O.C. Rent Costs May Be Heading Through the Roof

By LESLIE EARNEST

Nov. 28, 1997 12 AM PT

SPECIAL TO THE TIMES

After years of stable rents in Orange County, the cost of apartment living is now rising, a trend some industry analysts say will likely continue for at least the next five years.

A local market analyst says rents are increasing an average of 6% to 8% throughout the county, and one tenants’ group is predicting hikes of 15% to 20% over the next 18 months.

Gone, in short, are the days when landlords whittled rents and offered other incentives to entice renters.

Instead, renters may find themselves signing apartment waiting lists as they did during a tight rental market in the 1970s, said Martin Brower, publisher of Orange County Report, a newsletter about real estate trends.

“We can foresee a time coming when it will be difficult to find an apartment,” Brower said, “and that drives the rent up even more.”

With an invigorated economy and new jobs drawing workers to the area, the county’s apartment market has begun to resemble the frenzied markets in Central and Northern California, where renters have faced double-digit increases over the last couple of years as the vacancy rate shriveled to 1%, said Tom Bannon, executive vice president of the California Apartment Assn. in Sacramento.

“Clearly, the economy in [Orange County] has turned around,” Bannon said. “It’s so similar, it’s actually eerie.”

In fact, the California Tenants’ Assn., which formed in Cupertino last year to help renters who faced 30% increases, plans to assign a worker to Orange County soon, said its founder, Mark Sherwood.

“I’m trying to get a local manager down there to handle it,” said Sherwood, who predicted rate increases of 15% to 20%. “You’re facing exactly what initiated it here.”

New apartments are being constructed, but not fast enough to keep pace with the growing demand, analysts say. Brower said 5,000 to 6,000 new apartment units will likely be needed each year, but only 5,500 units are expected to be built through 1999.

Sensing the potential for profit, out-of-state investors have begun to purchase and upgrade Orange County apartment buildings. “The real estate investment trusts have come in,” Brower said. “They’re buying like crazy.”

Last month, for example, a Nevada firm bought the 714-unit Villa Martinique in Costa Mesa for $73.5 million, or nearly $103,000 a unit, a record per-unit price for the county.

Rents were already being bumped when Las Vegas-based Oasis Residential Inc. bought the complex, the group’s chief financial officer said.

Tenants can expect another 7% increase after the company completes $2.5 million in renovations, including new air conditioners and “entry monuments.”

“We are very, very enthusiastic about the economic turnaround in Orange County, and we are actively pursuing other opportunities there,” said Oasis financial officer John Clayton.

“We certainly don’t want to lose residents, but we want them to understand that we can’t improve the property without raising rents,” he said.

Generally, rents are expected to continue rising countywide, market analysts say, with large, amenity-laden complexes experiencing the steepest increases.

Smaller, older units--particularly in the central and northern part of the county--may have nominal increases of 2% to 3%, but even that would be higher than in previous years, said Edward Masterson, executive director of the Apartment Assn. of Orange County.

In Los Angeles County and the Inland Empire, average rents are rising at a much slower rate, said Sarah Bridge, president of Realfacts, a Marin County firm that surveys large apartment complexes throughout the state. “I think Orange County is definitely ahead of the game,” she said.

While some residents are getting “a little uptight” about the shift in the Orange County market, Masterson said there are still plenty of apartments available at reasonable rates. “The increases are not running rampant,” he said.

The latest survey of apartment buildings with 20 or more units showed that rents in the first quarter this year rose 5.5% over the first quarter in 1996, said Pam Wooldridge, president of Research Network Ltd., a local market analyst firm. The average rent was $846.

Apartments with 100 or more units have risen 7%, averaging $912 a month.

By the first quarter of 1998, Research Network projects that rents will have risen another 6% to 8% over the first quarter of 1997.

Responding to growing demand, the Irvine Apartment Communities, which builds and operates complexes in the 90-square-mile Irvine Ranch, is building four new complexes in the county with a total of 964 units.

Industry analysts say, however, that there are impediments to building complexes throughout the county, including a shrinking patch of land zoned for apartment buildings. They also note that proposed apartment communities encounter opposition from homeowners who don’t want high-density housing in their neighborhoods.

While rents are bound to rise under such circumstances, analysts say hefty increases could spark cries for rent controls, which have been imposed in other counties.

“In Orange County, we haven’t had to worry about rent control,” Wooldridge said, “but that’s always a concern for apartment managers.”

Bannon said his Sacramento-based apartment association recommends that landlords raise rents no more than once a year for existing residents and give tenants at least 60 days’ notice.

In some lower-income areas, he said, a bump in the monthly payment can be a serious hardship.

“Those individuals in those properties have a hard time finding some other place to go,” he said. “People don’t want to hear that, but that’s what it is.”

But good renters are also a valuable commodity, analysts say, and people who can prove that they are desirable tenants may still be able to bargain a little with apartment managers. And while higher rents may sting the pocketbook, Brower said renters should remember they have been getting a break for years.

“People forget [that] they should have had an increase every year, and they haven’t,” Brower said.

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Rents Roll Upward

Orange County’s average rental rate increased 6.9% in September compared with a year ago while the overall occupancy rate increased 1%. Average residential occupancy and rental rates: $

Average Rent

Sept. 912

Average Occupancy Rate

Sept. 96.3

Rental Extremes

Highest and lowest rates for September: $

Highest Average

Newport Beach: $ $1,468

Seal Beach: $ 1,270

Irvine: $1,177

Aliso Viejo: $1,161

Yorba Linda: $1,106

Lowest Average

Buena Park: $730

La Habra: $735

Anaheim: $738

Stanton: $739

Garden Grove: $770

Note: Figures based on survey of apartment dwellings with 100 or more units.

Source: Realfacts; Researched by JANICE L. JONES / Los Angeles Times

Regional Rents

Orange County average rental and occupancy rates are among the highest in Southern California. Here is how they compared to other counties’ in September and the percentage change from the previous September:

Los Angeles

Rent Average: $919

Change: 3.0%

Orange

Rent Average: $912

Change: 6.9%

Riverside

Rent Average: $625

Change: 4.4%

San Bernardino

Rent Average: $661

Change: 2.1%