Marin County Apartment Investor’s Advisor Newsletter – Winter 2016

Southern Marin County Apartment Rents Decline in 4th Quarter 2015

San Rafael—For the first time since the Great Recession of 2008 Marin County apartment rents declined in the fourth quarter of 2015.

Both Yardi Matrix and Co-Star Group, professional multifamily market survey companies, recently reported that their fourth quarter 2015 surveys saw 2-3% drops in asking rents in the San Francisco Bay Area. This office conducted their own survey of smaller apartment property owners and found the same results with Southern Marin County owners reporting that they could not achieve the same rent levels the second half of the year from the first six months of 2015.

Calling it a “tale of two halves” CoStar Group reported that most Bay Area cities saw rents jump at least six percent the first six months of 2015 but the last half of the year saw a leveling off of rents the next three months and fourth quarter drops of nearly 3%.

In Marin County, weakening demand for one bedroom apartments priced at over $3,000 in many Southern Marin cities most likely accounted for the drop. But in addition, several large apartment projects with completed remodeled units came to the market in the fall, producing a glut of available luxury apartments priced from $3,000-4,500 per month.

The slow absorption of the newly redone apartments most likely produced the drop in rents the fourth quarter of 2015. Whether this is a trend throughout the greater Marin County apartment market, only time will tell for the remainder of 2016.

EDITOR’S LETTER

January, 2016

Dear Apartment Owners and Investors,

It was a very strong year for Marin County apartment sales in 2015 and this year should see more of the same. Rents have increased another 11% since the beginning of 2015 and occupancy rates are at an all-time high. But there are a couple of troubling clouds on the horizon for investment real estate and owners should be aware of them.

First, North Bay rents are starting to level off as renters move farther North and across the Bay seeking cheaper rents. In the past three months available units in Southern Marin are increasing and demand has slowed. In Sausalito rents have actually declined from the highs of 2015.

I have had a number of conversations with Sausalito apartment owners and property managers and they are telling me they cannot get the rents they once could for vacant apartments. At the same time vacant units are staying on the market longer and concessions are being given by anxious landlords in an effort to fill vacant units.

Second, the Feds plan to increase interest rates over the next three years is an unknown as to how that will affect the real estate market. Today rates are so low that we can’t imagine that a slight increase will make a difference in either rental demand or sales, but over time lender underwriting of apartment properties will change as increased interest rates reduce investors’ returns.

Third, new Congressional proposals to limit the deferral of taxable gains on investment real estate to just $1 million per year (the 1031 tax deferred exchange) would greatly affect owners of highly appreciated investment real estate. Passage of this legislation would devastate the investment real estate market just as it has started to pull out of the downturn from the 2008 recession.

This could be the year that you need to take a serious look at your portfolio and complete tax deferred exchanges that you might have been putting off.

Please call me at 415-302-7730 to set an appointment to come in to the office and discuss your real estate goals for the future.

Best regards,
Katherine J. Higgins
Broker Associate/Multifamily/Investments

Apartment Market Trends for 2015

As rents rose sharply in Marin County last year real estate investors took note, and jumped in to the market searching for properties with rental upside and good locations. The favorite locations were walk to town properties in Sausalito, Mill Valley, San Anselmo, San Rafael and Novato.

What the 2015 apartment investor found were a couple strong trends in the market:

• Sharp increases for price per unit—in January 2015 I sold an 8 unit property at 10 Davenport in the Sun Valley neighborhood of San Rafael for $262,000 per unit. The following November I closed on a downtown San Anselmo 8 unit property for $325,000 per unit or $2,600,000.
• Decreasing cap rates—as the demand for apartment investments rose and inventory remained low, prices rose in the strong seller’s market. 2015 was a great year for apartment sellers.
• Year over year increase in the number of apartment transactions—from 2014 to 2015 Marin rents rose another 15% which attracted many more investors to the marketplace. The majority of Marin County apartment sales saw multiple offers on available properties for sale.
• Strong increase in the number of exchange buyers—as apartment equities increased throughout the Bay Area buyers became sellers and exchanged their apartment buildings using the tax deferred exchange to shelter gains and purchase more apartment properties. The majority of apartment buyers in Marin County were local Marin real estate investors or investors from North Bay counties.

I expect to see the same strong demand for well-located apartment buildings in Marin County this year. The expected small interest rate increases from the Fed should not affect the investment real estate market in any significant way as rents remain strong and Bay Area employment leads the nation.

Marin County Apartment Sales 2015

*Off Makret, Non-MLS Sales  |  **Owner Occupied