Three multifamily apartment sales have just closed in the San Fernando Valley market, but the news is not all good for the sector, which has seen huge increases in transactions over the past few years. With prices for these properties at all-time highs, the market may be slowing. Potential buyers are worried that, if interest rates rise, they may soon find themselves with an investment that yields less in income than the cost of their debt service. “We’re starting to see a transition into a more balanced market,” said Todd S. Schwartz, vice president of investments at Hanes Investment Realty Inc. in Westlake Village. “I think the reason is the values have gotten to the point where the fundamentals are starting to break down.” In a recently released report, Hanes found 11 of 17 submarkets in the San Fernando Valley saw a decrease in the number of multifamily sale transactions closed in the first half of 2004 as compared with the same period in the prior year. The greatest declines occurred in Burbank, Panorama City and Sherman Oaks. In Burbank, which saw 23 properties change hands in the first half of 2003, transactions declined 70 percent to seven sales in the first half of this year. Sale transactions declined by 79 percent in Sherman Oaks, which reported seven multifamily sales in the first half of the year compared with 33 in the first half of 2003. The number of transactions closed in Panorama City dipped 67 percent to 6 properties in the first half of the year, compared with 18 properties sales closed in the first half of last year. Schwartz cautioned that the 2004 data is not yet complete since it often takes a while before transactions are recorded, but the trend is nonetheless evident. “There’s still a reduction in the overall number of transactions,” Schwartz said. Average cost per square foot for these properties has spiked more than 19 percent, and as a result, banks have been reluctant to provide financing at the levels they once did. “You start seeing, 40 percent, 50 percent, 60 percent down payment requirements,” said Schwartz. If interest rates rise as they are expected to, an owners debt service could potentially double, with little opportunity to make up the full difference in that cost with rent increases. That is turning away some buyers, but not all. There continues to be considerable upside in rents in some markets and there are also plenty of so-called exchange buyers who have recently sold properties and must, for tax purposes, make new investments. In two of the latest deals, a 75-unit complex in Encino sold for $19.1 million and a 204-unit apartment community in Winnetka sold for $34 million. The Encino property, Encino Garden, was built in 1989 and consists of mostly two-bedroom units. It was acquired by pension fund advisor SSR Realty of Orange County from the original builder, Adler Ventures. Dean Zander, a partner with Hendricks & Partners, represented both parties in the deal. In Winnetka, Forest Glen, originally built in the 1970s, was acquired as a condominium conversion project by StarPoint Properties about a year ago for $26 million. The company has completed a number of renovations on the property, but decided to sell it to another converter when the opportunity arose. “We located a buyer that gave them a profit today without the risk of waiting 12 to 18 months to sell out 200 units,” said Dean Zander, who represented StarPoint Properties. Zander would not confirm the price StarPoint paid for the property last July. The two- and three-bedroom townhouse style units sit on 8 acres of land with several pools, a basketball court and other common area amenities. The buyer, FG Development Partners LLC, San Francisco, a unit of Skylight Investments, was represented by Carl Taylor of The Investment Group. In Sherman Oaks, another 20-unit apartment complex sold for $3,875,000. That property, at 13830 Moorpark St., was acquired by private investors, Bob & Trudy Bogart. Warren Berzack and Chris Thompson of Investment Real Estate Associates represented the seller, Angelo M. Mazzone III. William Everitt of IREA represented the buyer.