecast. Ours is a bit more conservative, but we do believe there is some improvement ahead for us,” Willett said.

Members of another panel, which was called “Building and Developing Multifamily Communities,” focused on the importance of transit-oriented developments. The panel was moderated by Con Howe, managing director of CityView. Panelists included principal and CEO Matthew Burton of Urban Partners LLC, CEO Cecilia Estolano of the L.A. Community Redevelopment Agency, president and CEO Christopher Felix of Hotton Cos. and EVP Todd Pennington of Bovis Lend Lease.

Said Estolano: “The future lies in TOD’s and Urban Infill. We have been on the building-near-transit kick since I began here. We want to make it easier for developers to build along transit. We will be investing in infrastructure. If we have a clearly articulated plan, sometimes, the money flows.”

Burton observed that, over the last 30 to 60 days, “We have seen a change in that people are out, looking and renting. The shock has passed and reality has set in. For us, we have seen more traffic. That’s a glimmer of hope. There was a period at the end of 2008 when everything froze…now there is a new reality.”

Felix described current conditions as “a perfect time for companies to reposition and find out where you need to go and what you need to do” rather than following the trend or the pack. He noted, “We are seeing some concessions, but they are light at this point.”

Pennington pointed out the importance of demographic trends for the multifamily market. “If you look at the number of people turning 65 today and turning 19 today, you will see opportunity in senior living and in student housing,” he said. However, for those building the projects, he said that one of our greatest challenges right now is “How do you finance the tail end of a project?”

The Casden Forecast analyzes apartment transactions, new building permits, leasing activity and employment data using information from MP/F YieldStar, Hanley Wood and other sources. Its research showed that in 2008 apartment rents fell an average of 3.8% in Los Angeles County and dropped for the first time in 13 years in Orange County, dipping an average of 2%. Rents and occupancies should fall an additional 1% this year in Los Angeles and may fall more than 1% in Orange County, according to the forecast.

In San Diego County, the only Southern California region where rents are expected to rise, the forecast is for an increase of more than 1% over the next two years after a 1% increase in 2008. It is a market buoyed by military bases, biotech, high tech and universities, described by the Casden Forecast as “one of the nation’s healthiest apartment markets.”

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