Dick Sim, chairman of the Investment Properties Group for Newport Beach-based Irvine Co., said last month that his company was set to deliver 1,633 units by this summer, with at total 1,184 of those units in Irvine in two projects. One project, the Oak Glen apartment complex was scheduled to open this month, and the Las Palmas apartments are set to open in April.
But Bruce Furniss, SVP and multifamily specialist with Grubb & Ellis' Anaheim office, says that although large multifamily complexes are being built in Irvine and other parts of south Orange County, those units account for only a very small piece of the pie, compared to the availability of rental space countywide.
"Ninety-three percent of all multifamily housing in Orange County is less than 100 units," Furniss says. "The issue is the perception that there is a lot of land out there. You have to look for infill locations where there are high barriers to entry. I am seeing [developers] sniffing around in locales adjacent to obsolete industrial product that they can scrape and build."
Joe Berkson, a senior investment associate with Marcus & Millichap's Irvine office, says that although the Irvine Co. is building large projects, the majority of projects with lots of units and high square footage are in the south county like the Park at Crown Valley in Mission Viejo, which will have 300 or more units when completed. Those projects make sense for their owners because they can charge higher rents to a more affluent clientele to pay the bills.
"The growth of new housing stock is not there on the lower end, but we're seeing improvement in the quality of housing. New owners who are well capitalized are looking to push rents higher, and they have the ability to do it by enhancing the quality of the projects they purchase," Berkson says.
Ken Morgan, a partner at Morgan Skenderian Investment Real Estate Group in Newport Beach, says the only areas where building large product pencils out is in the coastal regions of the county. However, there currently are two large projects under way in north county in Fullerton, one being built by BRE, a northern California-based REIT, the other by the Morgan Group of Texas.
"I don't think you're going to see anything small built because it's not going to work," Morgan says. "There are redevelopment deals, tearing down existing buildings, allowing for higher density to be built. That's the only way you can make it work."
With little available land left to build on, developers of multifamily housing face yet another hurdle. Californians don't like high-density housing, so most cities are down-zoning R3 parcels, contending that multifamily housing is not the best use for the property, he says.
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