Home Front

A blog about the economy and the Sacramento-area real estate market.

May 29, 2010
Market-rate apartment construction dead in Sacramento

  I picked up the phone a couple of days ago and asked Steve Nelson, partner with Hendricks & Partners, about whether anyone is building market-rate apartments in Sacramento. He's an apartment broker.

I called because affordable-apartment developer St. Anton Partners of Sacramento seems to be the only firm building any rentals in this region.

Nelson called back after deadline and left a voice mail about market-rate apartment construction Here's what he said:

"There is zero market activity going on today. Nothing. The only buildings being built are affordable housing deals, tax credit deals. The market doesn't support market-rate deals.

"The effective rents after concessions and so forth simply won't support new construction. You're upside down. The banks won't underwrite unless the developer puts 40 percent down or more. And historically, developers never put that much real cash into a deal.

"The banks are being very difficult. Sacramento is on the Fannie (Mae) and Freddie (Mac) watch list. It has been for the last year and a half because of our employment issues and budget issues with the state. Our economy is specious at best. Consequently, the banks are being very, very, very conservative in underwriting loans, period, for Sacramento."

Now you know. I might add that after my story appeared about 316 new low- and moderate-income apartments in North Highland, I got half a dozen calls from people wanting to know the phone numbers. There's an excess, yes, of higher-end apartments. But demand for less-expensive rent in this region seems to be insatiable.

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