T. Patrick Smith is president of Irvine Pacific Co., one of the Irvine Co.'s operating divisions. As such, he runs an empire of 10,000 apartments spread throughout 88 apartment complexes in Irvine, Tustin, Orange and the unincorporated areas of the county, making Smith one of the county's largest landlords.
In Orange County, only Western National Properties and Regis Homes Corp. are in the same league.
But the apartment market isn't what it used to be. In fact, experts say, there are too many apartments out there and not enough tenants. Consequently, rents haven't risen much in the last few years.
That doesn't mean apartments are cheap, though. Orange County has some of the highest housing prices in the nation, and its rental market is similarly pricey. By last year, the average rent here was $725 a month, according to one estimate.
Still, as home prices go up the Irvine Co. and other big landlords expect to be sitting pretty. That's because residents who can't afford to buy a house here will have nowhere else to go. The county's population is expected to keep growing. And as traffic congestion worsens, fewer Orange County residents are expected to flee to Riverside County in search of cheaper housing.
So a lot of developers are building apartments in Orange County. This year the Irvine Co. alone--which owns one-sixth of the county's land--will build 2,600 apartments in 11 complexes. Even in a slow year the company usually builds at least 1,100 units.
Smith, who presides over all this activity, recently talked with staff writer Michael Flagg about the local apartment market and the company's strategy.
Q. Why are you building more apartments this year than usual?
A. That's just the way the entitlements came. We had a lot of things up before local governments, and it's just the timing of when the projects were approved.
Q. Do you try to maintain a certain mix of for-sale homes and apartments? In other words, the company has roughly 1,500 for-sale homes built on its land each year. Is there a target number for apartments?
A. Yes. As a company we try to maintain a balance of housing so we can provide housing across the whole spectrum. But there's no formula. Each village would vary depending on where it is and what the area basically calls for.
Q. You're not the only people who are building a lot of apartments. There are said to be a lot of complexes under construction these days. Does that worry you?
A. Yes. We have some concern that the apartment market in general is softening. That's primarily due to the large amount of construction we've seen over the last three years. And what's projected for the next couple of years, which is a lot. Rents over the last couple of years have been flat, and the fact there are a lot of apartments on the market is a big part of that.
Q. Why all this construction? You could understand it prior to 1988, just before tax reform took effect and did away with a lot of the tax incentives for building apartments. But why now?
A. A lot of construction occurred in 1987 and 1988 as a result of the closing out in 1986 of a certain kind of tax-free bonds for apartment construction. That money had been obtained in late 1986 and they built with it in 1987 and '88. Then it's also perceived that Orange County is a tremendous market with good long-term growth, and so anyone that could find a site was buying and building with the prospect it'd turn out to be a good investment in the years to come.
Q. They're building against the expectation that things will tighten up again. And they will tighten up, because land is so expensive it's hard to find any to build apartments on, right?
A. It is expensive. And commute times are getting longer and longer, and more people just aren't willing to get on the freeway. That means living close to their work, and that means--in a lot of cases--an apartment, because a lot of people can't afford to buy in the county.
Q. What are occupancy rates these days?
A. Although the market's softer than it's been over the last two years, we're still enjoying a 96% or 97% occupancy. Our occupancy rates are about the same. We're pleased with that. In South County it's going to be a lot softer because of all the construction.
Q. One hears the higher-priced apartments are having the worst problems now.
A. We haven't experienced that. But we haven't been able to increase rents much either, and that's across the board in all our apartments.
Q. When do you expect the apartment market to tighten up again?
A. There's an awful lot of product expected on the market in the next couple of years. I don't know. I think it'll be a steady market, but I don't see a lot of big increases as far as rents are concerned.
Q. Despite all that, there are supposed to be a lot of investors around looking for apartment complexes to buy. Have you had any bites?