June 18, 2015

It Seems Like The Floodgates Have Opened

A report from CNBC. “More than 60 percent of builders surveyed in May reported that the overall supply of developed lots-that is, with all the necessary infrastructure to build homes-was low to very low, according to the National Association of Home Builders (NAHB). That is the highest percentage since the builders began asking the question back in 1997. Where we really see the difference in A lots is the price going up. Demand is there but at what price?’ said Paul Emrath, vice president of survey and housing policy research at NAHB.”

“Land prices have actually surpassed their peak values in many markets where builders are particularly active, especially in Texas. Finished lot values in Dallas are 40 percent higher than their peak, according to John Burns Real Estate Consulting. Other markets, like Charlotte and Raleigh in North Carolina, Denver and Phoenix are also seeing new highs.

“‘Land is extremely expensive, the developer is selling it for a lot of money and the only way to make money for a builder is to build a big, huge expensive home,’ noted John Burns in a recent interview. That is why the median sale price of a newly built home continues to soar, up more than 8 percent in April from a year ago, according to the U.S. Census. Builders are focusing on more expensive homes, because that’s where they can make the most profit.”

National Real Estate Investor. “Developers planning new apartment buildings today won’t finish for two years or more in many parts of the country—hundreds of thousands of apartments now under construction have already softened the national multifamily markets. But many developers are now planning new projects anyway. ‘It’s kind of late in the party, when all the punch is gone,’ says Ryan Severino, senior economist and associate director of research for Reis Inc., a New York City data firm. ‘We always end up overdeveloping.’”

“Two years from now, in 2017, developers are expected to complete 161,000 new apartments, according to projections by Reis. That’s a lot less than the 197,000 new apartments anticipated to come on line in 2016 and the whopping 230,000 new units expected this year. It’s still a lot, however. Just to compare, the average number of new apartments produced in a year over the last few cycles is just 120,000. (Those totals don’t include the more than 100,000 units of affordable housing built every year through government programs.) ‘It seems like the floodgates have opened,’ says Severino. ‘The new supply under construction completely outstrips the demand from demographics.’”

The Seattle Times. “A national high-rise residential developer has filed a plan with Seattle for two 39-story towers in Denny Triangle that could add as many as 1,000 apartments in one half-block. Miami-based Crescent Heights Crescent’s proposal shows big investors are still hungry to own apartments in Seattle despite a construction boom that already has boosted supply in three years by 25 percent. ‘It’s a lot considering what’s already in the pipeline,’ said Seattle market analyst Brian O’Connor, who’s not involved with the Crescent Heights project.”

“Developers have more than 18,000 apartment units under construction in King County, with most of them in Seattle, according to Dupre+Scott Apartment Advisors. It’s more lucrative to sell an apartment project to one big investor than a condo unit to individuals, said O’Connor. ‘We’re getting these big, big capital funds, and they don’t want to do a little deal,’ he said. ‘They love these big towers because they can place a huge amount of capital in one place.’”

The Idaho Statesman. “Across the board, Treasure Valley developers are busier and more aggressive these days than they have been for almost a decade. A hot market brings complications, and some are reminders of why the economy got into trouble last time. ‘It’s crazy out there again. You’ve seen what’s happening. It just gets nutty,’ says Tommy Ahlquist, chief operating officer of the Gardner Co. ‘You’ve got subs in an already shallow market just saying, ‘Hey, it’s heyday now. I’m going to make my money.’ And tripling, quadrupling their prices … And you can’t blame them. They’re in demand. They’re just a market-driven community, too.’”

“Competition could be lurking in the multifamily residential sector, which is considered part of the commercial real estate industry. Co-founder Mike Brown say says he is wary of a sudden burst of supply on the local market that would reduce demand for LocalConstruct’s projects. Demand seems to be strong enough, at least in the multifamily sector, to absorb a glut of apartment projects either under construction or in the planning phases across the valley.”

