OC a standout market for rental giant UDR

11 Complexes Here; $156M Anaheim Sale

Apartment giant UDR Inc. (NYSE: UDR) remains bullish on Orange County, despite cashing out on one of its large area properties.

In its recent earnings call, the company said OC is among tops for markets it’s optimistic about in the wake of the pandemic, while other regions appear to be worse off.

UDR, a Colorado-based real estate investment trust with a $13.8 billion market cap, counted a 12-property portfolio in OC as of Dec. 31; those nearly 5,000 units in OC were valued at about $1.5 billion or $300,000 a unit, according to its latest annual report.

It has since sold one of those complexes, the 386-unit Parallel project in the Platinum Triangle. It sold for $156 million, a price well above its average valuation for the area at about $415,000 per unit.

“The markets that look best for us in 2021 are Boston, Orange County, Baltimore and the Inland Empire,” Chief Financial Officer Joseph Fisher said during a recent conference call with analysts, adding that higherdensity cities like San Francisco, Los Angeles and New York “look a little bit more difficult.”

OC represented UDR’s second largest market in the U.S., in terms of rents brought in last year, according to the REIT’s annual report. The Washington, D.C. area is its No. 1 market.

Multifamily Market

The multifamily sector has fared well among commercial product types in the past year, especially in Orange County, which has benefitted from an influx of residents vacating denser California cities.

Orange County apartment vacancy is at its lowest annual point since 2000, according to a first quarter market report by Marcus & Millichap.

“Led by the return of leisure and hospitality positions and strength of the professional and business services sector, recent job creation aided apartment demand,” the report said.

This is especially true for the luxury apartment sector, with Class A vacancy hitting historic lows, driving investor demand.

“With higher-paying firms expected to fuel job creation in 2021, demand for luxury rentals is likely to persist as housing options for most residents remain restricted,” the report said.

“Many of these companies are in Irvine, where five projects are slated for delivery and vacancy is sub-3%.”

The average monthly rent in OC is expected to grow about 1.8% in 2021, according to industry data.

Sales Volume

Total sales activity for the sector in OC was down more than 20% last year, according to brokerage reports, though investor interest has increased in the past six months with several sales topping $100 million.

UDR’s sale of Parallel marked the second priciest apartment sale in the past year, trailing the $160 million sale of The Jefferson, another recently-built complex in Anaheim.

Parallel completed construction in 2018 at a cost of roughly $116 million. It is in the process of being converted to middle-income housing, or for residents making 80% to 120% of the area median income, through a new partnership between the California Statewide Communities Development Authority and Newport Beach-based Waterford Property Company. I