Focused on Your Success: North Park (92104), Kensington, Talmage, and University Heights (92116)

By Terry Moore, CCIM

The investors who bought in these zip codes a decade ago with 40% down and a loan for the balance, quadrupled their equity!

San Diego County has about 100 ZIP Codes. For more than a generation 92104 & 92116 have been among the most desirable and most active apartment ZIP Codes. Values have more than doubled.

Why These Areas Are Popular

These areas are walkable, convenient to downtown, Balboa Park, five freeways and within 15-minutes of colleges that educate more than 60,000 students. Many beaches and the airport are within a 20-minute drive. Sixty percent of San Diego County’s apartment buildings above four units are 5-to-10-unit buildings. disproportionate share of lowdensity communities. Roughly 11,000 households own fourplexes or bigger in San Diego County. More of them are in these two ZIP Codes than any other three ZIP Codes in the county combined. These ZIP Codes are comfortable for both owners and renters.

This article is the third time in the last generation that I’ve analyzed these submarkets with approximately a decade’s perspective. In the last 30 years San Diego County apartments have increased in value almost 10% annually on average. These two ZIP Codes have traditionally had lower risk, and more upgrades than most of the county’s other areas.

During the condo conversion craze, nearly a third of the newer buildings with the majority of two bedrooms were converted to condos. Those $30k- $40k per unit upgrades improved the housing stock. Thousands of condo owners, many who were formerly tenants, stabilized the broader community.

92104 North Park

North Park goes from Balboa Park on the south, to Cherokee Avenue, between 36th and 37th, to the east, to a block north of El Cajon Boulevard and then on the west of Georgia Street. About 24,000 households with just over 50,000 people, live in North Park. Median income is $76,718 almost same as the county average of $79,079.

92104 has 750 apartment parcels containing roughly 11,400 apartments in triplexes and larger buildings. The median age of apartment buildings is 1970, slightly older than the rest of the County. Most apartments have their original kitchens and bathrooms.

magazine ranked North Park in the top 15 zip codes nationally as a hipster neighborhood. The major criteria included walkability, locally owned shops, residents in artistic occupations, and appeal to millennials. These features make North Park a sought-after community to live in. North Park has a disproportionate number of younger and higher income renters. Over the last decade, North Park properties have become more expensive than 92116, the zip code to the north.

California has decided that people are more important than parking. California’s 2018 density bonus law allows garages to be converted to residential use. The city of San Diego seems to be the county’s most flexible jurisdiction in terms of allowing more rental housing.

Investors and appraisers measure value at least three ways. Two are especially relevant when considering value over a decade, as rents rise. North Park Dollars/ SF climbed from $183 to $452, an increase of 147%. Dollars/Unit went from $122,103 to $327,041, a boost of 168%. Averaging the $/ SF and $/Unit shows an average annual increase of 17% from January 2012 to April 2021. GRM increased from 10.6 to 16.7, up 58%. Rent increases make GRM less helpful in measuring value change.

Think about Ivan Investor who bought a building worth $1 million at the start of this period. He put $400,000 down, 40% of the purchase price, and borrowed $600,000. Today his property is worth almost $2,600,000. The loan has paid down to $435,000 That means his equity is now $2,165,000. So, his wealth more than quadrupled for an annual average above 40%!

92116: Kensington, Normal Heights, Talmage & University Heights

These are four neighborhoods north of North Park. About 34,000 people live in this lower density area. The median household income is about $75,000. A higher percentage of single people including widows and widowers live in 92116 than in 92104.

The south boundary is Meade Avenue. Highway 163 is west end. The bluff overlooking Mission Valley is the north boundary. Fairmount, between 44th and 45th is the east boundary. Adams Avenue is like 92116’s spine, running east- west. 92116 has lower density of rentals and hundreds of $1-$2 million homes. 1,375 apartment parcels with three units or more have about 17,000 units.

From January 2012 to April 2021, Dollars/SF jumped for $188 to $470, an increase of 150% and Dollars/unit grew from $130,399 to $305,636, climbing 134%. Averaging the dollar values shows an increase of 142% over the period or an average annual increase of 15.5%. GRM increased from 11.6 to 15.7, up 35%. Since rents increased, GRM does not capture the full impact of increased values.

Let’s consider Ivan’s twin sister, Irene Investor. She also bought an $1,000,000 apartment building in 92116 the same month that Ivan bought his 92104 building for the same amount. Like her twin brother, she put down 40%, $400,000, and obtained a $600,000 loan. Now her property is worth just over $2,400,000 and her loan has paid down to $435,000 so her current equity is $1,965,000. Her wealth has almost quadrupled, an annual average just below 40% annually!

Closing Thoughts and an Offer:

You own in these wonderful areas. Maybe you’ve noticed something. We are 30 years older than we were 30 years ago. Do you want to keep your existing property if you live another 50 years? If you’ve ever wondered about your options, we should talk.

San Diego rentals are a lowrisk escalator to wealth. For 30 years California governments have restricted construction of new multi-family properties. It is almost impossible to imagine policy changes that would enable enough construction to correct the rental shortage. Immense demand and insufficient housing supply imply higher property values.

On the other hand, California governments have recently made rental owners the lenders of first resort and have eliminated our ability to evict non-paying residents. Many owners expect more government involvement in rental housing.