With rising occupancies and rental rates the trend in the Southern California apartment market, Jones Lang LaSalle decided to bring in some added investment sales expertise, recently hiring Darcy Miramontes as an executive vice president in the firm’s capital markets business. Diane Miramontes and Kip Malo were also brought on as executive vice president and vice president, respectively. JLL says it has seen huge cap-rate compression as investors angle for multifamily properties in the region. Miramontes talks to MHN about how she plans to help the company capitalize on a hot market.
Miramontes: Solid fundamentals, including the high cost of land, low vacancy, limited new supply, solid job growth predictions and the overall desirability of the Southern California coast, are all working in multifamily’s favor right now in this region, making it a strong target market for multifamily investors. In particular, the San Diego market has roughly 180,000 units and continues to show strength with overall vacancy rates between 3.5 percent and 4 percent in 2011, with just 446 units under construction in two projects due to come online this year, according to REIS. Furthermore, San Diego owners are expected to continue to raise rents, with an average of more than a 4 percent gain on effective rents by the end of 2011.
MHN: In your new role, what do you plan to do to help spur JLL’s growth in the region?
Miramontes: I look forward to working within our extensive national and global platform to better serve our clients in meeting their overall goals. The firm sees great potential here in Southern California, which is why Diane Miramontes, Kip Malo and I were so eager to join the team. The multifamily team has added brokers in cities along the West Coast and across the nation over the past two years to fill the rising need for apartment expertise, and we feel we can make great strides combining our local connections with this far-reaching platform.
MHN: Why do you think multifamily has performed so well coming out of the recession, and who are the types of investors that are pushing sales volumes higher?
Miramontes: During the height of the recession, when businesses laid off workers, consolidated space and many even shut their doors, employees and their families still needed a place to call home. Although some markets suffered from “shadow market” supply of rental homes and condominiums, and many renters found roommates, most multifamily markets were able to outperform their commercial counterparts, especially since the delivery of new supply dwindled to record lows.
In addition to cash-rich buyers, entities such as Fannie Mae and Freddie Mac kept things afloat with competitive financing offered to well-heeled buyers. Now those agencies are seeing increasing competition from other financing sources such as life insurance companies and banks. Here in San Diego, public REITs accounted for the majority of investment activity in the first half of this year, followed by equity funds and well-capitalized investors, respectively.
MHN: You’ve been in investment and sales for more than a decade. Looking out at the next six months or so, do you foresee investment activity in multi-housing continuing to trend upwards, not only for your firm but for the market as a whole?
Miramontes: We’ll continue to see multifamily investment activity trend upwards during the next six months, and we’re well positioned at Jones Lang LaSalle to help clients fulfill their acquisition requirements. Market cap rates will continue to be driven by strong fundamentals as well as the availability of very attractive capital. We should see them remain well below 5 percent on core Class A product here in San Diego, if interest rates also remain low. Construction financing will remain limited over the near term, although not impossible for well-funded and experienced developers. This means multifamily construction will remain at low or moderate levels, keeping vacancy in check in those supply-constrained markets.