HOUSING: Apartment construction rebounding

The sounds of cranes and bulldozers can be heard again in San Diego County as builders expect to finish nearly five times as many apartments this year as they did last year, the most since 2004, according to a local real estate analyst.

In the past few months, developers in Riverside County got the bureaucratic wheels turning for an apartment boom of their own to start in 2013, according to permit filings and local observers.

Apartment ownership became attractive in recent years as former homeowners with bad credit and younger people determined to preserve job mobility created enough demand to let landlords raise rents. Those fundamentals plus low interest rates made apartment buildings a prime target for institutional investors looking for safe investments in both counties.

"It's a nice rebound," said Russ Valone, founder of MarketPointe Realty Advisors, a homebuilder consultant.

San Diego County builders will deliver 1,991 apartment units this year, a big jump from the 400 units delivered last year, according to MarketPointe. San Diego County hasn't seen so many apartments completed since 2004, when builders produced 2,273 apartments.

In North County, a 108-unit apartment complex in San Marcos and a 198-unit project in Escondido should be ready for renters before the end of the year.

Apartment construction doesn't have as wide a ripple in the economy as single-family houses ---- more people can be housed at lower cost in an apartment complex ---- but the new buildings offer a beam of hope to long-suffering building-trades workers.

No apartments are under construction in Southwest Riverside County, but builders are scouting locations and securing permits, said Paul Runkle, a senior vice president with CBRE Inc. who is a multifamily specialist with an office in Temecula.

Last year in Riverside County, builders applied to put up 1,061 apartments, double the number of permits in 2010, according to the Construction Industry Research Board, a nonprofit.

"Some developers are now exploring development," Runkle said. "You wouldn't have heard that from me in the third quarter (summer) of 2011."

Few builders constructed rental units in the mid-2000s, as easy loans freed prospective renters to become homebuyers. But as the foreclosure crisis took hold and unemployment rose, former homeowners with ruined credit still needed a place to live, and they turned to apartments or house rentals.

Meanwhile, a younger generation saw friends and family trapped in houses they couldn't sell and chose to rent to preserve their mobility, Valone said.

"They're one of the first generations to see significant drops in real estate values," he said. "They don't have that 'I have to buy because real estate always goes up' attitude."

The twin forces created strong demand for apartments, which pushed down vacancy rates and raised rents.

As of the end of September, the most recent data available, vacancy rates in San Diego County fell 1.10 percentage points to 3.4 percent, and the average effective rent rose 2.2 percent to $1,287, according to Marcus & Millichap Real Estate Investment Services.

"The apartment fundamentals are at a point now where they're the best they've ever been ---- potentially ever," said Brian Hansen, a director at Wood Partners, the company putting up the complex in San Marcos.

That strong demand means apartment-complex owners can be assured of a steady income, even if the sale value of apartment buildings remains unchanged. Investors, especially institutional investors like pension funds, worried about volatile stock and commodity markets and turned to top-quality apartment buildings as an option, said Darcy Miramontes, an apartment building broker with Jones Lang LaSalle, a commercial real estate brokerage.

At the same time, interest rates have been very low, making it easier for developers to attract investor money at low cost so they could start construction, Miramontes said.

"Apartment buildings are the darling of the commercial investment market," Miramontes said.

Southwest County lags San Diego County in the overall economic cycle. High unemployment there forced parents and children to double up on housing, reducing demand. But there's also a shortage of rentals, creating an opportunity for builders, said Bill Blankenship, CEO of the Building Industry Association in Riverside County.

And the worst of the foreclosure crisis may be ending as the economy starts to rebound.

"We're at the bottom of a cycle and coming out of it," Runkle said.

Call staff writer Eric Wolff at 760-303-1927, follow him on Twitter @ericwolff.

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HOUSING: Apartment construction rebounding