Apartments Play Let’s Make a Deal : Housing: Rising O.C. vacancy rates spur offers of month’s free rent, other incentives.
Mirian Lopez was driving along Main Street in Santa Ana when she saw a sign that would end her seven-month hunt for an apartment: Cats Welcome.
“This was a good reason to move in,” said Lopez, who was turned away repeatedly from apartment complexes in the area that don’t allow pets. “I love my cat dearly.”
Her landlord, South Coast Apartments, is welcoming cats to increase its chance of attracting tenants. About 25% of prospective tenants have cats, said apartment manager David Campbell, and now is not the time to be picky.
Apartment owners in many parts of Orange County are going to special lengths this summer, offering a month’s free rent, microwave ovens and looser credit standards.
The reason: Apartment vacancy rates are climbing. The average vacancy rate for the county seems low at 3.5%, but the average doesn’t tell the full story. In some pockets of the county, vacancy rates are as high as 15%.
About 60% of apartments now offer move-in incentives, contrasted with 40% a year ago, according to The Research Network Ltd., a Laguna Hills real estate consultant.
“It’s much worse than a year ago,” said Dean Duncan, director of property management for J.D. Property Management Inc. in Costa Mesa, which oversees 3,500 apartments in Orange County. “We’re offering (these incentives) to get our buildings filled up, make our debt service and pay our bills.”
In Buena Park, where thousands of new apartments have been built in the past two years, J.D. Property is offering a “$200 moves you in” special. That amount covers the security deposit and rent for the first month.
That’s a far cry from the usual practice of apartment owners, who required new tenants to pay the first and last month’s rent plus a security deposit--an initial outlay that could total $2,000 or more.
Renee Kallio, 28, paid only $50 in rent for the first month in her two-bedroom apartment at the Casa Coronado apartments in Buena Park, which normally rent for $595 a month. The low move-in cost, she said, is helping her get started in a new area, after recently separating from her husband.
“I really didn’t think it was going to be that easy,” she said. “I’m just starting to pick myself back up.”
Some apartment owners are relaxing credit standards so they can fill apartments.
Kallio’s landlord, Tim Lodish, said he asked her parents to co-sign the lease, rather than penalize her for a lack of credit history.
The 392-unit Park Vista Apartments in Anaheim is also easing its credit terms, said leasing agent Michelle Grinnall. “We still have standards, but there’s a gray area.”
One thing apartment owners aren’t doing is lowering the rent, except for special first-month deals. Rents in Orange County have risen 3% to 4% a year since 1988.
Several apartment owners said lowering the rent would be too expensive. They said it is cheaper for them in the long run to offer one-time giveaways, and the freebies are a great way to get people in the door.
Grinnall began offering a month’s free rent in December, a strategy that has lowered vacancy rates from 50% to 10%.
“People like the special,” she said. “After that, the first question they want to know is price. We try to steer them away from that until we tell them about the area.”
Theories vary about the reasons for the high vacancy rates. Developers built apartments faster than they could fill them, industry observers say. From 1984 to 1990, 33,000 new apartments were built here.
Pam Wooldridge, a principal with the Research Network, said most Orange County apartment complexes had waiting lists until three years ago. She said apartment owners may be overreacting by offering so many incentives.
“I don’t think the vacancy rate is high,” Wooldridge said. “I don’t think, in general, that this is a distressed condition. The cause of the concern is some areas that are higher than the average.”
She said builders have been especially active in South County, and the average occupancy rates there are some of the highest: 92.8% in San Clemente, 93.9% in Laguna Hills and 93.4% in Laguna Niguel.
One of the largest apartment builders in the county is the William Lyon Co. The company’s 6,000 apartments in the county are 97% occupied, said John Markley, a William Lyon vice president. Most of the company’s apartments are less than 6 years old and newer apartments are easier to rent, he said.
Still, the company is giving away up to one month’s free rent to fill 1,609 new apartments in Aliso Viejo.
“Right now, we have to give incentives away to compete in that area, but I don’t think it’s going to last,” Markley said. “When the market starts to firm up, the first thing that will disappear are the incentives.”
The market is already tightening, he said, and should be incentive-free by 1992 because few new apartments are being built. “At one time, there were 19 or 20 apartment builders in Orange County that were active,” Markley said. “Now there are three.”
One of them is Irvine Pacific, a division of The Irvine Co., which manages 12,000 apartments in the county. John Maciha said the company’s apartments may offer a special this weekend--a reduced security deposit of $99--to fill some of the El Toro and Tustin apartments that were vacated when military personnel were reassigned after the Gulf War.
Orange County Rental Market The average apartment occupancy rate in the county has remained steady at around 3% over the past four years. But rents have failed to keep pace with inflation, and incentive offered to new renters are squeezing apartment owner’s profits. The figures below are based on a survey covering nearly 85,000 of the county’s apartments in large complexes of 50 units or more. Rental Rates, Growth, 1985-1991, In dollars per month: 13% Apartments, Growth, 1985-1991, In thousands of apartments: 21% Source: The Research Network Ltd.
