Rent deals muddle market

Rare is the apartment complex in the Truckee Meadows that doesn't display a big banner offering everything from free move-in to a rent-free month of occupancy.

Those deals may seriously understate the true vacancy rate in apartment complexes, and the apartment industry may be hooked on incentives.

Todd Blonsley, who manages the Reno office of Marcus & Millichap, a real estate investment and brokerage firm, lays out the math this way: During 2002, the reported vacancy rate in apartment complexes in Reno and Sparks was 4.8 percent a slight improvement over the previous year and the second-best occupancy figure in the past six years.

But Blonsley last week told members of CCIM an organization of real estate investment professionals that a recent survey found that 47 percent of apartment complexes were offering rent concessions.

While some of those concessions are small such as waiver of a security deposit, it's not unusual for apartment owners to offer a month's free rent in exchange for a year's lease.

In economic terms, that's the same as leaving a unit vacant for 8.3 percent of the year.

Combine that 8.3 "economic vacancy" rate with the 4.8 reported rate, and the vacancy rate climbs above 13 percent.

Renters may be chasing the deals, Blonsley said, and that puts apartment owners in a bad spot.

"Much like retail consumers have become accustomed to shopping only for the weekly 'sale' prices, apartment renters very well may become addicted to 'movein specials' and 'free rent,'" Blonsley said.

Even so, apartment complexes in the Truckee Meadows remain a hot commodity.

Investors at last week's CCIM conference told anecdotes about quality apartment complexes that were snapped up within 24 hours of the time they're listed for sale.

Driving the market is the continued flight of investment dollars out of the stock market.

In Reno, the trend is magnified by California investors looking for new opportunities.

Dewey Struble, a vice president with Colliers International in Reno, said the number of small apartment complexes two- to four-units sold in the region last year rose by 68 percent over 2001 figures, while the number of complexes of 10 or more units sold in the region more than doubled.

"It was not uncommon for investors to pay as much as $60,000 to $80,000 per door for 20- to 40-year-old, four-plex properties in middle-of-the-road demographic areas, and even more for newer, high-class projects," Struble said.

In one particularly noteworthy transaction, the 256-unit Villas at D'Andrea sold for $24.4 million even though the brandnew project hadn't completed its initial leasing.

Even so, the leasing activity at D'Andrea was eye-popping:Within nine months, 204 units 80 percent of the property had been leased.

Struble projected that rents will climb by about 3 percent next year.

Currently, the average rent for a twobedroom, one-bath apartment in the region is $717 but prices vary widely by neighborhood.

In the Lakeridge area, for instance, the average rent of all apartments is $907; in southwest and west Reno, by comparison, average rents are around $710.

The economics of the apartment business depend largely on matching the supply of new units to growth in employment and jobs, and Struble projected the market will see the addition of about 1,500 units this year about the same as 2002.

Among the big projects coming on line are the 260-unit Bristol Bay complex in east Sparks, the 300-unit Parr South Apartments in north Reno and the 120- unit Whittell Pointe Apartments in north Reno.