August 14, 2016

Building Too Much, Too Fast?

Insider Louisville reports from Kentucky. “Government have been closely watching as Metro Council members grapple with how to best use a popular local tax incentive called a TIF, according to council president David Yates. Councilman Bill Hollander, who at one time didn’t support TIFs for either the Mercy or Phoenix Hill project, concurred that Louisville trails other U.S. cities when it comes to using TIFs to spur development. ‘There are a lot of apartment buildings being built with TIFs. In fact, we are a little bit behind the curve on this,’ he said.”

‘My opposition here is that we are talking about luxury apartments, luxury apartments in an area that is not blighted,’ said Councilman Brent Ackerson. ‘To throw government money at luxury apartments, I think, is a misuse of what a TIF is for, and I think this body should think twice about it.’”

The Star Tribune in Minnesota. “A $36 million plan by Sherman Associates to redevelop a vacant lot in the Mill District of Minneapolis won approval from city staff, even though another proposal had garnered neighborhood support. Sherman’s plan is to turn a sliver of city-owned land into a mixed-use project with a 115-unit, six-story apartment and townhouses building. Neighborhood leaders leaned a different way. The Downtown Minneapolis Neighborhood Association (DMNA) wrote a letter last month in support of Grand Real Estate.”

“‘I can’t believe they are going against the clear majority wishes of the Mill District residents,’ said Joe Tamburino, vice chairman of the association. The DMNA surveyed around 300 residents and found most supported owner-occupied housing, which is perceived as more stable for the neighborhood, Tamburino said. ‘There’s a glut of apartments,’ he added.”

From Utah Business. “Multi-family apartment buildings are being constructed alarmingly fast all along the Wasatch Front. Mark Jensen, senior vice president of investment sales at Newmark Grubb ACRES (NGA), says multi-family housing in Utah is extremely robust right now due to factors such as interest from out-of-state investors, the state’s capital preservation market and booming population growth. Although these trends seem to show a need for more multi-family housing developments, is there a chance that developers are building too much, too fast?”

“Dan Lofgren, CEO of Salt Lake City-based multi-family housing developer Cowboy Partners, says while some may believe the Wasatch Front is in the middle of a multi-family housing bubble, he’s not inclined to employ that term. ‘The term bubble means the market is growing fast only to burst,’ he says. ‘Instead, I say that we are just always somewhere on the [market] cycle. Are we closer to a downturn today than we were a year ago? Absolutely, because that’s how cycles work. Does that mean we’re immediately in peril? No.’”

“Greg Ratliff, vice president of the apartment properties group at NGA, says all Salt Lake County submarkets are experiencing record development that far surpasses that average. Sandy leads all submarkets with approximately 2,023 units under construction—of which 79 percent are Class-A properties largely located along the State Street Corridor and City Center—while downtown Salt Lake City presently has a total of 1,851 units under construction at nine locations, with the vast majority (1,509 units) being Class-A.”

“One of the most interesting phenomena occurring in multi-family construction now is a call for both basic and unique amenities. ‘Today’s renter prefers flexibility, convenience and the higher-end lifestyle that renting can allow,’ Ratliff says. ‘The decision to rent is no longer made by necessity; it’s a conscious choice.’”

The Houston Chronicle in Texas. “Houston topped a list of metro areas with the biggest declines in rent, a new study shows. The average rent in Houston fell by 14 percent to $1,306 for a one-bedroom apartment in July, down from $1,521 in July, apartment listing firm Abodo reported. The drop likely reflects a slowing of job growth at the same time the supply of apartments has increased, the company said. Developers will have added about 35,000 units in the area from January 2015 through December 2016.”

Bloomberg on New York. “An apartment-construction boom in Brooklyn is putting a cap on rents in the New York borough as a surge of new units erodes landlords’ pricing power. The median monthly rent declined last month for the first time this year, dropping 0.8 percent from last July to $2,826, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. The number of apartment listings jumped 30 percent to 2,424, the most units available for any month in records dating back to November 2008.”

“‘The inventory has been rising pretty steadily, but I think it’s now getting to the point where the overall rent numbers are softening,’ said Jonathan Miller, president of New York-based Miller Samuel. ‘It’s a tremendous amount of new product entering the market, and it’s skewed to the high end.’”