June 29, 2016

Markets Flooded With Investors Chasing Yield

A report from Real Estate Weekly. “When The RADCO Companies CEO Norman Radow was in the workout business, his company foreclosed on $8 billion worth of real estate over two years. After the workout business, Radow transitioned into buying multifamily, ‘because Fannie Mae and Freddie Mac were there, and it had liquidity.’ But he quickly learned he couldn’t compete for shiny new apartments against the Behringer Harvards of the world, which could close in 30 days. That’s when he discovered the Class-B value-add space. ‘Eighteen months later, something profound was going on,’ he recalled of the year 2013. ‘There was the most dramatic demographic change since the end of World War II … and we were seeing it in reverse. The market was moving faster than we could catch it.’”

“Since then, rents have grown each year — in Atlanta, as much as 10 percent or more. ‘This isn’t an inning,’ he said of the market. ‘This is a whole new season.’”

The Arizona Daily Star. “Activity in Tucson’s commercial real-estate market was a mixed bag in the first half of the year, with some sectors performing better than expected and others struggling. The multifamily market has been the star of the show so far this year, attracting big investors and record sales. ‘The apartment market in Tucson and the entire West Coast is on fire,’ said Kami Taylor, sales manager for CBRE’s Tucson office. ‘It’s a safe investment; you’re not looking at big dips in income stream. Markets of our size have been flooded with investors in apartments.’”

“Michael Gross, investment specialist with Tucson Realty & Trust, said there have been 41 sales of communities with 25 or more units so far this year. ‘Apartments have been the king and leading the investment market,’ he said. ‘Unheard of, but in a low-return market, investors are chasing yield.’”

The Dallas Morning News in Texas. “North Texas apartment construction has exploded in the last few months, reaching almost unheard of levels. More than 50,000 apartments are currently being built in the Dallas-Fort Worth area - a jump of almost 7,000 units in just the last three months, according to a new report by MPF Research. More apartments are under construction in D-FW than anyplace else in the country. Apartment building volumes in North Texas at midyear are about seven times what they were five years ago, according to MPF Research.”

“Almost 10 percent of all the apartments being built in the entire U.S. are in the D-FW area.”

“Most of the leasing has been in the second quarter, after a slump in apartment renting during the early months of this year. ‘After demand lulled briefly right at the start of the year, leasing now has surged again,’ said Greg Willett, MPF Research vice president. ‘If the economy stumbles for any reason and there are 50,000 units on the way, that means a big correction.’”

The San Francisco Business Times in California. “New data on residential rents in San Francisco shows two trends: a flood of new supply had led to flattening prices and renters have started to look outside the city for more affordable options. Real estate data website Zumper’s latest San Francisco rent map tells a revealing story of how the market and renters are responding to the city’s stratospheric rental rates. Devin O’Brien, head of strategic marketing at Zumper, told the Business Times that new, higher-end units coming into the market as a reason why prices have started to stabilize. ‘Over time, this trickles down into lower-priced units as these buildings are ultimately just new supply,’ O’Brien said.”

“South Beach once again led pricing – even with a 2.5 percent drop from the last measured time period – with median one-bedroom apartments going for $3,860. Neighborhoods where median rental prices dipped include Hayes Valley, which was down 3.4 percent to $3,410 and the Tenderloin which dropped about 2 percent to a median price of $2,250.”

The Gothamist in New York. “For those of you who hoped news of the impending L train shutdown would drive out all the rich people so Williamsburg can dedouchefy, according to a new report, rents have, in fact, dropped slightly off the Bedford L stop. Real estate blog Brick Underground released their annual list of median rents within a five-block radius of stops ranging from Bedford Avenue to Broadway Junction, and it appears, blissfully, that median rents off the Bedford Stop have gone down 11.4 percent from 2015.”

“The site hypothesizes that the massive influx of high-end developments coupled with fears over the future LPocalypse likely contributed to the decrease, though perhaps ‘The Bedford Stop’ scared off some prospective renters, too. The median rent in Yupster Times Square is now $3,100/month—in 2015, it was $3450/month, up from $3,350/month in 2014.”

“The Lorimer stop also saw a decrease, with median rents going down 5.7 percent (to $3,300/month) from 2015. The number of rental units are also up a wild 93.7 percent from 2015, which likely lessened the burden on renters. As for stops further down the line: the Grand, Montrose, Halsey and Broadway Junction stops all saw decreases in median rent.”