Originally posted by Terry Moore discussing how you can find success in the multifamily markets of North Park, Normal Heights, University Heights & Kensington.

This series will interest you, wherever your apartments are. Over the next year we will update SDCAA members on value trends in our 25 most active zip codes. Perhaps you’ll save the article about your area.

We start with these areas because more Rental Owner readers own here and have owned here than any other part of the county.

A third of North Park and the 92116 buildings have sold in the last decade

In other words each year scores of families adjust their portfolio. It is easy to buy or sell in high volume zip codes. So it is easy for investors to move equity into or out of these zip codes.

Changing Perspective
For most of the past 30 years, North Park has been valued 10% higher than City Heights, 92105. Today, the spread often exceeds

Ten years ago, North Park’s values were similar to La Mesa and Chula Vista. In 2016, investors perceive North Park as almost on par with Pacific Beach. Historically 92116, the zip code north of 92104, has been valued 5- 10% more. In the last few years that gap has narrowed.

Those perception changes are huge. What caused the changes?

North Park, zip code 92104, spans from east side of Georgia to west side of Cherokee, (37th 1/2 street), about half way between I-80S and 1-15.92116 extends from Meade north to the cliff overlooking Mission Valley and from Highway 163 to Fairmont. 92116 includes scores of million dollar homes.

In September 2012, Forbes reviewed more than 250 desirable neighborhoods nationally, from 50,000 zip codes, seeking the nation’s ‘hipster’ zip codes.
Based on popular amenities such as walk-ability, number (and quality) of coffee shops and food trucks, frequency of farmers markets, and the percentage of resident “creative professionals,” Forbes declared 20 zip codes nationally to be the new havens for hipsters! Values skyrocketed in those trendy communities.
North Park, 92104, placed #13 on that list. Some cynics might consider the 92104 neighborhood as older, with lean parking. In reality, the mid-century architecture, the multicultural blend of residents, the bustling art scene and the local food culture have put our beloved North Park on the national map!
Quick access to freeways and jobs downtown and Mission Valley also enhance popularity for 92104 and 92116. Affluent “Millennials” (born in the 1980s and 1990s,) have fallen in love with the walk-able neighborhood and its farm-to-table restaurants, craft brew pubs, and unique galleries and shops. They pay premium rents for these areas.

Some smart investors are renovating vintage 92104 and 92116 assets. The updated housing brings in a higher income and a better educated tenant. $25,000 per unit of intelligent upgrades can raise rents from 30% to 50%! The improvements are less intense than condo conversion.
North Park, University Heights, Normal Heights & Kensington have been vital to San Diego for generations. That won’t change.

©Terry Moore

Math behind the graphs
Over the last four years the values have steadily increased. About 400 “arm length” sales are represented. Appraisers estimate value based on the preceding year’s sales. Each graph shows a 12 month rolling average; each data point averages all the sales in in preceding year. So the earliest
point shows average of 12 months ending December 2011. The last data point averages the 12 months ending December 2015.
Three measures of value reveal the three main ways that lenders, appraisers and investors judge apartments. Most Rental Owners readers are affluent. This short section reminds you about the math and the terms.

©Terry Moore

Dollars per apartment, $1 unit, is simply the average price per apartment unit. Its weakness is that it ignores unit mix and income.

©Terry Moore

Gross rent multiple (GRM) is the value divided by the current income. It shows how many years of potential income the buyer pays. A property that sells for $1,500,000 and has $100,000 potential annual income sells for 15 GRM. GRM fails to consider unit mix and square footage.
Dollars per rentable square foot, $/Sq Ft, measures value in relation to rentable area. If a $1,500,000 property had 6000 square feet of rentable area, it is worth $250 per square foot. This measure neglects unit mix and income.
Here’s an example of the three measures at work. Two properties both sold for $1,500,000. Both had ten units. Each sold for $150k/unit. One had smaller units, a total of 5000 square and so sold for $300 SF= ($1500k/ 5000). The other had bigger units, 6000 SF, and sold for $250/ SF ($lsook/ 6000). One was not yet renovated and had low rents $100k, so sold for 15 GRM = ($1500k/ $look). The other one was upgraded, had $12Sk rents and sold for 12 GRM = ($1500k/$125k).
Use all three measures when you assess property. A nurse won’t rely on one measure to assess your health because three measures (temperature, blood pressure, and weight) give a better picture of your health than anyone measure alone. You shouldn’t rely on just one either.

92104 & 92116 have benefited from the economic rebound and improved demographics. As you reflect on your next decade it may be time to consider whether your current holdings are best for your family in the years ahead. Save this article, even if you’re not ready to sell yet. When you are ready, pull it out of your file.

Curious about your property’s value?
As an SDCAA member you can receive a complimentary, confidential value estimate. Contact our team to learn the value of your apartments. We will
value about 100 buildings this year. For a generation our team has been focused on your success.

About the Author: Terry Moore, CCIM is part owner of ACI, San Diego’s highest volume apartment firm. He served seven years as SDCAA and
State Association Director. ACI has closed more 92104 & 92116 transactions than the next three competitors combined. Reach Terry at 619-889-
1031, or tmoore1031@gmail.com or SanDiegoApartmentBroker.com

This article was originally featured in RentalOwner Magazine,  information about the magazine and its subscription service can be found HERE.