Apartment Glut a Renter’s Dream With Low Rates, Giveaways
Salem Al-Ameri remembers the days a few years ago when he took what he could get in San Diego County’s tight rental housing market, because if he didn’t snap a place up, the next guy would.
“You would find something old, old-looking. They probably hadn’t cleaned the carpet in two or three years,” he said. “And they wanted so much money.”
Times have changed. Last Wednesday, Al-Ameri sat in the tastefully decorated rental center of the Country Hills apartment complex in Rancho San Diego, chatting leisurely as a well-dressed saleswoman checked on the apartment he was ready to rent. Country Hills was among a handful of places Al-Ameri had visited, and he had weighed his many options carefully.
“Now, the people in this business, they’re looking for customers,” Al-Ameri said. “They give you a break on the rent. Now, I can be in a nice complex with what I want--tennis court, pool, Jacuzzi, gym room--for $605. You get to be choosy.”
Competition Keen
Al-Ameri and thousands of other renters are enjoying the best time to rent San Diego County housing in the past 15 years, as nearly unprecedented high vacancy rates keep rents down and prompt anxious developers to offer discounts, cars and amenities in an effort to fill their buildings before competitors steal valued customers.
And while developers agree that it is only a matter of time before rental housing is once again in short supply, they concede that it could be a year or more before they stop undercutting each other to attract renters.
“The early ‘70s, was the last time that there was really such a market so overwhelmingly geared to the residents’ benefit,” said Sharon Warren, vice president of CDS Management Co., which manages about 2,200 apartments in San Diego. “It’s a very good time to rent because there’s a lot of competitiveness around. People are really having to sharpen their marketing techniques.”
At Country Hills, a sprawling 676-unit complex on unincorporated land south of El Cajon, resident administrator Sherry Petersen has seen the change firsthand. “There was a time, a couple of years ago, that all you did was sit here and rent, rent, rent. You didn’t have to try to sell so hard.”
In the San Diego Apartment Assn.’s spring, 1987, survey, the county’s rental vacancy rate rose to 8.9%, the highest figure since the 9.7% vacancy rate in 1972 and a dramatic climb from the recent low of 2.5% registered in 1984. Other surveys confirm the situation, and D. J. Ryan, the association’s executive director, expects that there will be little change in the vacancy rate when semiannual figures are released next month.
The vacancies are the result of a big surge in apartment building that began slowly in 1983 after a convergence of factors favorable to developers and peaked in 1985. After a decade of recessions and high interest rates, the early 1980s brought tax changes that allowed quicker depreciation, declining interest rates, available land, high demand for apartments and the continued absence of rent-control ordinances, housing experts said.
After building just 1,092 rental units in 1981, developers were able to put up 4,372 units in 1983, 8,414 in 1984 and 15,281 in 1985, according to George Carlson, an apartment broker for John Burnham and Co., whose statistics cover about 85% of the county. Construction declined to 10,441 units in 1986 as the overbuilding became apparent, tax laws changed and land became more difficult to find, Carlson said.
“We built more units than could be absorbed by the influx of people,” said Phil Huffman, executive vice president of The Huffman Companies, which manages about 3,000 rental units in the county. “Everybody just jumped in at the same time and overbuilt.”
Discounts, Rebates
For the past two years, the county’s renters have been reaping the rewards of that growth. Vacancy rates rose from 2.5% in 1983 and 1984 to 4.7% in 1985 and 7.1% in 1986, before jumping to the current rate of 8.9%.
Rents rose just 2.28% during fiscal year 1987, and just 3.88% during fiscal 1986, according to an annual survey conducted by Park Weaver Realty of San Diego. In fiscal 1985, the first year the survey was taken, rents rose 9.19%
“Nowadays, I think in most markets it’s so competitive that rent increases are generally the exception rather than the rule,” Warren said.
As the competition for renters increased, developers turned to rent discounts to lure customers to their buildings. Discounts of $100, $300, a half-month’s rent or a full month’s rent are not uncommon--though they are often contingent on signing 6- or 12-month leases.
In many areas, “Now Renting” signs are more common than campaign placards, and smaller discounts are still easy to find despite a slight tightening of the market this summer, developers said.
Some landlords have had to offer rebates to tenants already renting from them.
“We’ve had to give a lot of rent concessions,” including $300 or $600 off with half-year and full-year leases respectively, Huffman said. “With the existing tenants, we’ve had to give them about half that in some cases, just to get them to stay. They’d tell us that they may have to move if we couldn’t help them out.”
