151
The San Diego apartment market is doing unsustainably well. About 400 buildings will sell this year, which is the average volume of the past 30 years. Sellers are obtaining prices near peak levels, while buyers are capturing cash flow twice as good as the stock market — and with less risk.
There are three sources of buyers: cash that was sitting on the sidelines; investors who bought houses and condos at half price and are now ready to move up; and 1031 buyers.
Investors are tired of going broke safely. Hundreds have had cash in the bank that was paying a pittance while inflation and taxes slowly dissolve capital. Apartments deliver cash returns that are two to three times what stocks offer.
Additionally, over the past few years there have been more than 30,000 homes and condos sold at distressed prices. Many of those owners have doubled their equity and are ready to re-leverage their equity and trade up. This is creating a significant number of 1031 buyers again. It is not quite a chain reaction, but the ripple is helpful.
Apartment financing is easy and interest rates are cheaper than they have been for 48 of the past 50 years. San Diego routinely maintains a 95 percent to 97 percent occupancy, which is among the nation’s lowest for 40 years. Resident demand is always high.
Detroit and Las Vegas have demonstrated the fragility of MSAs with little diversity. In contrast, San Diego has nine economic engines that reduce risk when one sector stalls. The market has fewer and more milder recessions than the rest of the nation or state. Job growth is again stronger than that of the nation or state, as it has been for most of the past 50 years.
Investments are about the best available alternative. San Diego’s low risk and relatively easy financing and steady cash flow make this sector extremely desirable.
— Terry Moore, part owner, ACI in San Diego