Tax Issue Spurs Apartment Surge

Falling mortgage rates, from the 13% magic number to the better comfort zone of 12.25% to 12.75%, should provide an incentive to home buyers as the real estate industry approaches its busiest sales season.

A strata or two of buyers should be able to fit under the new umbrella in the constant battle of affordability, even in California housing, among the highest priced in the nation.

Before the conventional rate fell below 13%, Commerce Department figures for March showed that housing starts enjoyed a 16.2% increase, new-home sales rose by 9% and the pace of resale housing was the best since November, 1980, placed at an annually adjusted rate of 3.05 million units. But there is a but.

Included in the housing starts was a 46% increase in apartment construction, while new-home starts accounted for only a 2.3% increase over February.

The disparity was attributed to investors financing apartment construction while such financing still allowed them tax breaks.

Michael Sumichrast, the chief economist for the National Assn. of Home Builders, said tax incentives for construction of multifamily housing are at issue in the present federal budget considerations and that many developers and investors who anticipate some changes in incentive clauses made their big moves to get in under the permissive existing laws by starting their apartment projects.

He conceded that Reagan Administration tax reforms could drastically change tax advantages now held by real estate investors.

Another factor which will get the attention of apartment owners and managers evolved from a California Supreme Court ruling last month. In a 5-2 decision, the court ruled that apartment owners can be held liable for any defect in their properties. Until that ruling, landlords virtually had no responsibility for injuries that took place in rental properties.

Since most of the nation's estimated 29 million apartment units are owned by small operators, the court ruling contains a great portent for them. Insurance against such a liability will increase their cost of doing business and their cost of owning property.

Only 4.1%, or 1.2 million units, were owned in 1984 by 50 major realty firms, according to the third annual survey of the country's apartment-complex owners by San Francisco-based Stephen Roulac & Co.

Among the big owners, dominated by real estate syndicators, California with 12 firms, and Texas with 10, head the field.

"Apartments have been and continue to be the favored form of investment for real estate syndicators," Roulac said, while noting that several large investors are withdrawing their holdings in multifamily housing and switching to ownership of "higher quality institutional-grade properties such as large, well-located high-rise office buildings or shopping centers rather than more management-intensive apartments."

"What remains to be seen, and what we will be studying carefully, is if this de-emphasis will reverse the industry's slow move toward consolidation," he said.

The Lefrak Organization, Forest Hills, N.Y., with 86,743 apartment units in its portfolio, is the biggest landlord, retaining its 1983 position. Balcor/American Express of Skokie, Ill., is second with 59,511 units, moving up from its fifth ranking in 1983. The Hall Real Estate Group of Dallas, with 51,809 units, is third, climbing from 10th place in 1983.

Fourth is the first California company, San Mateo-based Robert A. McNeil Corp. with 48,184 units. It ranked seventh in the previous survey.

Other leaders from the Golden State, their ranking and number of units owned, are National Partnership Investment Corp., Los Angeles, 11th, 35,000; The Fox Group of Companies, San Mateo, 15th, 27,411; Consolidated Capital Companies, Emeryville, 16th, 25,832; R&B; Enterprises, Los Angeles, 19th, 23,000; American Republic Investments, Costa Mesa, 23rd, 19,000.

G&K; Management, Culver City, 31st, 15,500; Angeles Corp., Los Angeles, 33rd, 13,941; American Diversified, Costa Mesa, and A .G. Spanos Properties, Stockton, tied for 37th, 10,000 each; McCombs Corp., Irvine, 44th, 7,478; The Grupe Co., Stockton, 45th, 7,000; The Klingbeil Group, San Francisco (and Columbus, Ohio) 48th, 5,000.

That could add up to lots of liability.

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