June 18, 2017

It Was A Pretty Good Story About A Lack Of Supply

A report from the South Bend Tribune. “The sun beat down on a recent weekday as crews worked to level 29 acres of land for The Reserve, a new 390-unit luxury apartment complex. Watermark Residential, a developer out of Indianapolis, announced the project in September, when it filed to annex the property into the city of Mishawaka and rezone it from agricultural to residential. The Reserve is among a slew of new projects as the local rental market rebounds from an extended down period, with developers projected to add 2,000 new units to the market by the end of next year — compared with just 205 the previous four years.”

“Compared with other urban markets, South Bend has lagged in new apartment construction over the past few years, with only a few hundred units added from 2013 to 2016, and zero in 2014 and 2015. ‘I think what you’re seeing across most of country right now is oversupply. We like the schools up there, and we like the fact that it’s close to new retail,’ David Englert, director of acquisitions for Watermark, said. ‘And then up until recently, it was a pretty good story about a lack of supply of new apartments being delivered.’”

“The problem is particularly acute at the high end of the market, Englert said, characterized by upscale, single-family-style developments with pools, fitness centers, lounges, game rooms, rooftop terraces, dog parks or walks and other amenities. ‘That’s the market that virtually everybody whose building now, that’s the market they’re going after,’ said Michael Zink, senior vice president of multi-housing with South Bend-based Bradley Co.”

From Crain’s Chicago Business. “Building booms often end badly, especially those—like in the student housing sector—that have stretched out for several years. While a few college towns where Core Spaces doesn’t operate, such as Baton Rouge, La., and College Station, Texas, are getting overbuilt, the U.S. market remains healthy overall, says Taylor Gunn, a student housing analyst at Axiometrics. Developers are expected to complete 47,122 off-campus student-housing beds around the country in 2017, roughly equal to the last two years, and down from more than 62,000 the two years before that, according to Axiometrics.”

“Marc Lifshin’s company, Core Spaces, develops buildings with golf simulators, spas with plunge pools and tanning beds, and in-room hot tubs. As student housing developers have tried to one-up each other with amenities, some observers have questioned the focus on luxury, grumbling that college has become a country club for rich kids.”

“A Core Spaces project in Madison, Wis., includes a band room and ice rink in the winter. This year, Core Spaces will wrap up a second development in Madison and one in Seattle. Projects in Ann Arbor, Mich., Tuscaloosa, Ala., Minneapolis and other towns are on tap for 2018. ‘This is kind of the third inning of student housing right now,’ says Lifshin. ‘I don’t think we’re close to the peak yet.’”

From Costar. “The senior housing sector saw elevated expansion levels of new units in the first quarter of 2017, with the additional new inventory offsetting otherwise healthy levels of absorption, according to Tim Komosa, an economist manager for Fannie Mae. A combination of high levels of new construction and unexpected interruptions in demand have resulted in Houston, Las Vegas and San Antonio having the lowest occupancy rates among the large metros for seniors housing. Total absorption for seniors housing declined from the recent record levels. Annual rent growth for seniors housing declined from its recent peak.”

“‘Given the robust supply that segment has seen in the past five years, this (lower) level of occupancy is likely just a result of slightly too much supply in a short period,’ Komosa said.”

The Anchorage Daily News in Alaska. “Anchorage’s typically tight rental market is loosening. Vacancies are up and rents are down compared to last year, with some landlords even offering one month free on a year lease and other incentives. In Carolyn DeYoung’s experience, some property owners are still adjusting to the new reality of the rental market. ‘I’ve had to call more than one owner to say ‘OK, they (the prospective renter) will pay $1,500 not $1,600 a month, because they can rent the same thing down the street,’ said DeYoung, who has worked in the industry for 18 years.”

The Real Deal on Florida. “Demand remains robust for rental housing in Miami and the rest of South Florida, among residents and real estate investors alike. But despite the area’s population and employment growth, some market watchers say South Florida’s extended, postrecession rise in monthly rents could slow or stop if overbuilding floods the market with units. ‘Luxury rents are going to start coming down as more and more individual investors put their condos on the market to rent,’ said Joe Lubeck, CEO of Robbins Electra, which owns and manages about 23,000 units in multifamily developments in Florida, Georgia, Maryland, North Carolina, Texas and Virginia.”

“‘That probably will be most problematic in Miami, but we’ll also be seeing it in all the major metropolitan areas, because so many of the new condominiums are being bought to rent out,’ Lubeck says.”

“Rents at less luxurious locations in South Florida are bumping up against their upper limits, too, said Mike Pappas, president of South Florida residential brokerage firms Keyes Company and Illustrated Properties. ‘There’s no question there has been a skyrocketing of rents in the last five years that has peaked,’ Pappas said. ‘We’re starting to see rental prices wane, or at least pause.’”

The Washington Post. “Richard Florida is rethinking things. Since publishing the best-selling book The Rise of the Creative Class in 2002, Florida has used his considerable speaking and writing heft to push mayors, urban planners and company executives to cater to tech-savvy young professionals. His argument, in short, was that to save themselves from postindustrial ruin, cities needed to attract the best young talent in computer programming, engineering, finance, media and the arts so their towns could build economies based upon the venture capital and start-up companies the new workforce would produce.”

“Often taking a cue from Florida’s mantra, real estate developers dialed up hip but tiny apartments designed for creative millennials and outfitted them with coffee bars, gyms, pool tables, bocce courts, pool decks and fire pits. Somewhere along the way, however, Florida realized that the workers he so cajoled were eating their cities alive.”

“‘I think, to be honest, I and others didn’t realize the contradictory effect,’ Florida said in April at a panel discussion. He said he realizes now that prompting creative types to cluster in small areas clearly drove living costs to such heights that low-income and often middle-income households have been forced elsewhere, creating a divide.”

“As inequality has deepened in top cities, writers on class and poverty have begun to take sharper aim at Florida’s theory, calling the ‘creative class’ a fallacy and a failed experiment, not because he was wrong that investing in cities would help draw the creative class but because he argued that doing so would benefit cities at large. So although he still champions investments in urban areas, at the panel event Florida said the criticism had made a mark.”

“‘To be seen as the neoliberal devil, foisting gentrification on cities, is not a situation I like to be seen in,’ he said.”