Central Valley

Landlords win amid housing doldrums

Property values may be falling, but many people who bought apartment complexes during the real estate boom before 2006 still have pocketed a tidy profit, an investment specialist reminded landlords and investors Wednesday.

John Citrigno of Coldwell Banker Commercial in San Jose, addressing 140 members of the California Apartment Association in Fresno, illustrated the point with a case example: The value of a 65-unit apartment complex in Merced bought for $1.88 million in March 2001 climbed to $4.7 million by March 2005 -- and Citrigno urged the owners to sell.

They declined, and the value dipped to $3.65 million before it was sold in March 2007. While the value fell 23%, the sellers still netted a gain of 94%, he said.

Citrigno's argument: Things aren't as bad for owners of apartment complexes as they appear.

He said rents between Madera and Elk Grove have climbed from an average of $461 in 1998 to $634 while occupancy levels average 94.2%. Also, he said rents are likely to increase even more within two years because, historically, they rise when the minimum wage increases.

He predicted rents in the $800-per-month range by 2010.

Landlords do face challenges. Fellow analyst Robin Kane said a slowing economy and the loss of mortgage and real estate related jobs have forced some apartment dwellers to move in with family members or double up with roommates.

However, the Valley is still adding jobs and population, which are expected to help offset the short-term effects of a slowing economy. Citrigno said he doesn't expect rents to drop overall unless a significant number of jobs is lost or occupancy levels fall below 90%.

Many of the new apartments in the last few years have targeted low-income families and led to many households moving from lesser-quality market-rate units to newer and better subsidized housing, he said.

The credit crunch and declining values are causing investors to focus their attention on high-quality complexes in strong locations. As a result, lower-quality complexes are falling in price more precipitously.

"Everyone woke up and realized there is such a thing called risk," said Kane, who is based in Fresno.

The number of sales in the Fresno area plummeted in 2007 to the lowest level since 1999. Kane said many owners are waiting for prices to rise. "They are saying, 'I'll sit this one out,' " he said.

But values aren't likely to return to 2005 levels. "That won't happen," he said. "That was an anomaly, a bubble."

Ron Stumpf, a real estate agent specializing in duplexes and small apartment houses, said he doesn't think falling interest rates are enough to coax some buyers off the sidelines. "All that negativity is still out there," he said.

But waiting isn't necessarily the best option. "There are lots of opportunities," he said. "Do you want to buy when it is high or when it is low?"

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