San Diego Aims to Preserve Affordability as Multifamily Sales Surge
With multifamily investment sales surging, San Diego is moving to preserve thousands of rent-restricted apartments with a new law governing how they can be sold.
The City Council has unanimously approved a new law that forces owners of most apartment buildings with subsidized units for low-income and moderate-income residents to notify the city and housing developers if they decide to sell.
Developers approved by the city will now get the right to make a first offer on a project, and, if the owner chooses a different buyer, city-approved developers will get a chance to outbid that buyer, the San Diego Union-Tribune reported.
While local housing advocates have praised the new law, they’ve expressed skepticism that it will be effective without the city providing a subsidized housing preservation fund that will provide seed money to assist developers who pledge to keep the homes rent-restricted to buy them.
Council members who agree that seed money is needed have previously proposed a $3M preservation fund, but with the city facing $1.5B in budget deficits over the next five years it is unlikely to fund the effort.
According to a 2020 survey by the city’s Housing Commission, San Diego had 22,000 subsidized units with rent restrictions. The survey also determined there were an additional 48K units with low rents that were deemed to be “naturally occurring affordable housing” in older buildings.
Multifamily investment sales surged in San Diego in 2024, with the sales volume for apartment trades topping $1B in the fourth quarter for the first time in two years. Led by lucrative big-ticket transactions, the average price per unit for multifamily trades in San Diego in Q4 2024 was nearly $422K, the second-highest quarterly figure on record, CBRE reported.
Since 2023, San Diego County has had a hefty share of big-ticket apartment deals, accounting for 10% of all U.S. multifamily transactions of more than $150M, according to CoStar data.
Two of the priciest multifamily deals in the county last year were Blackstone’s $210M acquisition of The Avalyn at Millenia in Chula Vista and Mesirow Financial’s $185M acquisition of an apartment complex in Vista known as the Preserve at Melrose.
The trend of big-ticket deals in the San Diego metro has continued in 2025. Earlier this month, San Diego-based MG Properties purchased the largest downtown apartment complex, the 718-unit Park 12, for $309M.
The sale of Park 12, which towers over the eastern half of Petco Park, the MLB ballpark that is home to the Padres, was the second-largest deal for an apartment complex in the history of the county. The largest was the $313M purchase in 2020 of another downtown complex, Vantage Pointe.
Apartment rents were flat in San Diego last year, declining 1.1% in a year-over-year comparison with 2023 after an unprecedented surge in rent growth during the pandemic.
Investment firms with deep pockets view this as an opportune time to snatch prime big-ticket properties, confident the pendulum will swing in the other direction and guarantee that these assets will increase in value.
While large multifamily transactions appear to have momentum in San Diego, affordable housing development is depressed by the current financial environment.
San Diego’s Economic Development Department recently pulled out of talks with Carlsbad, CA-based Chelsea Investment Corp. to redevelop a city-owned block at Seventh Avenue and Market Street into a 100% affordable multifamily campus.
Economic Development Director Christina Bibler notified Chelsea in a letter of the city’s decision to terminate all negotiations with the developer on the project, which was announced last May and envisioned 402 units of low-income housing on the East Village site.
Bibler characterized the decision to pull out of the project as “a mutual agreement” that the project as conceived would not be financially possible, the Union-Tribune reported.
Among the reasons cited for the project’s collapse were a “scarcity of funding for multifamily affordable housing” and the city’s payment terms for the parcel, which at one time was valued at $20M.
Rachel Laing, a spokesperson for Mayor Todd Gloria, told the newspaper last week that the parcel at Seventh and Market is too valuable an asset to make any concessions on price.
“It wasn’t contentious,” Laing said. “We demanded fair market value for the land, and that wasn’t going to happen under current conditions. They said they wouldn’t be able to make it pencil out, and we’re not in a position to be giving land away.”
“There’s just not enough money out there in today’s cycle to bring together enough of the sources we would use to generate what the city needs for the site,” Charles Schmid, Chelsea’s CEO, said in a statement. “It’s unfortunate but it’s the hand we’ve all been dealt right now.”
Source: GlobeSt/ALM