[caption id="attachment_19260" align="alignleft" width="235" caption="Scott Gerber"][/caption]

While most owners and managers of apartment property in Sonoma County probably aren’t celebrating yet, things seem to be on a reasonably healthy track.

After 15 years of strong performance and price escalation, 2009 was like the year that swallowed the market. It started with turmoil in the financing world, higher vacancies due to massive job losses and resulting in the drop off in sales. Last year saw the number of sales in Sonoma drop by close to 80 percent while dollar sales volume actually increased due to one $52 million sale.

Sonoma County rents are down 3 percent to 5 percent from this time last year but stabilizing. Countywide vacancy was only 4.9 percent in NorCal’s Fall Rental Survey of 11,000 units but may have crept up to 6 percent during the traditionally slower winter months. Specials and promotions are being offered almost universally by large and small properties alike, with either a half or full month free with the signing of a 12-month lease.

As we look forward, it would be difficult not to look back at 2009 sales. Marked by the train wreck in the financial markets, which caused a drying up of mortgage capital, sales dropped to levels not seen since 1994. In early 2009, investors were demanding apartment cap rates of close to 8 percent in order to get off the sidelines. As the year progressed, larger deals, including the 492-unit Lakeville Resort for $52 million, traded in the 7.5 percent cap rate range while smaller deals in the 14- to 18-unit range traded in the 6.5 percent cap rate range, reflecting a 35 percent drop in apartment prices since the first quarter 2007.

With cap rates in the 6.5 percent range and mortgage money in the 5.5 percent to 6 percent range, 2010 is marked by positive leverage resulting in greater returns and increased investor activity.