June 4, 2017

The Recent Boom Turned Investors Into Landlords

A report from the Journal Sentinel in Wisconsin. “If city living appeals to you and you’re ready to buy a place, an event Saturday will provide an opportunity to check out more than two dozen downtown Milwaukee condominiums that are for sale. ‘Unfortunately, right now we’re at a period where there’s an oversupply of apartments and a severe dearth of condo units,’ said Mike Ruzicka, president of the Greater Milwaukee Association of Realtors. Ruzicka said he would not be surprised to see some of those rental apartments converted to condos in the future.”

The Star Tribune in Minnesota. “Among apartment investors, it’s no secret that the Twin Cities is one of the healthiest markets in the nation. Rents are on the rise, vacancy rates are below average and the economy is humming. Those attractions lured Calvera Partners, a California-based private real estate investment firm, to launch its national expansion in the Twin Cities. Brian Milovich, managing principal at Calvera Partners and a graduate of the Carlson School of Management, talked about the company’s move into the market.”

“Q: Did you shop other markets? A: Other markets have always been on our radar, but the Bay Area has seen such explosive growth over the past five to seven years coupled with cap rates declining in markets like Minneapolis, that we haven’t seen the need to look elsewhere. Now that we’re seeing values in the Bay Area taking a pause, we feel there’s room to grow in other markets where urban living is still gaining acceptance.”

“Q: There’s growing concern that too many luxury units are in the pipeline. Are you feeling queasy about the supply situation? A: Yes, we keep an eye on new supply and downtown has particularly seen an influx of new high-end units. It seems as if each new building tries to ‘out-luxury’ the one built right before it with over-the-top amenities and unit finishes not even found in condo developments. Even though we don’t compete directly with the high-end of the market, any new supply will impact rents and values.”

The Miami Herald in Florida. “Although some developers are focusing on community-building amenities, Miami has no shortage of luxury condo towers with concierge services and over-the-top perks — for the few who can afford them. Estates at Acqualina: Residents of this pair of 50-story condo towers, due in 2019, won’t have to leave home for a night out. Among the amenities: A disco, a bowling alley, movie theater, soccer field, basketball court, and a salt room. What, no ice skating rink? Oh wait, yes: There is also an ice skating rink.”

“Aston Martin Residences: Can’t afford a $50 million penthouse at this 66-story luxury tower from G and G Business Development expected in 2022 at 300 Biscayne Blvd. Way? Don’t fret. Four stories worth of amenities — including an infinity edge pool — fitness spa and art gallery, will be spread throughout the 52nd-55th floors, making them accessible to any resident of the building. There’s also a rooftop helipad, for all your chopper-travel needs.”

The Houston Chronicle in Texas. “Luxury high-rises in downtown and other premium locales inside the Loop are drawing more than empty nesters and overpaid millennials. A growing pied-à-terre community is making itself at home on the upper floors of apartment and condo towers around Houston, enjoying the city’s ascendant cultural and entertainment scene while maintaining a suburban idyll a few miles away.”

“As the region and its real estate market continue to recover from the extended oil slump, these part-timers are signing leases or buying pricey condos with killer views close to the city’s cultural and entertainment venues. ‘It’s like getting away for the weekend,’ said Allison Seder, who with her husband, Mike, recently purchased a three-bedroom unit on the ninth floor of The Wilshire, a tower erected a few blocks from the 2-year-old River Oaks District.”

“The Seders and others are bringing the tradition of owning a secondary residence in the heart of a big city - more common in New York or European capitals - to a place where it has been virtually unheard of. The Wilshire, though not fully completed, already has at least 10 pied-à-terre buyers. One Park Place, a luxe apartment tower overlooking Discovery Green, has more than 20 who pay four- or even five-figure monthly rents for their home away from home. The first Wilshire units, which go for between $800,000 and $3 million, will open in July. The Seders’ unit should be ready in September. Hundreds more similar units should come online in the next few years.”

“Ed Laase came for convenience. He moved to Pearland for work in 2005 and retired from Boeing in 2013. As a Houston Rockets season-ticket holder, he traveled downtown frequently, and in 2015 bought a condominium in the Four Seasons to ease the commute. But now he sees it as a retirement option. The concierge, town car and other amenities meet the needs he would have looked to fill in a retirement home, he said. But unlike a retirement home, he likes to note, he can order alcohol at the condominium.”

“‘I wasn’t just looking for a high-rise. We wanted amenities,’ he said. ‘You ever tried to get a drink in a nursing home? You can’t.’”

The Real Deal on New York. “Thanks to the recent condo boom that’s turned scores of investors into landlords, there’s an abundance of ultrahigh-end units on the rental market. And just like the rest of the rental market — where landlords have been throwing out concessions for the better part of a year — tenants in the uberluxe market are scoring fat discounts.”

“Robby Browne estimated the high-end rental market is down 10 to 15 percent since late 2015. He said that one of his clients, who’d been getting $19,000 to $20,000 a month for his two-bedroom at 40 East 66th Street, agreed to discount the condo to $18,000. It’s also taking longer to do deals. Douglas Elliman’s Tal Alexander recently used ‘light staging’ on a $20,000-a-month rental at One57, which still took about 60 days to rent. Alexander said he’s telling clients that overpricing is a waste of time. ‘If [renters] see the apartment linger, they think it’s more negotiable.’”

“Savvy renters, meanwhile, are jumping on the opportunity. ‘Our clients on the rental market are getting 20 percent off on some of these apartments,’ said Bold New York’s Jordan Sachs. ‘You’re dealing directly with an owner, not a professional landlord. All he wants is cash flow, and every day the apartment sits vacant is affecting his return on investment.’”

“Neighborhoods like Tribeca and Chelsea that have been magnets for condo developments are teeming with high-end rentals, since many new developments closed in the past year and investors are putting their units on the rental market. ‘We’re seeing a flood of apartments $40,000 and higher,’ said Sachs.”

“To be sure, uberluxury rentals make up a fraction of the overall rental market, where there were 30,000 apartments available citywide as of late May, according to StreetEasy. A search turned up just 530 apartments listed for $15,000 and up, and about half that number were properties asking $20,000 or more.”

“Yet, the balance of power is no different in the overall rental market, where agents said supply continues to far outweigh demand, putting pressure on landlords to entice tenants. ‘There’s a boatload of inventory,’ said Citi Habitats’ Rory Bolger. ‘These landlords think if you build it they will come, but sometimes you wonder: Where are they coming from?’”

“Citi Habitats’ Dave Maundrell said his team is launching five new buildings in the next two weeks — including 371 Humboldt Street in Williamsburg and 248 Duffield Street in Downtown Brooklyn. All five are no-fee with one month of free rent, which is now par for the course in new development. Maundrell said he thinks landlords are coming to grips with reality after months of pressure to drop prices and offer concessions. ‘There’s a lot of product that wasn’t really worth what people were asking for it,’ he reflected.”