November 22, 2016

A Stampede Of Flippers Got Overconfident

A report from the Arizona Republic. “The commercial real-estate industry remains in an expansion cycle, helped by a steady economy and few signs of overbuilding. Rising interest rates are a concern, but few other signs are flashing warnings, said Calvin Schnure, senior economist for the National Association of Real Estate Investment Trusts during a talk in Phoenix last week. Two critical signs that have pointed to past recessions aren’t visible currently, Schnure said. One is an overheated economy in which inflation is rising. The other is overproduction in buildings, automobiles and other key manufacturing measures. ‘We’re still a long way from having overbuilt anything in the economy,’ he said.”

The Columbia Missourian. “Developers seeking to build apartment complexes downtown will have to keep waiting. The Columbia City Council extended its moratorium Monday on new downtown residential housing. The joint university and city survey represents data from 4,414, or 16.5 percent, of the city’s total registered rental units. The survey found an average vacancy rate of 9.78 percent among all participants, and a vacancy rate of downtown and off-campus units of 7.07 percent and 12.79 percent, respectively.”

“Both surveys and the report to council come at the concern of a potential student housing bubble in Columbia.”

The Pittsburgh Post Gazette in Pennsylvania. “Since the end of the recession six years ago, the rental market has been red hot in the city’s East End communities. A stampede of real estate flippers rushed in to buy and renovate old buildings. Developers also built one apartment building after another in anticipation of more demand from young professionals who prefer upscale living. But there are signs that rental rates in the East End have begun to cool off.”

“‘We have property owners in Lawrenceville who are renting their apartments for less this year than last year and wondering why,’ said Steven Welles, owner of Ikos, an East Liberty-based company that finds tenants for landlords. The company’s clients range from landlords with only one unit to those with 300 units. Some clients haven’t been able to find renters at all, Mr. Welles said, adding that many people got overconfident about how much they could extract from the market.”

“John Petrack, executive vice president of the Realtors Association of Metro Pittsburgh, said permits have been issued for about 5,600 new and rehabbed apartment units in the Pittsburgh area in the past five years and only about 60 percent have been absorbed by the market so far. ‘Especially in the high-end apartments,’ he said. ‘The market has been saturated. The market got strong and everybody ran out and said, ‘Hey let’s develop high-end apartment units,’ he said. ‘And the market got saturated. Now in the high-end market places there is an oversupply. Developers will have to make a decision.’”

From Syracuse Post Standard in New York. “Syracuse has suddenly become a magnet for developers of expensive student apartments loaded with amenities. Four off-campus, student apartment buildings with a capacity for 690 tenants have been built in the city by private developers in the past couple of years. Four more, with a total capacity for 2,024 tenants, are under construction or have been proposed. That has city officials and a University Hill planning and development organization worried that the student housing market in Syracuse could quickly become saturated, leading to a rise in vacancy rates in the neighborhoods surrounding Syracuse University.”

“They don’t come cheap, at least not by Syracuse standards. Rents average around $1,000 to $1,200 a month — per bedroom. (In contrast, rents in apartment homes in the university area typically range from $500 to $600 a month per bedroom.) David Mankiewicz, president of the University Hill Corp., said national firms that specialize in building and managing student apartment projects have already filled up larger markets — those with 50,000 or more students — and are just now focusing on second-tier markets like Syracuse.”

“He said the organization now worries that the construction of lots more off-campus housing could hurt the residential neighborhoods surrounding Syracuse University. ‘We’re fine with the idea there would be some movement of students, but if you have this cataclysmic move, you could see vacant, boarded up homes,’ he said.”

The Voice of San Diego in California. “National City is trying to make it as easy as possible to build downtown, but developers are still hesitant. Now National City is trying to up the incentives for new development even more. Nancy Estolano, a business owner who owns property in downtown National City, said she’s been having trouble selling and leasing her properties. One property took her months to rent out and she still hasn’t been able to sell another that could be developed into a high-rise.”

“‘Nothing is here to support the rents for high-rises,’ Estolano said. Part of the problem, she said, is that there are vacant lots everywhere. If a developer built something on her property, ‘there are two empty buildings across the street.’”