The Housing Bubble

A report from Multi-Housing News. “Coming off a strong year in 2015, student housing investment continues to gain momentum. By August, volume reached $5.7 billion, a 54 percent year-over-year increase that edged out the $5.6 billion tally for all of 2015, according to Real Capital Analytics Inc. Although financing for construction has slowed a bit, acquisition financing is readily available from varied sources as 2016 heads for the home stretch. Fannie Mae and Freddie Mac are active providers of acquisition financing for student housing and lend stability to the niche.”

“Boosted by low interest rates, refinancing of student housing assets is also healthy. ‘We are at historic lows, with the 10-year Treasury hitting below 1.4 percent right now,’ said Will Baker, a Birmingham, Ala.-based senior vice president & managing director for Walker & Dunlop. ‘I think that’s attracting a lot of people sitting on the fence about whether or not to refinance.’ These low rates have tended to compress cap rates, which have fallen below 6 percent on occasion.”

The Louisville Cardinal in Kentucky. “After four new off-campus student housing options added 2,455 beds in three years, 2016 is the first year without a new project. Has the housing boom halted? U of L Director of Campus Housing Julie Weber said options are market-driven, typically means lower rent prices. ‘They’re all outbidding each other in a good direction for students, which is down,’ she said.”

“The flood of new properties and amenities isn’t just being felt by students – property managers are feeling the impact, too. The average occupancy of the affiliated options and The Retreat for spring 2016 is 84 percent. The Province saw the highest occupancy rate, with 96 percent of its 858 beds filled. The Retreat and The Arch fell below average figures with 76 and 68 percent occupancies, respectively. A 650-bed project called ‘The Village,’ was announced to the U of L Foundation in spring 2014. U of L spokesperson John Karman said the project is now on hold so its owner, American Campus Communities, can look at market conditions.”

“‘It’s on them to do a market study and determine if their investment dollar is going to be well-served by building next to the University of Louisville,’ Weber said of developers. ‘Right now, we’re a little cautious because we have so much high-end housing around the campus we make sure that we’re staying in the right position in terms of number of affiliates,’ Weber said.”

From Bloomberg on New York. “Renters in the New York City area are finally catching a break. According to a new report from listings website StreetEasy, rental prices are rising much more slowly than in recent years, with luxury apartments leading the slump. That deceleration’s happening at a pace that’s caught even industry analysts by surprise. ‘I think we expected things to slowdown,’ StreetEasy economist Krishna Rao said. Still, ‘the pace has been a little bit faster than we expected.’”

The Real Deal. “For Miami renters lamenting the city’s notorious unaffordability, relief may be on its way. The city just lost its title of eighth-most expensive rental market in the country to Chicago for October, falling to ninth place. The ranking comes from listing website Zumper, which tracks asking rents for apartment listings across the country. In Miami, the median monthly rent for a one-bedroom apartment dipped 2.16 percent year-over-year to $1,810 in October, marking one of the city’s first rent decreases in recent history.”

“At the top of Zumper’s list was San Francisco, where the ask for a one-bedroom apartment is a staggering $3,420 per month. Even there, however, rents are on the decline. Rents in San Francisco dipped 5.5 percent year-over-year in October.”

From Multi-Family Biz. “Year-over-year apartment rent declines in some of the nation’s highest-priced markets continued to affect the overall national market, as performance moderated in the third quarter of 2016, according to early figures from Axiometrics, a provider of apartment and student housing market intelligence. ‘While the national apartment market is still performing above the long-term average, the moderation from the unsustainable levels of 2014 and 2015 has come, as Axiometrics predicted,’ said Jay Denton, Axiometrics Senior VP of Analytics. ‘In particular, rent growth has declined precipitously in markets with the highest rents in the country, such as New York and the San Francisco Bay Area.’”

“Rent levels declined year over year in the three major markets with the highest rents — San Francisco, New York and San Jose — and increased by less than 2% in the fourth highest rent-growth metro, Oakland. Although Houston isn’t a high-rent market, its -2.8% rent growth in the third quarter also helped weigh down the national rate. Hartford, Birmingham and Oklahoma City also experienced negative annual rent growth.”

“‘Job growth isn’t bad in the Bay Area and New York, though the rate has slowed over the past year, so demand for apartments is still relatively strong,’ Denton said. ‘However, the amount of new supply that has been and will be delivered to these markets is extremely large and is forcing owners and developers to keep rents lower than they would like so they can remain competitive.’”

“Houston is being affected by job losses in the energy sector, as well as a glut of supply in the urban core Montrose/River Oaks submarket. ‘Urban cores in general are showing slowing performance,’ Denton said. ‘The market is feeling the effects of the concentrated new supply in these submarkets.’”

The Williamette Week in Oregon. “Good news, Portland apartment-dwellers: the city’s skyrocketing rents appear to be going down. In a sign that the crowded Portland apartment market may finally be seeing a smidgen of daylight, median rents for two-bedroom apartments fell significantly in September. The median rent for a two-bedroom apartment in Portland is now $1,600, down 4.1 percent from last month’s median rent, according to Zumper’s National Rent Report for October 2016. According to Zumper’s data, the decrease reflects a broader trend.”

The Star Tribune in Minnesota. “Few multifamily developers have been as active in the Twin Cities market during the recent building boom as Minneapolis-based CPM Cos., founded by principals Daniel Oberpriller and Nick Walton. The pair this week shared their views on the quickly evolving Twin Cities multifamily market. Some excerpts: Q: How as the market changed in the last 12 months? Walton: The easiest way to make a budget look possible has been to have high rents. Along with a sharp demand created by a lack of supply, that’s what was driving so many of these luxury apartment deals. While they have been pretty well received, it just feels like there has been a lot them.”

“Q: Do you feel the multifamily market is cooling off? Walton: What we found is, for example, when we opened some of our earlier luxury buildings, we’d be 50- to 60-percent pre-leased when we opened, but with some of our more recent deliveries, we opened at 25-percent pre-leased. It used to take us three months to fill a building, now it’s taking us six to seven months. So all of our buildings are filling, but you can just feel it and you can see the math — it’s slowing down.”