The Housing Bubble

A report from Biznow on Washington, DC. “Multifamily developers across the country have being trying to outdo each other with greater amenities in what has become a full-out arms race to attract tenants. But Kettler CEO Bob Kettler (founder of DC’s largest multifamily firm, in terms of units under construction) says the next big shift is developers being more selective about their amenity offerings. ‘They’ve put in every conceivable amenity,’ Bob says. ‘We went out and have tried to buy properties where we see people that overshot and over-programmed their amenities,’ Bob says, such as fitness facilities, dog parks and rooftop courtyards. But he warns about other amenities that can take up valuable square footage and are relatively underutilized. ‘The issue with these areas is that they are not generating revenue.’”

“With DC apartment rents already sky-high, Bob says adding amenities that force developers to raise rents can price more people out of the market than they attract to the building. ‘If you look at where Class-A rents are coming out when you look at new projects, only a small percentage of the population in this market can afford those,’ Bob says. ‘That’s one of the reasons we have sort of transitioned into repurposing buildings and looking at other marketplaces in states people are moving because they can’t afford to live in DC.’”

From Bloomberg on New York. “Manhattan rents decreased in September, marking only the second time since February 2014 that median rents for the borough fell from a year earlier. That’s great if you’re single and earning $100,000 a year, or part of a household that spends $100,000 a year on rent. The same trend has played out in San Francisco, where landlords targeting the top of the market have reported that rents are softening. In Atlanta, Boston, Los Angeles, among other cities, high-end neighborhoods have proven the most likely to see rent-growth slow.”

“The theory goes that adding new units at the top of the market should eventually translate to lower rents for older apartments. ‘If the market is like a layer cake and the top is melting, does it melt from layer to layer?’ said Jonathan Miller, Miller Samuel’s CEO. ‘My answer is eventually, but it will be slower than it would have been, because there’s such a big space between the luxury product and the rest of the market.’”

The Palm Beach Post in Florida. “Developer Nader Salour is thinking about taking a break from building more apartments in West Palm Beach. Salour said he’s iffy about the economy’s fortunes in the near future, after several years of growth. ‘We’re certainly due for some sort of pullback,’ Salour said. ‘How big a pullback is it going to be?’”

“Salour isn’t alone in hesitating to bring more more luxury apartments to the downtown. Billionaire investor Jeff Greene is, too. The hesitancy is no surprise to longtime market experts. ‘The temperament has changed to wait and see a little,’ said Peter Reed, managing principal of Commercial Florida Realty Services in Boca Raton. Reed said the region and the nation are at the end of an extended up cycle. Apartments have outperformed other types of commercial real estate, but the good times can’t last forever.”

The Denver Post in Colorado. “Average metro Denver apartment rents declined last quarter for the first time since 2013, according to the Denver Metro Area Apartment Vacancy and Rent Report. Rents rarely drop during the third quarter — it’s happened only four times in the last 29 years, most recently in 2007, when the average decreased a little more than $5, said Apartment Association of Metro Denver spokesman Christopher Dean. In the third quarter, average rents decreased to $1,368 per month — kept artificially high by a surge of luxury apartment construction.”

“The slight decline in average rents is attributed to the delivery of thousands of new apartments to the market this year, a pace that is expected to continue through 2018, when the majority of projects in the pipeline wrap up. ‘We’ve seen more apartment units built in the last three years than in the 11 years prior to that combined,’ said Mark Williams, executive vice president of the Apartment Association of Metro Denver.”

The Bay Area Newsgroup on California. “At long last, the Bay Area rental market is cooling. That’s the takeaway from a new report by Novato-based RealFacts showing that third-quarter rents for the nine-county region have barely budged — they’re up 1 percent from a year ago — and in some cities have even fallen. ‘I can almost feel a change in the air,’ said Ron Stern, CEO of Bay Rentals, a housing relocation service. Landlords are more willing to chip a couple of hundred bucks off the monthly rent to fill a vacant unit, he said, predicting that ‘rents are going to go down even more next year.’”

“‘Instead of renters being at such a disadvantage and having little choice and having to take whatever landlords said they wanted,’ said Sarah Bridge of RealFacts. She attributed the change to the thousands of newly constructed units that have come online around the region, opening up ‘more choice’ for renters and tipping the supply-demand ratio in their direction.”

City Pages on Minnesota. “Lake Street in Minneapolis is hopping with activity on a mild Monday morning, as the city wakes up and starts heading back to work. Yet few lights are on inside the Lake Residences, the uber-pricey new high rise on the north end of Lake Calhoun, where monthly rents in excess of $6,000 aren’t uncommon. It looks like nobody’s home. That’s because they aren’t. According to the building’s website, only 11 of its 90 units have been rented thus far.”

“Sam Radbil of the rental website Adobo isn’t willing to say the tepid response to the Lakes means the Twin Cities hit its rental price ceiling. Though the building’s rents do come as a sticker shock to Radbil, he believes the renters will come, eventually. ‘Whether it’s Minneapolis or Atlanta or Denver,’ says Radbil, ‘what we’ve seen in all of these markets is there’s an unmet luxury market. Now, I don’t know if the market will react quickly in Minneapolis to fill that building. But I’ve got to think the developers didn’t build it without first doing the research that shows there is a market.’”

The Houston Chronicle in Texas. “Houston developers are expected to build 27,600 apartments this year, a historical high and one that’s coming at a time of slumping demand for rentals, a new report shows. ‘The apartment market for the next five years is going to look like the office market did in the ’80s,’ said Patrick Jankowski, an economist at the Greater Houston Partnership said recently.”

“He noted downtown specifically. Thousands of units are under way in that market, exacerbating concerns about a multifamily glut. Plus, two major sources of tenants — Exxon Mobil and Shell — have left or will soon leave downtown. ‘People just haven’t appreciated the potential for how bad things can be in the luxury market,’ Jankowski said.”