Multifamily Investment Stumbles Even Further in San Diego During Third Quarter
The coronavirus outbreak has wreaked havoc on the San Diego apartment market.
Landlords are not only dealing with added expenses from social distancing protocols, shuttered amenities and declining rent payments brought about by high unemployment, but also an eviction moratorium and a new rent cap that went into effect in 2020.
The eviction moratorium makes it especially difficult for investors. If residents have not paid their rent, and can’t be evicted, the landlord won’t receive income on those units. For a smaller complex, that could push the investor underwater on their loan.
Deal flow has cooled to the lowest level in nearly a decade, when only 64 trades were recorded in San Diego during the second quarter totaling about $300 million. However, the third quarter is on pace for deal volume to collapse even further. Just 28 transactions have been recorded in the first two months. That pace could eclipse the lowest deal flow from the Great Recession if it were to continue through September.
The multifamily sector isn’t alone, though. Every property type in San Diego has recorded a notable deceleration in deal flow and sales volume during the quarter as investors have increasingly taken to the sidelines as the pandemic drags on with no end in sight.
Only $80 million in apartment sales recorded in July and August. San Diego is on its way to posting the lowest quarterly sales volume since the middle of 2010, when only $75 million in sales were confirmed by CoStar. However, that sales volume came at a time when sales prices weren’t disclosed in California, and likely included several deals where a price wasn’t captured.
The largest deal of the third quarter so far was for the 27-unit Regency Park Apartments in El Cajon. The community sold for $5.7 million, or about $213,000 per door, at a 4% capitalization rate.
The market price, which is based on the estimated price of all properties in the market and informed by actual transactions, has barely budged since the end of 2019, holding firm at $327,000 per unit. It is expected that this price could further soften.
But transaction pricing, based on the properties that have actually sold, is only about $210,000 per unit, as no core assets have sold and few are actively listed. The sales price is tracking at about a 5% discount relative to the asking price, which is right where the Regency Park Apartments deal came in.
About the only certainty in the market right now is that so much remains uncertain. The length of the pandemic, liquidity, loan defaults, an eviction moratorium, lingering unemployment, sluggish commercial leasing and countless other factors weigh on buyers and sellers alike in the current environment.
Article provided by CoStar