5% Vacancy Rate Called ‘Normal’; Rents Moderating : Building Boom Relaxes Apartment Squeeze
A boom in construction has sharply increased the vacancy rate for apartments in the San Fernando Valley in the last 12 months, according to landlords, property managers and others who monitor the rental market.
The vacancy-rate growth, from 2.8% a year ago to an estimated 5% or more now, hardly portends disaster for the rental housing industry. Experts say it simply means the traditionally tight Valley market is more like other areas now.
But it also means moderating rents, greater competition among landlords and more options for tenants. In Van Nuys, for example, the landlord at 6910 Kester Ave. is offering $300 rebates to entice renters into his new building. A one-bedroom apartment goes for $550.
Tenants will have even more apartments to chose from soon. Permits for nearly 8,700 new Valley units were issued by the city in 1985, up 38% from the previous year. Because it takes 12 to 18 months to get an apartment project from permit to completion, those units have just begun to hit the market.
‘A Tremendous Boom’
“There’s a tremendous boom in new construction out there,” said Barbara Zeidman, director of the city’s Rent Stabilization Program.
For the time being, at least, the result is more vacancies. Figures are scarce--the last Valley study, by the Federal Home Loan Bank Board, put the vacancy rate at 2.8% last March--but no one disputes the trend. Zeidman said the vacancy rate probably exceeds 5%, and several big property managers agreed.
They said the rate has not been so high in years.
“One only has to drive around to see the increased number of ‘For Rent’ signs,” Michael Katz, president of the Apartment Assn. of the San Fernando Valley, wrote in the March issue of the landlord group’s magazine. “A count of the ‘For Rent’ ads in the classified section of the newspaper will give you the same picture.”
“It really began right around eight months ago,” said Robert Harrison, president of the Beaumont Co., which manages 6,000 Valley rental units.
He estimated the current Valley vacancy rate at 4.5%, not counting the many new units about to come on the market. His company had a 3% rate a year ago.
Citywide Rate 3.5%
The vacancy rate citywide is about 3.5%, said Harrison, whose firm manages 11,000 apartments in the Southland.
“More of our buildings are having a vacancy than before,” reported Sandy Gantz, whose Gantz Investment Properties manages 2,500 units, almost all in the Valley. He estimated the vacancy rate at 5%.
A 5% rate in the Valley is really just “normal,” meaning it’s a healthy market for both landlords and tenants, said Jay Berger, a real estate professor at California State University, Northridge.
Apartment construction is the reason for the increased vacancy rate. Since July, the number of Valley apartments within the city limits of Los Angeles has risen 2.7%, to 181,000, according to the city’s Department of Community Development, and the gains will accelerate.
Much of the building is in North Hollywood and Van Nuys, with lesser amounts in Sherman Oaks and Sylmar, experts said.
Builders have stepped up construction for several reasons. Many want to beat proposed federal tax changes that they fear will take away favorable depreciation, low-cost bond financing and other tax advantages, according to Raymond Sealy, executive vice president of the Los Angeles division of the California Building Industry Assn.
Spurred by Interest Rates
Developers have also been spurred by low interest rates.
“Money is so cheap now it’s unbelievable,” said Robert Francescon, president of Lycon Properties. The various Lycon companies and partnerships are building 1,000 apartment units, most in the Valley.
Also, rental specialists say, the Valley had many sites with old two-story or garden-type apartments on them, some of which had longstanding tenants whose low rents were protected by rent control. These sites could accommodate, with no zoning change, much larger buildings yielding far more rent.
Francescon said the boom of the past year is partly attributable to developers who rushed to begin their projects before the April 2 effective date of a city ordinance to bring Los Angeles’ zoning in line with its master plans. Builders knew that the plans called for zoning allowing much lower density on many properties.
Harrison said some builders turned to residential projects because the office market is so glutted, noting that “builders always build when there’s money available.”
Most of the construction appears to be at the high end of the market, but it has helped keep down rents across the board, according to property managers. They said rent control is fading as a factor because apartments can be rented for market rates when the tenant moves out, and 80% of Valley rental units have turned over or been built since the law passed in 1978. Buildings erected subsequently are not subject to rent control.
The result is increased competition for good tenants. Patrick Doherty, whose K. D. Realty manages about 400 units in the Valley, said he now installs better carpeting and stylish mini-blinds instead of drapes in his apartments to set them apart from the competition.
‘Shop Price, Location’
“If they all look the same, then you’re just going to shop price and maybe location,” he said. “As a potential applicant, you have a lot of opportunity.”
Zeidman said she expects all this to begin driving prices down soon. She said the average one-bedroom apartment in the Valley rents for $525, and a new one-bedroom goes for $625, with both figures varying by location.
A year ago, Zeidman said, the average one-bedroom apartment was renting for $465. She said 75% of the units being built have one bedroom.
But the softer apartment market won’t last forever. Building permits for January and February were issued for 1,110 units, down 23% from a year ago. And Francescon said suitable sites are fast disappearing.
“We have two people in-house who do nothing but search for apartment land,” he said. “They are finding it much more difficult to find.”