“‘When rents rise and fall in a market, you may be protected to a certain extent by being the newest or otherwise somehow the best — the best-located within the market, or having the nicest product,’ Brown says. ‘But if the market is going down, you’re going down with it.’”

The Midland Reporter Telegram. “A recent report shows that rents for two-bedroom apartments in Midland and Odessa have fallen the fastest compared to other Texas cities, while overall rents rose, according to ApartmentList. The site’s Andrew Tam, VP of data science, said that when comparing the same apartments month-to-month in Midland and Odessa, two-bedroom rates fell by 6 percent and 7.8 percent, respectively. Those drops were the largest drops statewide. Average prices for two-bedroom units fell by 5 percent in Midland, and one-bedroom units fell by 4.2 percent month-to-month.”

“The May report echoes a previous Reporter-Telegram article, where local apartment managers discussed how they have had to cut rates significantly and offer move-in specials to court a shrinking pool of workers. The occupancy rate for Midland in April was 86 percent –11.6 percent lower than April 2014, according to ALN Apartment Data.”

“The falling apartment rates are reflective of a business that has grown quickly in the last few years because of an overwhelming demand for housing and is now coping with an oversupply as the oil field continues to struggle with the downturn in prices. In June 2014 there were 15 apartment complexes permitted and under construction, totaling 2,586 unit, according to data obtained from the city of Midland. Among those was the luxury 110-unit Wall Street Lofts, which is currently at 65 percent occupancy and 75 percent leasing, according to developer Roger Gault. He said that prices at the Lofts have not changed despite being 11 percent lower than Midland’s average occupancy rate.”

Real Estate News Exchange. “An attempt by an American student housing REIT to convert hotels in downtown Montreal into upscale student housing has been a monumental failure, the company’s latest leasing figures indicate. Campus Crest Communities, which owns a US $2 billion student housing portfolio, transformed the Delta and Holiday Inn Midtown into student residences last year. The high amenity Evo Centre-Ville and Evo Vieux-Montréal projects include such features as indoor pools, state-of-the-art gym, Lavazza coffee bars, Pilates and game rooms, tanning beds and 80-inch TVs on every floor. Single rooms rent for $1,075 per month, while double room go for $675.”

“But despite the frills, Campus Crest’s 2014-15 leasing results showed only 242 beds out of 2,223, or 10.9 per cent, were occupied in the two Montreal Evos as of Sept. 30, 2014. Newly released figures show things have improved only slightly since last September for the Montreal Evos. In late May, Campus Crest released updated 2015-16 pre-leasing results as of May 18, indicating its Evo Montreal properties are only 14.6 per cent pre-leased for the 2015-16 academic year.”

“While Campus Crest had been banking on the fact there are 200,000 post-secondary students in Montreal and far too few campus residences to hold them, it has yet to work out that way. That’s despite the fact the REIT has ramped up its marketing activities to increase student interest in Evo Montreal. During the winter, Evo Montreal was one of the sponsors of what was dubbed the ‘world’s largest toga party’ an attempt to break a Guinness World Record.”

The New Zealand Herald. “An over-supply of low-quality CBD apartments risks sparking a crash that could see prices plunge, an expert says, while another agency is warning of an Auckland ‘apartment bubble.’ Apartment Specialists managing director Andrew Murray told the Herald the number of lower-end apartment developments had surged as developers looked to cash in on Auckland’s buoyant housing market. Many developers were marketing most of their stock to offshore investors, with owner-occupiers now making up only about 40 per cent of the CBD apartment market, Mr Murray said. Around 90 per cent of a central city apartment building under construction had been sold to foreign investors.”

“‘They’re all being sold offshore. They’re all going to be rentals. The quality of the units being built at the moment by some developers in the CBD is not high enough. It’s a joke and these things are all going to crash because they’re selling them for so much,’ Mr Murray said. He said a 41sq m CBD apartment with no car park was currently selling off the plans for $637,000. ‘That is not sustainable, not even in Sydney.’”

Bits Bucket for June 18, 2015

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