What area is your expertise?
My specialty is in the sale of multifamily in the North Bay region San Francisco Bay Area (Marin, Sonoma, Napa and Solano Counties).
What trends do you see presently in multifamily development in your area?
Developers for the most part have pursued condo development in lieu of apartment development on land zoned high density residential. This is due to the huge economic value advantage condos offered over apartments. The apartment development we have seen has been concentrated in either a few very large Class A apartment assets, or affordable (tax credit and bond enhanced) or senior living.
Who are the active multifamily developers in your area?
Spanos, Fairfield Residential and DR Horton
Please name one or two significant multifamily developments in your area. What impact will these projects have on the market?
The Moore Building (79 units in Downtown Santa Rosa) and Water Street North (107 entitled apartment units in Downtown Petaluma) are two interesting projects. Neither project has or will have a significant impact on the supply of units. What is more interesting is that both projects are victims of the same problem: projects getting entitled without a market to support them. In the case of Water Street North, the entitled lots were put up for sale by the owner but the market had a hard time making the economics work as either condos or apartments
Where is the majority of development taking place? Why is this area doing well?
Most of the development is happening in Sonoma, Napa and Solano counties. This is due to the fact that there is still some available land. There is no one area that is realizing high-density residential construction at the moment, with the exception of student housing for Sonoma State in Rohnert Park. It is more like pockets of infill in places like San Rafael, Santa Rosa, Petaluma, Vacaville, and Napa.
What area do you expect to be the next big development market? Why?
I see Solano County between Fairfield and Sacramento having the greatest future development due to the availability of land, proximity to employment in Sacramento and certain Solano County sections, and the most affordability of all the areas in this region
What areas are doing well in terms of apartment leasing? Which areas are struggling with leasing?
Marin County is doing the best due to its supply constraints, stable tenancy and proximity to San Francisco. Sonoma County has flattened out a bit, as has Solano County. We believe this is due to the shadow rental market where vacant singlefamily homes and condos are being offered at rent levels competitive with apartment properties.
Please give a measure of apartment vacancy rates.
These are Q1 2008 vacancy rates: Marin County: 2.8 percent, Sonoma County: 5.6 percent, Napa County: 3.6 percent, Solano County: 4.8 percent (data provided by Realfacts)
Please give a measure of condo sales activity in the area.
County Condo sales were 97 units at a Median price of $550k in Q4 2007 versus 144 units at a median price of $523k in Q4 2006. Sonoma County condo sales were 101 at a median price of $292k in Q4 2007 versus 158 units at a median of $331k in Q4 2006. Napa County condo sales were 19 units at $485k median value in Q4 2007 versus 36 units at a median value of $427k in Q4 2006. Solano County had condo sales of 58 units with a median value of $250k in Q4 2007 versus 95 units at a median value of $280k in Q4 2006.
What impact do current interest rates have on the apartment and condo markets? What predictions do you have for interest rates and their effect on the multifamily market in the next year?
Rates for condos have stayed fairly consistent since before the credit crisis began. What is having a far greater impact is the tightening of lending standards through higher down payment and income disclosure requirements for would be condo buyers. Condo developers and converters are trying to offset this with structured financing programs but the market for condos has all but dried up. My guess is that short-term rates will rise due to inflation and foreign central bank monetary policies. This, coupled with ill-liquid credit markets, will have a very negative impact on the condo market for some time to come. If you throw in any significant job losses, then we are talking some serious trouble.
What is the status of job growth/(un)employment rates and what bearing will it have on the multifamily market?
Unemployment rates in Sonoma, Napa, Marin and Solano counties increased year over year in March, according to data released by the state Economic Development Department today. Jobs increased in every region but Solano County, including a gain of nearly 5,000 jobs in the Marin County region. Unemployment rates were up from a year ago to 5.2 percent in Sonoma County. Napa saw an increase to 4.8 percent from 4 percent a year ago. Marin County had a slight increase from 3.6 percent to 4.1 percent year over year, and Solano County was at 6.4 percent compared with 5 percent from a year ago. Many of the losses are in the construction industry and government. This compares to a rate of 6.4 percent for the State versus 5.2 percent a year ago. The effect of these rising unemployment rates are uncertain given the increasing affordability gap due to the housing crisis. There has not been any real increase to the supply of multifamily units over the last five years, which may offset rising unemployment rates.
Submitted by Scott Raymond, managing director with Sperry Van Ness | The Fulcrum Group. Posted online 04/28/08.
Scott Raymond