WESTERN SNAPSHOT, SEPTEMBER 2007

Coachella Valley, California Multifamily Market

Miller

In recent months, there’s been a marked slowdown in multifamily housing projects in the Coachella Valley. In fact, multifamily sector permit activity was down 19 percent, according to the California Building Industry Association (CBIA).

“Many high paying construction jobs have disappeared, and some renters lost their jobs,” says Carlos Campos, assistant manager at Andorra Apartments in Indio, California. “Other renters still employed have found bargains on homes as sellers lower asking prices.”

According to Suzanne Alonso, resident manager at San Jacinto Village apartments in Palm Springs, renters seeking a lower cost of living have moved out of state. There also appears to be a trend to convert rental-based apartments into owner-based condominiums.

While multifamily projects have decreased, rents have increased. During the past 4 years, the Coachella Valley’s average rent jumped 13.5 percent, according to RealFacts, a Novato, California-based research firm specializing in tracking apartment housing. In 1999, the average rent per unit was $632. By 2004, average rent had climbed to $872. As of second quarter 2007, the average asking rent is $947, with studios going for about $647 and three-bedroom, two-bath apartments averaging $1,363. This represents a 1.1 percent increase, still far below the annual 4.1 percent rent growth experienced in the Riverside-San Bernardino area.

The RealFacts survey reveals that the Coachella Valley remains a relative bargain compared with many Southern California cities, with average per-unit rents of $1,890 in Los Angeles, $1,586 in Orange and $3,271 in Santa Monica.

Fewer renters and higher rents may contribute to lower occupancy rates. Palm Springs saw its occupancy rate decline to 93.7 percent. In Indio, average occupancy dropped to 92.1 percent. Overall occupancy rates dropped to 93.1 percent from 96.1 percent a year ago. Coachella Valley occupancy falls below the average occupancy in Southern California of 94.8 percent, according to RealFacts.

The City of Palm Desert recently lifted a moratorium and is now allowing development of multifamily dwellings. In March 2007, FINfacts reports that GSP obtained a $51 million construction loan for development of a mixed-use (retail/multifamily) project in Palm Desert. This 280-unit apartment building will have great frontage on a primary thoroughfare into the city. Other projects have also been presented to Palm Desert’s residential projects department:

a rehabilitation is planned for the 108-unit Tahquitz Court Apartments, including a new 3,000- square-foot community room at 2890 East Tahquitz Canyon; Mountain Meadows Associates plans to convert the existing 129 apartment units called Desert Flower Apartments into 129 condominiums; construction has begun on The Vineyards, a 260-unit apartment complex located at Sinatra and Cook; and there are plans to construct a 755-unit residential project, including 605 condominium/single-family units and 150 apartment units, on the Emerald Desert RV Park site.

At the recent La Quinta Chamber of Commerce’s bi-monthly Mayor’s Luncheon, the Coachella Valley Housing Coalition (CVHC) officials detailed a $90 million multifamily complex project to launch December 2007. Construction is scheduled to begin on a 218-unit complex currently called the Dune Palms Apartments. The planned location is the corner of Avenue 48 and Dune Palms Road, about a mile east of Vista Dunes Courtyard Homes, another affordable housing project under construction. Dune Palms Apartments will feature one-, two-, three- and four-bedroom units, a community center, a daycare facility and a pool. Rent will range from about $375 to $750, said John Aguilar, CVHC director of development.

La Quinta is striving to design affordable housing to be environmentally friendly and energy efficient and hopes to save low-income families 20 to 30 percent off their energy bills, according to Douglas Evans, La Quinta’s Assistant City Manager of Development Services.

Coachella Housing Authority reports two new Palm Springs projects. North of Sunrise, the Coyote Run project is adding 66 units to the existing 140. Rick Weiss Development is developing 80 units to meet the special needs of those with HIV.

Tim Radigan Brophy, owner of The Radigan Company, and property manager for several hundred units in the Palm Springs area, offers his take on the current market climate: “The Coachella Valley actually has some great potential in the next few months as it relates to the multifamily market. With foreclosures on the rise and the ensuing shake out on the single-family housing side, people will be re-entering the apartment market here. While there are some softer areas like Desert Hot Springs, the lion’s share of the valley will enjoy step-ups in the rental rates commanded during the next 18 to 24 months. I can’t emphasize enough, however, that these step-ups will be for the apartment operators that choose to improve both the physical plant of the properties and their amenities.”

Brophy adds that another big, positive force in the Coachella Valley market is the absence of big-money investors. “Operators have largely ignored the area due to land costs/availability, except down valley,” he says. “The start-up costs of a large-scale project are unlikely to be recaptured quickly enough to be palatable to the institutional investor.”

These factors bode well for investors/operators so long as their entry price is also reasonable, according to Brophy. “The basics that we all learn in Real Estate 101 have never applied more than in today’s market. When you operate smart and tight, then the cash flow will follow. The ‘flippers’ maybe gone, but serious operators will be fine: they just need to be comfortable with a more modest return.”

California still needs between 220,000 and 240,000 new homes and apartments each year, says CBIA President and CEO Robert Rivinius. The Coachella Valley appears to follow the statewide trend with more demand than supply of multifamily housing.

Rae Meier is a commercial specialist at Coldwell Banker Commercial NRT in Palm Desert, California.

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