March 30, 2017

People Bought Assets And Were Unable To Deliver

A report from the Mercury News in California. “Choked by traffic and overwhelmed by skyrocketing housing costs, a greater percentage of Bay Area residents than a year ago now say they yearn to flee the region. In a new Bay Area Council poll released Thursday, 40 percent of the region’s residents said they want to move away in the new few years, a marked increase from the 33 percent who said in 2016 they wanted to leave. Even worse, the new survey found that young adults are more inclined to leave: 46 percent of millennials want to lead the charge out of the Bay Area in the next few years.”

“‘It turns out that we were wrong about millennial preferences, the stories were wrong that millennials wanted to live in a hyper-urban environment and that it would be OK to raise families in a condo,’ said Micah Weinberg, president of the Bay Area Council’s Economic Institute. ‘Millennials are putting off family formation, but when they have a family, they want what their parents had: a house on a nice lot pretty close to work.’”

The Seattle Times in Washington. “After a brief winter slowdown in rising rents, tenants across the Seattle region are back dealing with the same old discouraging story: Rents are shooting right back up again. But there is some promising news: Hot neighborhoods with lots of apartment construction are finally starting to see some slight rent relief, and a lot more building is on the way. Seattle is expecting nearly 9,000 new apartments this year — thousands more than any year in the city’s history — with even busier construction forecasts set for 2018 and 2019. The region as a whole, from Tacoma to Snohomish County, is experiencing its second-biggest apartment boom ever, with more than 60,000 units in the pipeline this decade, according to Dupre + Scott.”

“Mike Seeley, a University of Washington sophomore, is moving into a house with friends near campus, and they received a 10 percent rent increase compared with the prior tenants. He said the landlord told them to expect annual rent hikes of 3 percent to 10 percent going forward. ‘These houses aren’t luxury apartments. They’re sort of rundown,’ Seeley said. ‘As a college student, it’s never something you want to hear — you have to pay more for stuff.’”

The Dallas Morning News in Texas. “Apartment renters in Dallas-Fort Worth are starting out the year with a big jump in rents. The D-FW area had one of the biggest rent increases in the country - up almost 6 percent from first quarter 2016, according to RealPage Inc. The spike in D-FW apartment costs came even though demand for rental units was basically flat. Net leasing for the first quarter was actually a decline in 129 units.”

“Currently there are 50,588 apartments under construction in the D-FW area and about 30,000 of those units will open this year. Developers completed 7,062 new apartments in North Texas during the first quarter - the largest delivery of new units in almost 17 years, according to RealPage. Dallas-Fort Worth has almost 10 percent of the 581,556 apartment units that are under construction around the country. ‘The tiny net loss of residents looks like a blip,’ said RealPage chief economist Greg Willett. ‘Demand was stronger than would be expected seasonally in fourth quarter, so maybe households just got a little off typical cycle for move dates.’”

From Biznow on Washington DC. “DC had the fifth-highest rent in the nation in March, according to Zumper’s national rent report, but the median cost of a one-bedroom in the District dropped 7% from March 2016. While some DC neighborhoods experienced rent growth, comparing the report to last year’s shows that rent prices in neighborhoods with large amounts of multifamily development, such as Capitol Riverfront and NoMa, have dropped.”

“Capitol Riverfront: The waterfront neighborhood in Southeast DC is in the midst of a massive multifamily boom. The staggering number of deliveries, including a citywide high of 1,843 rental units coming this year, is clearly having an impact on rents. The median rent in the neighborhood this March is $1,990, down from $2,220 in March 2016. One-bedroom rents in Georgetown, while tied with Shaw/Logan Circle for the highest in the city, seem to be on a downward trend. The neighborhood averaged $2,500 this month, down from $2,700 in March 2016.”

From Bloomberg on New York. “Manhattan landlords, who have seen retail occupancy plummet after boosting rents to record levels, are trying to avoid big price cuts. Instead, they’re writing checks. The concessions, which can pay for anything from lighting and displays to a complete overhaul, are becoming a key component in some new leases, particularly for large, flagship stores in high-profile areas, such as Madison Avenue and Fifth Avenue, according to Steve Soutendijk, an executive director at brokerage Cushman & Wakefield Inc. ‘We’re seeing tenant-improvement and concession packages that retail landlords never, ever contemplated before,’ he said.”

“Apartment landlords are offering concessions and paying broker’s fees — a burden typically shouldered by the tenant in New York — to better compete as a glut of new towers gives renters more choices. ‘People bought assets predicated on achieving incredible rents and were unable to deliver,’ said Alexander Goldfarb, an analyst covering real estate investment trusts at Sandler O’Neill & Partners. ‘One of the oldest tricks in real estate is to maintain high face rents by funding a lot of incentives up front.’”

The Journal Sentinel in Wisconsin. “A proposal to develop a large upscale apartment building in Milwaukee’s Walker’s Point neighborhood has been canceled, with the developer citing both an oversupply of new apartment units as well as rising construction costs. David Winograd said market conditions have changed since he began working two years ago on his proposed 234 Apartments. ‘A lot more high-end stuff is coming on line now than when we started,’ Winograd said.”