By JOYZELLE DAVIS

Staff Reporter

Apartment prices are edging up throughout L.A. County, but perhaps nowhere is the market stronger than in Santa Monica where the pending relaxation of rent control is creating a seller's market again.

The median price for a Santa Monica apartment building in 1997 shot up 18 percent over 1994 levels to $93.55 a square foot.

By comparison, the countywide median sale price of an apartment building rose just 7 percent, to $57.63, according to Marcus & Millichap Real Estate Investment Brokerage Co.

"Santa Monica has just gone crazy on the investment front," said Laurie Lustig, first vice president of multi-family sales for CB Commercial Real Estate Services.

Santa Monica had one of the first and strongest rent control laws in California, but a state law will allow vacant units to go for market rents in 1999.

Lustig said investors are willing to take intially lower rental income for their investment in Santa Monica than they would for buildings elsewhere in the county because they're betting on "tremendous upside potential" once the vacancy decontrol law goes into effect next year.

The local picture for apartment investors is generally bright. New development is scarce, with Los Angeles ranking as one of the lowest construction markets in the nation.

And the countywide vacancy rate is at 7.8 percent, down from 11.7 percent in 1993.

The vacancy rate is even lower in Santa Monica about 2 percent, according to broker estimates.

Such scarcity will spark dramatic rental spikes, real estate industry officials say.

"I don't mean to sound cold, but there are a lot of nursing-home candidates among the Santa Monica apartment tenants," said Alex Nicol, vice president at Beitler Commercial Realty Services. "People are betting on attrition among the tenant base."

But while the price of apartments has been skyrocketing, the volume of sales has actually dipped. Fifty-six apartment sales took place in 1997, down 30 percent from 1994.

Brokers point to a variety of factors for the downturn, noting that there were almost three times as many bankruptcy-forced sales in 1994. In addition, they say, many landlords want to hold onto their properties as the market continues to appreciate.

Finally, some buyers have been reluctant to commit until the vacancy decontrol takes effect.

"Investors remained a little skeptical of what the local government would do," said Barry Baker, associate vice president at Grubb & Ellis' investment services group. "They were waiting for the other shoe to drop."

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