The Housing Bubble

A report from the Atlanta Journal Constitution in Georgia. “Let this rattle around in your mind for a second: some ‘premium’ two-bedroom apartments in one of metro Atlanta’s hottest new live-work-play-shop oases rent for more than $5,000 a month. In Alpharetta. Deep in the burbs of north Fulton. Why, you might wonder — I certainly did — would people shell out rent equivalent to five house payments? That question would probably come to mind even if you aren’t one of those who believe paying rent is like shoveling cash down a commode.”

“But here’s three things Avalon execs think allows them to charge a premium: Effervescent concierges at the center of the community who will do things like hand out free wine and beer or order meals from Avalon restaurants and deliver them to you at the fire pit, pool, apartment, wherever. An open drink policy throughout the development. (I guess walking with a glass of wine or a mimosa dulls the rent pain.) A bounty of restaurants, watering holes, shops, free Wednesday yoga classes, Tuesday gatherings for kids, cornhole league competitions, and Friday night live bands beside the town green’s artificial turf. ‘It’s like sleeping on a cruise ship,’ Joe Peluso told me. ‘All I have to do is take an elevator ride down and I’m in the middle of the party.’”

From The Record in New Jersey. “From Franklin Lakes to Palisades Park and from Secaucus to Wayne, numerous residential real estate projects are in various stages of development all over North Jersey, a trend led by the rise of multi-family housing – specifically, higher-end apartment rentals. ‘I believe what we’re witnessing is a transition to a European model. We had a uniquely American phenomenon [of house ownership] that is being impacted by slow income growth and a high cost of living,’ said Jeffrey Otteau, president of The Otteau Group real estate research firm. ‘What killed the condo product essentially is that the decline in housing prices in New Jersey since the great recession has made condos unprofitable to build unless you are very close to Manhattan.’”

From The Real Deal on New York. “A duplex penthouse in the Time Warner building received its sixth price cut, and is now on the market asking $16 million. Apartment 54AG at 25 Columbus Circle was relisted Monday, Curbed reported. The condominium was first asking $50 million in 2013, although StreetEasy shows it debuted for $42.5 million in 2014.”

From Multi-Housing News. “To help banks struggling to deal with regulations on commercial mortgage lending that were enacted in 2015, a group of real estate trade organizations is working to introduce legislation that would clarify the rules. The confusion involves so called high-volatility commercial real estate (HVCRE) loans originated by commercial banks, which encompass loans on acquisition, development and construction loans.”

“‘Over the next three years, over $1 trillion—or approximately $1 billion a day—in commercial real estate debt is maturing. So, maintaining adequate credit capacity is vital for commercial real estate,’ said Chip Rodgers Jr., senior vice president of the Real Estate Roundtable (RER). ‘The HVCRE rule is disproportionally affecting bank commercial real estate lending and contracting much needed credit to the sector.’”

The Journal Sentinel in Wisconsin. “The developer of a higher-end West Allis apartment community is seeking a federally guaranteed loan to end delays on obtaining project financing. The situation involving Element 84 amounts to another example of a slowdown in Milwaukee-area apartment construction activity. Both John Stibal, city director of development, and Jon Ross, an Ogden principal, said they believe that Element 84 can still move forward.”

“Commercial lenders have been tightening their requirements for loans on apartment developments, Ross said. Most banks are willing to provide loans for up to 60% to 65% of a project’s costs, he said, compared to what had been 75% to 80% of those costs. That change is partly tied to concerns about whether too many new apartments are being built within a relatively short time, Ross said. Ross doesn’t believe oversupply is an issue in West Allis.”

“Also, Ross said the city’s financing help would allow Ogden to offer high-end apartments at monthly rents as much as $200 to $400 less than similar units being built in Brookfield, Wauwatosa and downtown Milwaukee. So, Ogden is seeking a loan guarantee from a U.S. Department of Housing and Urban Development program. That’s similar to what Barrett Lo Visionary Development LLC is seeking for The Couture high-rise on downtown Milwaukee’s lakefront. ‘We feel like we have a competitive advantage,’ Ross said.”

From Real Estate Business Online on Texas. “While it’s not an ideal time to be a multifamily property owner in Houston, it is a good time to be working on behalf of one. With their clients sitting on excess supply, apartment locators — middlemen who match tenant preferences to properties — are being increasingly called upon to deliver tenants. Locators work on commission, typically earning about 20 percent of the first month’s rent for their services. But in Houston’s soft market, that figure is rapidly rising.”

“Todd Marix, a senior managing partner in HFF’s Houston office who spoke on an earlier panel, addressed the rising operating costs that landlords are facing. In his view, fees paid to apartment locators are quietly doing major damage to property owners’ net operating income (NOI). ‘Concessions are the most visible measurement of weakness,’ Marix said. ‘What gets lost in the discussion, in terms of the threat to NOI, is locator percentages, especially when that rate goes from flat to a certain percentage, and then that percentage goes from 75 to 100 and so on.’”

From CBS Miami in Florida. “A few weeks ago we reported on rents in Miami dropping. Now a similar story is playing out in the luxury sales market. Sales are slowing down dramatically and the worst may still be yet to come. CBS4’s David Sutta stepped off the elevator right into a luxury unit. On a typical day Seth Feuer’s listings would sell itself. Today though, he’s having to earn it. ‘This looks like it should be sold already. Why isn’t it?’ CBS4’s David Sutta asks. Feuer nods his head and says ‘That is the billion dollar question in our real estate market currently.’”

“Roy Gorin owns the unit Feuer is trying to move. He explains it’s been on the market for over a year now. He has agreed to drop the price of his unit in the Murano Grande by nearly a million dollars. ‘It has been disappointing,’ Gorin says when asked about it.”

“And yet no one is beating down his door to buy it. Feuer admits, ‘This is the toughest market that I’ve seen. I’ve been in the business for about 14 years. After the crash of 2006-2007, things were tough but I still had activity.’”

“There are a host of reasons why. Zika scared many New Yorkers off. The US dollar has strengthened, making units unaffordable for foreign buyers. And developers are adding new luxury units every day. ‘It has to get worse before it gets better,’ Sep Niakan, broker at HB Roswell Realty told CBS4. There are nearly 4,000 luxury units for sale in South Florida. At current sales rates, it would take five years to sell it all. In some places, it’s even worse. Downtown Miami has 6 and half years of luxury inventory. In Midtown, the number stands at 8 years.”

“He’s advising clients to get real quick. ‘If you want to sell within the next couple of years, do it now,’ Niakan said.”