The Housing Bubble

A report from Multi-Housing News. “W. Allen Morris, president and CEO of The Allen Morris Co., recently spoke with MHN about how he sees the multifamily landscape shaping up for 2017. MHN: With about a quarter of the year behind us, what have you seen so far in 2017 when it comes to multifamily investment opportunities? Morris: One is that there’s less pressure on land prices as many buyers have not been able to secure financing and have backed away from new projects. There is also the reality that some markets are dealing a current oversupply of product, markets such as San Francisco, New York and Miami, among others. This has and will continue to exude downward pressure on rents.”

“MHN: What do you feel is the most important thing that investors need to be aware of in today’s multifamily environment? Morris: I would say competitive products that could drive rental rates down in the project you invest in. To that end, developers need to develop or select properties that have market differentiation, a strategic advantage over competition. One example is in our St. Petersburg project where we are leasing at above our pro-forma rental rates, and we are able to do so because we are delivering a quality product that is amenity-rich—a market differentiator.”

The Washington Post. “Apartment living has changed in recent years. Gone are the days of shag carpeting and laminate countertops. Now renters demand hardwood floors and high-end finishes similar to what they would find in a single-family home. They also want a wide-range of amenities in their buildings. Amenities are a hot topic in the apartment housing industry. In some competitive markets such as the D.C. region, an arms race of sorts appears to be breaking out as buildings try to outdo each other with lavish features.”

“‘People say, ‘Do we really need a fitness center? There’s a gym right down the street,’ said Cindy Clare, president of Kettler Management in McLean. ‘But you do. I always say 100 percent of your residents think they are going to use the fitness center, only 10 percent will, but everybody thinks they are.’”

From Metro US on New York. “With a glut of rental units on the market, New Yorkers are negotiating, scoring free rent, iPads and more from their landlords. It’s a new phenomenon. Landlords are at a disadvantage because record high rents are driving people to the outer limits of the five boroughs, while new developments are flooding the market in historically popular areas, creating high vacancy rates in Manhattan and parts of Brooklyn. In March, 35 percent of leases signed at Citi Habitats included some sort of deal sweetener for the tenant, up from 20 percent in March 2016 and 12 percent in 2015, according to company figures.”

“Jonathan Katz, for example, made out pretty well. He is now moving into a one-bedroom in Park Slope, Brooklyn, which had been vacant for more than two months. To lure him in, Katz was given three months of free rent on an 18-month lease (a savings of $8,700), did not have to pay a broker’s fee and got $100 knocked off the base rent. For an apartment that would have cost him $2,900 a month, he will now pay $2,350. ‘There was a time when concessions were few and far between,’ said Joshua Juneau, a broker for Triple Mint in Manhattan. Now, he said, ‘we’re getting 700 emails showcasing what’s available and what incentives are being offered.’”

The Chicago Tribune in Illinois. “Chicago’s Trump Tower has an unusually large number of condominiums for sale and for rent, and real estate agents predict that a glut of available units in the building may pressure owners to drop their prices. Already renters in Trump Tower say they have been able to get sizable discounts. The number for sale ‘is amazing,’ said Gail Lissner, vice president of Appraisal Research Counselors. ‘I’ve never seen that number for sale since they opened, and there have been very few transactions.’”

The Real Deal on California. “The Bloc is a bellwether for the real estate market in Downtown Los Angeles, and for quite a while, it was signaling all good things to the industry, with promises of growth and prosperity for all. But with previously announced tenants now jumping ship, a revolving door of retail leasing brokers and three pushed-back openings, the industry is beginning to suspect that the development was a false prophet.”

“After hip hotels and trendy restaurants started popping up in DTLA more than five years ago, retail was expected to be the next frontier. The Ratkovich Company announced leasing news shortly after the developer snagged the property in 2013.”

“The percentage of the Bloc’s 720,000-square-foot office tower that was leased also dropped substantially in the first quarter, though sources could not say by how much. Ratkovich said 48 percent of the space is leased. Industry insiders speculate that tenants with short-term leases were booted in favor of finding tenants who could pay more. The development company has also been rocked by some internal issues, from the sudden departure of chief operating officer Clare DeBriere in January to the Bloc’s financial troubles last year.”

The Hawaii Tribune-Herald. “The University of Hawaii at Hilo wants to lower the price of its most underused residence hall by about 18 percent next fall, part of a proposal to boost the dorm’s occupancy and generate more funding to pay back bond debt. Hale Alahonua, a 300-bed, suite-style dormitory, has remained less than 60 percent full since opening in 2013. Currently it’s about 50 percent occupied. Many students have complained the dorm is too expensive — at $3,859 per semester, it’s the priciest housing option on campus.”

“As a result of low occupancy, UH-Hilo has dipped into reserve funds to pay off a 30-year, $17 million revenue bond used to help finance the $28 million dorm when it was built. This week, administrators presented a three-year rate restructuring proposal that would slash the yearly cost to live in Hale Alahonua by more than $1,400 — putting it about $300 cheaper per year than one-bedroom double rooms in Hale Ikena, a popular apartment-style dorm and the next priciest on-campus housing option.”

“‘Why are we confident about this? Well, for the past four years, as enrollment (campuswide) has continued to decrease, housing has consistently had 18 percent of the total student population,’ said Farrah-Marie Gomes, UH-Hilo’s vice chancellor for student affairs. ‘With the (price) reduction of Hale ‘Alahonua, the expectation is we will be able to bring up total occupancy and that’s how we make those payments to debt service.’”