The Housing Bubble

A report from Multi-Housing News. “Is the growth in residential development, coupled with decreasing construction costs, a sign that the industry is reaching the current cycle’s peak? ‘Yes, we expect multifamily completions to peak in 2017. We’ve already seen weakness in starts and permits data, meaning that construction will start tapering off in 2018,’ Paula Munger, director of industry research and analysis at the National Apartment Association, told Multi-Housing News. ‘The luxury segment in urban core markets like New York (and) San Francisco is getting overbuilt as there’s just not enough demand to keep up with the new supply.’”

From The Oregonian. “In recent years, people looking to rent in Portland generally had to be ready to pounce on an apartment the moment they walked through the door, and sometimes even sight unseen. But there’s a renter’s market brewing in the central core, where a flood of gleaming new apartments is coming online at once. Until recently, the practice of offering free rent or other concessions was mostly limited to new apartment buildings, which concentrated on filling empty units as quickly as possible. Now it’s occurring in buildings that have been open for years in Portland’s close-in neighborhoods.”

“‘There’s no question that there’s softness within the urban core,’ said Patrick Barry of the appraisal company Barry & Associates. ‘These new units are coming in, and they have some attractive pricing on them to get them full. All of a sudden they’re competing with … the renovated, older-vintage units.’”

The Capital Times in Wisconsin. “Last year, when the former Messner, Inc., building on East Washington Avenue was proposed as a day resource center for the homeless, the Tenney-Lapham Neighborhood Association strongly opposed the project. A new proposal could also help the homelessness, and this time the neighborhood is on board. The project could also be an answer to residents’ concerns about rising house prices and a glut of luxury apartments, said Patty Prime, Tenney-Lapham Neighborhood Association president.”

“East Washington is the site of several new high-rise apartment developments. ‘Some people are tired of high towers shadowing out other buildings,’ Prime said.”

From Crain’s Chicago Business in Illinois. “Six years after the market hit bottom, an index of Chicago-area commercial property values is still about 7 percent shy of its 2007 pre-crash peak. High prices have allowed owners of apartment, office and other commercial buildings to pocket big profits by selling or refinancing their properties. But many properties are still worth less than they were before the crash of 2008-09. In January, after going through foreclosure, the office building at 123 N. Wacker Drive sold for $147 million, well below its 2005 sale price of $170 million.”

“Overseas investment fell last year, but rising interest rates tend to attract money from foreign investors seeking higher returns. Whether that lifts real estate values is an open question.”

“‘The wild card is whether further rate hikes will continue to bolster the dollar, and whether prospects of dollar strengthening will drive overseas investors into (U.S. commercial real estate) assets,’ Heidi Learner, chief economist at real estate brokerage Savills Studley, said in a statement. ‘It’s too soon to tell whether 2017 cross-border volumes will fall again, but it’s unlikely that there will be a wave of foreign capital that will be competing with dollar investors to drive cap rates lower.’”

From WSBT in Indiana. “If you live in St. Joseph County, you might have noticed a lot of construction projects in the area. Developers are building more than seventeen apartment complexes and condos in South Bend and Mishawaka alone. That means around 700 units coming online by the end of the year. ‘You’ll see rents go down or you’ll see a bunch of freebies come up,’ says James Cunningham, COO of Marquette Management, who owns Main Street Village in Granger. ‘Hey stay with us, you’ll get a free garage for the term or your lease,’ or ‘you get two months free if you sign a 14-month lease.’ There will be much more incentives going around from a lot of different communities.’”

“But, what’s good for the goose isn’t necessarily good for the gander. ‘The losers, if there are losers in this, is the impact to the existing apartment owners,’ Cunningham says. ‘It impacts the ability of an individual owner to be as profitable as it was before, when there was less competition.’”

The Real Deal on New York. “With its undulating glass facade, 252 East 57th Street was among the marquee new developments that promised to reshape Midtown East back when it debuted in late 2014. But after an extended period of sluggish sales – just under half the condominium’s 95 units remain unsold – the developers decided it was time to take drastic measures. On top of price cuts last year, World Wide Group and Rose Associates are now offering brokers a 4 percent commission, including 1 percent that’s non-refundable and will be paid as soon as a contract is inked.”

“Faced with stiff competition from a heap of new luxury product on the market, developers are paying transfer taxes, offering discounts, dangling gifts cards and other sweeteners in front of brokers and buyers. It’s all about getting deals done as quickly as possible.”

“‘They don’t want to give off the perception that they’re lowering prices, so they may offer a concession,” said Douglas Elliman’s Vickey Barron. ‘They’re not wrong for doing it,’ Barron added. ‘You don’t want to be sitting with empty apartments.’”

“Developers whose construction loans are coming due have the most on the line, and are anxious to stave off lenders anxious about getting paid back. ‘The pressure on developers is starting,’ said one marketing executive. ‘I’ve been getting calls from banks asking what the larger units will rent for.’”