Apartment Rents, Projects Are on the Move Again

After lying dormant during much of Southern California’s long real estate slump, apartment developers and builders have started to draw up plans and break ground for new projects.

The growing regional economy has boosted demand for apartments, driving down vacancy rates and, in some choice neighborhoods, raising rents. In Los Angeles County, for example, the vacancy rate has dropped from 11.7% in 1993 to about 8%, according to Hessam Nadji, head of market research for Marcus Millichap, a real estate investment firm.

“We are seeing optimism and speculation returning to Southern California,” Nadji said.

Last month, for example, Dallas-baseddeveloper Lincoln Property Co. started work on a 170-unit luxury apartment complex in Marina del Rey. The company is also working on plans for a project in Corona in the Inland Empire, as well as for one of the largest complexes--351 units--to be built in Santa Monica during the last two decades, according to Larry Scott, vice president of development for Lincoln.

Interest in building new properties has grown as many real estate investment trusts and other buyers have scooped up complexes of 150 units or more in prime locations, he said.

“The only other option is to go and develop,” said Scott, whose firm is planning to build about 1,000 apartment units annually in Southern California during the next four years.

Apartment construction in the region--which experienced a boom during the late 1980s--nearly collapsed during the recessionary early 1990s. As the number of jobs dropped and population growth slowed, demand for apartments spiraled downward.

Last year, the number of apartment building permits issued in Southern California totaled nearly 8,500 units--a dramatic drop from the more than 50,200 issued in 1989, according to the Construction Industry Research Board.

Many of the apartments that have been built in recent years were either low-income, publicly subsidized units or replacements for housing lost during the 1994 Northridge earthquake, according to industry observers.

But private development has begun to stir as rents have risen. In areas where job growth has been strong--such as South Orange County, the Westside, Burbank and Thousand Oaks--rents have risen 5% or more in the last year, according to industry observers. On the Westside, for example, the average rent for a two-bedroom apartment jumped about 10% last year to $1,165, according to real estate firm Grubb & Ellis.

“Higher-income urban areas and emerging suburban areas . . . will command high enough rents to support new construction,” Barry Baker, an investment broker at Grubb & Ellis, said of areas such as Brentwood.

However, Baker and other apartment industry observers do not expect a return to the building boom of the late 1980s. For one thing, the economy is not growing as quickly, and most of the savings and loans that financed and invested in the apartment boom no longer exist.

While rents have surged in many select neighborhoods, rents across much of Southern California remain too depressed to make a new apartment building profitable, said Mitchell LeBar, manager of regional operations for Marcus & Millichap.

Rents would need to rise at least 25% “before it makes sense to build,” LeBar said.

In addition, in many areas, investors and developers can still buy fairly new apartments at well below the cost of building, Baker said.

“We still have a ways to go,” he said.

Times staff writer Jesus Sanchez can be reached via fax at (213) 237-7837 or by e-mail at jesus.sanchez@latimes.com