A Bubble Of Its Own Making
A report from the Colorado Springs Gazette. “Colorado Springs-based Griffis/Blessing Inc. has paid $20.3 million for the 108-unit Pines at Broadmoor Bluffs apartments on the city’s southwest side - a record high per-unit price. Griffis/Blessing’s per unit price of nearly $188,000 eclipsed a previous record set this year when the Commons at Briargate complex sold for about $170,000 per unit, according to Apartment Insights. Its rents averaged $1,543 a month in the third quarter. The apartments were built in 1987. ‘The apartment market, starting in 2010, has just gained momentum and gained momentum,’ said Doug Carter, a Springs broker, ‘There are record prices happening in Denver, record prices happening in other markets. Whether it’s volume or whether it’s prices or the amount of construction, it’s just unprecedented.’”
The News & Observer in North Carolina. “A year ago, the Triangle apartment market appeared to be cooling after an extended run of impressive rent growth. With a surge of new units coming on the market, rent growth was flat or down slightly across most types of apartments. But 16 months later, the market is taking off again, according to new data from MPF Research. Such growth is remarkable considering that it is outpacing the rate at which the Triangle is adding new jobs, and also comes at a time when wages for most workers are stagnating. Some see the apartment market as the next likely real estate bubble.”
“‘Folks in this millennial, college-graduate set as well as folks in the workforce housing set are ultimately rent-sensitive because wage growth has stagnated,’ said Todd Williams, senior vice president of investments for Grubb, which owns several apartment communities in the Triangle and has several more under development. ‘Even though we’re seeing big rental rate growth, I think that will eventually cap or mitigate just because fundamentally people won’t have the income to afford it.’”
WABE on Georgia. “The city of Atlanta has been experiencing a boom in the luxury apartment sector – think stainless steel appliances, quartz countertops, hardwood finishes, on-site gym and saltwater pools. According to one study by CoStar Group, nearly every apartment unit that came on the market between 2012 and 2014 fell into the luxury category. As of this summer, there were more than 11,000 apartments under construction and another 11,000 proposed, according to consulting firm Haddow and Company. The vast majority of those fall in the luxury category says Georgia Tech professor Dan Immergluck.”
“‘There’s essentially no new low-income housing development,’ says Immergluck, who studies housing and real estate markets. ‘There’s also very little for moderate income folks.’”
“After 30 years in the Atlanta apartment rental business, Schrager says the last few years have been unlike anything he’s seen. ‘In the past five, six years, the quality of finishes has ratcheted up dramatically,’ says Tim Schrager, the CEO of Atlanta-based development firm Perennial Properties. ‘What you’re seeing in apartments now is the equivalent of what you would have found in high-end condos 10 years ago.’”
“Schrager says developers default to luxury units right now because land costs, architects and labor are at an all-time high. ‘It’s costing X number of dollars just to put a shovel in the ground and start a project, so for the little bit of incremental cost to build that A-quality property, it’s worth it,’ he says, adding that people in Atlanta will probably have to get used putting a bigger portion of their earnings toward rent, like those in New York, Boston and other major cities.”
“That doesn’t mean Schrager isn’t concerned at the sheer number of luxury properties being built. ‘We can’t sustain it. I really believe that to be the case,’ Schrager says. ‘We cannot continue to raise rental rates every year at the rate we’ve been raising them and expect people to afford them. So something has got to give.’”
The Business Observer in Florida. “In Pasco County, for example, rents spiked by 60% between 2001 and 2014, according to a leading rental research firm. That surge has prompted developers and investors to propose new projects and bring new units online — especially in urban areas — at a rate not seen since the 1970s. But with rent increases crushing gains in both inflation and wage growth, some analysts are questioning whether the multifamily sector is inflating a bubble of its own making.”
“‘I’m worried about a bubble and a glut of new properties,’ says John Michallidis, president and CEO of Real Property Management of Sarasota & Manatee, which manages rentals from Parrish to Punta Gorda. ‘Builders are chasing money today, but I wonder how much they’re considering what the market will be down the road. The question we have to ask is how much is the dog chasing its tail?’”
“Statewide, nearly one third of all renters pay 50% of their incomes for housing, and that figure is expected to rise by another 10% or more by 2025. ‘This is going to get worse,’ says Angela Boyd, managing director of Make Room, an Enterprise awareness campaign. ‘We’re not going to be able to build our way out of this crisis, either, because primarily what’s being developed are luxury apartments.’”
“For the time bring, at least, apartment developers don’t seem overly concerned that rent spikes are going to price a significant number of renters out. That’s why in 2015 alone, more than one-third of all housing starts are multiunit in nature, the highest percentage since 1973, according to the National Association of Home Builders. A series of rentals are also scheduled for completion from Tampa to Naples that will add an estimated 10,000 new units by the end of 2017.”
“‘There’s no reason to foresee huge vacancies anytime soon,’ Michallidis says. ‘People are coming here from out of state and out of the country. People want to be here, and with the trendlines, they want to be more mobile. I don’t think that five years from now there’ll be any abandoned properties.’”
