Waterleaf Apartments in Vista

San Diego County renters can expect increases approaching 4 percent this year as vacancies continue to fall, new apartment investment company predicts.

Greg Campbell, senior managing director of acquisitions Los Angeles-based TruAmerica Multifamily, said the trends reflect San Diego’s inability to keep up with demand.

“Household formation is outpacing new supply of apartments, so it will be a tight market this year,” Campbell said.

He spoke in the wake of TruAmerica’s purchase last week of Waterleaf Apartments, a 456-unit project in Vista, for $86.2 million. Investcorp Group was a joint-venture partner in the purhcase. The sellers were RedHill Realty Investors and AEW Capital Management and Cushman & Wakefield was the brokerage.

This transaction followed the TruAmerica’s first investment activity in the county last year when it helped its joint-venture partner, Guardian Life Insurance Co. of America, buy 221-unit Piazza d’Oro in Oceanside for $81 million.

“We really like San Diego,” Campbell said. “We think in terms of stability and a diverse economy, it feels good. During the downturn, rents from rental product didn’t fall as much as in other areas, such as Los Angeles, San Francisco and Orange County. We think it’s more of a steady market and rent growth.”

The county’s vacancy rate stood at 3.6 percent in September, according to Russ Valone, president of the MarketPointe Realty Advisors firm. Its survey encompassed more than 127,600 units in 832 projects of 25 units or more. Since a 5 percent vacancy rate usually signifies an even balance between supply and demand, a lower rate indicates tighter conditions and usually leads to higher rents, although local conditions dictate the situation at any given property.

TruAmerica was formed in July 2013 by Robert E. Hart, retired CEO of the Kennedy Wilson multifamily management group, which acquired and sold more than 20,000 units worth $4.5 billion from 2000 to 2013.

With Guardian Life as a joint venture partner, TruAmerica so far has acquired 4,900 units worth more than $1 billion to bring its ownership and management portfolio to 13,000 units. Besides San Diego, the company is active Denver, Seattle, Phoenix and major California markets.

“We may expand our geographic footprint in the future but not at this point,” Campbell said.

TruAmerica focuses on mid-level properties built in the last 30 years plus a few top-end complexes.

The market remains strong for apartment investment, he said, because 20-something renters cannot yet afford to buy their own homes and families who have been renting single-family homes are being squeezed out as previously foreclosed houses are resold.

“To qualify to buy a home is still difficult,” he said. “People (with credit issues) are still trying to recover from the downturn.”

He said TruAmerica projects typically offer opportunities to upgrade common areas with such things as dog runs, game rooms and other amenities. Waterleaf has a new play structure that is proving popular.

“Renters, when they tour a property, want to see as many amenities as possible,” he said. “Whether or not they use them, they envision using them and make decisions accordingly.”

At the opposite end of the demographic scale, seniors are moving from owned to rental housing to lighten the load on maintenance chores.

“Senior communities don’t cater to all,” he said. “Some want to be surrounded by younger families.”

Campbell said the tight San Diego apartment market is likely to continue for the next three to five years, implying that rents will continue to outstrip inflation.

“When we look at San Diego, we’re very optimistic about it,” he said. “Anything that could affect the economy on a national basis obviously impacts on San Diego as well. We don’t see any signs of that happening right now.”

But he said if the federal government reduces defense spending and contracting, San Diego obviously could feel the effects.

TruAmerica does not develop apartments but has bought newly completed complexes. It also does not convert apartments to condos but could sell some, such as Piazza d’Oro, to converters if they hold condo subdivision map approval.

Campbell said he could imagine some apartment projects with 150 or fewer units will start the conversion process this year, depending on the course of housing appreciation. But he said converters got stuck with projects where only 25 to 30 percent of the units had been tentatively sold but had to cancel sales with the downturn struck in 2008.

This article was originally published in San Diego Union Tribune and can be found HERE.