Owners of apartment properties in the Western U.S. experienced little or no growth in income over the past year, according to a study by RealFacts, a research and database organization that focuses on the multifamily housing market.
Average rent growth in the past year was 2.1 percent, RealFacts reported. In the second quarter of 2005 the average apartment rented for $895, a gain of 0.6 percent since March.
The RealFacts survey, which covers more than 11,000 apartment complexes in 90 metropolitan statistical areas, found that rents have stabilized in most markets.
As of June 2005, major growth in quarterly rent was demonstrated only in the Inland Empire (Riverside and San Bernardino counties in California), at 2.3 percent, and Greater Las Vegas, at 2 percent.
Other areas that showed comparatively decent rent growth were the Los Angeles-Long Beach-Santa Ana, Calif., metropolitan area; the Portland-Vancouver-Beaverton metropolitan area in Oregon and Washington; and the Seattle-Tacoma-Bellevue, Wash., metropolitan area, which all saw 1.6 percent growth in rental rates.
Average occupancy rates also showed little growth. The best performing markets were: Fresno, Calif., at 97.7 percent; Los Angeles-Long Beach-Santa Ana, Calif., at 95.4 percent; Las Vegas-Paradise, Nev., at 95.1 percent; and Oxnard-Thousand Oaks-Ventura, Calif., at 95.1 percent.
All other metropolitan areas studied had occupancy rates under 95 percent, RealFacts reported. The weakest occupancy rates were in Colorado Springs, Colo., at 87.6 percent; Greater Dallas, at 89.7 percent; Greater Houston, at 88.8 percent, and Indianapolis, at 89.9 percent.
With rental income from apartment properties remaining weak, and interest rates hovering around historic lows, many owners of apartment complexes are looking for alternative strategies, Real Facts noted, and this has led to a continuing trend in converting rental units into for-sale condos. RealFacts reported that 44 complexes – a total of 13,840 units – were removed from the rental housing supply in the second quarter of 2005 through the process of condo-conversion, and the total number of units in the database converted to condos in 2004 and 2005 was 31,498.
Condo conversion can be a high-risk and high-reward endeavor, according to Caroline S. Latham, CEO for RealFacts. Owners of rental properties who sell to condo converters can expect to achieve a higher per-unit sale price, with a premium of $20,000 or more per unit, Latham stated.
The RealFacts survey noted 124 multifamily sales transactions in 2005, with an average price per unit of $107,330. Markets with 2005 sales transactions topping $200,000 a unit were Alameda, Contra Costa, San Francisco, Santa Clara, Sonoma and Monterey counties in Northern California; Los Angeles and San Diego counties in Southern California; and Houston.
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