At the height of the vacancy problem, between six months and a year ago some landlords replaced cash incentives with gimmickry. Microwave ovens, savings bonds, gift certificates and utility services were popular giveaways. A San Ysidro project managed by Huffman offered a chance at a new Chevrolet Camaro to anyone who looked over the new apartments.
Bicycles, Beefed-Up Service
Con Am Securities, which owns about 5,000 apartments in the county, gave away bicycles in one promotion and sent out thousands of front door keys in another. Anyone showing up with a key that opened the front door to an apartment was eligible for a free year’s rent there, said Alan Nevin, company president.
Others decided to compete by adding amenities. Warren’s firm has been adding ceiling fans to newly vacated units in a La Mesa project, and in other complexes has started “Star Service,” a program of beefed-up maintenance and service that includes questioning residents about their apartment needs.
The wisdom of such techniques is open to question. Even Nevin concedes that “incentives don’t really work. People who are moving traditionally don’t move for a gimmick purpose. They move for other purposes.” Many landlords offer the same incentives, he said.
With mortgage interest rates still low, the current top reason for a move out of an apartment is to purchase a home, a fact apartment owners cannot control. And some renters are more concerned with traditional qualities such as well-constructed apartments, quiet locations and well-behaved neighbors than with temporary rent discounts.
Germaine Dominique’s decision to switch to the Park Terrace Apartments in Escondido this month had nothing to do with concessions, “because I didn’t know about them until I applied,” the 32-year-old accounts clerk said. “It’s nicely maintained. It’s very quiet. The one I’m in now is full of skateboards and Big Wheels.”
But other renters and some apartment managers said that give-backs work. Michele Hubbard moved into a 19-unit complex on Meade Avenue in North Park on Tuesday to take advantage of a 50% discount on the first month’s rent of $460. With a security deposit requirement of $350, Hubbard’s move-in costs were just $580, she said.
“I had hardly any money. A lot of people want over $1,000 (for first month’s rent and security deposit),” she said. “It saved me $400.”
Petersen, the Country Hills manager, believes that the concessions work in concert with the quality of the apartments she manages. “People fall in love with it when they walk in the door,” she said. “And then you tell them we’re going to give you this much off, and they say ‘I’ll take it.’ ”
If there is a silver lining for developers, it is that San Diego is so attractive that vacancy rates have not approached the 15% level now plaguing landlords in Dallas and Phoenix. In Houston, which is still feeling the effects of the dramatic drop in oil prices last year, the apartment vacancy rate stands at 21.5%.
Owners also noted that, while the countywide vacancy rate is 8.9%, that figure is primarily the result of large numbers of apartments sitting empty in pockets where developers rushed to build in recent years. Developers cite North County, particularly Oceanside, and parts of East County as high-vacancy areas that are skewing the overall figures.
Beach neighborhoods and popular neighborhoods such as Hillcrest in San Diego have not felt the changes as much. “If you’re in La Jolla or some of the places that are real desirable along the beach, those places are pretty much filled up,” Ryan said. “You move inland and you get lower rents and higher vacancy.”
The Apartment Assn.’s survey of 37,445 units shows the highest vacancy rates in Carmel Valley (70.8%), Ramona (41.5%), University City (28.1%), Carlsbad (19.9%) and San Marcos (19%).
The tightest vacancy rates were in Coronado (0.7%), Mira Mesa (1.8%), Del Mar (1.9%), Cardiff (2%) and National City (2.7%).
But Nevin noted that some areas with high vacancies have new developments still in their first “rent-up.” While the apartments may be filling up more slowly than they would have in the past, it is unreasonable to expect them to be completely rented right away, he said. Nevin believes that a 7% vacancy rate more accurately reflects the current situation.
The Apartment Assn.’s 1986 vacancy survey, which revealed a 7.1% overall vacancy rate, showed that units that were more than 25 years old had a 4% vacancy rate, and that apartments between six and 25 years of age had a 3.6% rate. But 25.3% of the units less than six years old were vacant, the survey showed.
Predictions vary, but most people tracking the rental market expect a gradual, but unspectacular, decrease in the vacancy rate over the next year. Rent concessions have begun shrinking in recent weeks, reflecting a slight increase in demand.
“Today we’re not begging people,” Nevin said. “Today, we don’t see the need to give away the store.”
But because of ongoing construction and a rush by developers to obtain nearly 3,700 building permits in the weeks after the San Diego City Council approved its slow-growth Interim Development Ordinance, the market will remain soft for six months to two years, developers and housing experts said.
In the long run, however, slow-growth policies and building moratoriums mean that a return to low vacancy rates is almost a certainty, officials agreed. With 50,000 to 75,000 more people--half of them renters--expected to move into the county each year and the supply of rental housing drying up, higher rents will result.
