June 22, 2017

Everyone Talks About Oversupply

A report from the Charlotte Observer in North Carolina. “Tenants are signing leases for three new uptown apartment towers, the latest in a wave that’s flooding the market with luxury units commanding the highest rents in the city. The avalanche of apartments means developers need to find renters for hundreds of freshly built units, a new test for the ongoing apartment boom. The gleaming towers feature top-of-the-line amenities that weren’t common even in high-end condominiums before the recession: Rooftop pools, spas for washing pets, package rooms with refrigerated storage for meal-delivery services. Jim Borders, CEO of SkyHouse Uptown’s co-developer Novare Group, said the building’s first tower is nearly fully leased while the second is about 20 percent leased. He said worries about oversupply downtown have become common in many of the markets in which Novare Group is building apartments, from Denver to Nashville.”

“‘Every single one of them, everyone talks about oversupply,’ said Borders.”

From Builder Online. “NAHB Eye on Housing’s Carmel Ford reports that completions of non-subsidized, unfurnished, rental apartments in buildings with 5 or more units totaled to 73,300 in the fourth quarter of 2016, which is about 9% higher than completions in the fourth quarter of 2015 (67,300). The absorption rate (the share of apartments rented within three months after completion) was noticeably lower at 48% in the fourth quarter of 2016. In the fourth quarter of 2015, it was 55% and has not been below 50% since the fourth quarter of 2009.”

From Bisnow on Texas. “As the urban core densifies more this cycle than ever before, the submarkets surrounding Downtown Dallas become more attractive to multifamily developers. Two of those submarkets — Uptown and East Dallas — have more units under construction than any others. High-end developments are leasing well, anything from 15 to 20 units a month in both submarkets, according to CoStar. ‘But we’re starting to see higher concessions. What was one month [free rent when signing] last year is 1.5 or two months this year,’ CoStar Group Senior Market Analyst of DFW David Kahn said.”

“Meanwhile the newer Uptown submarket is making more of a luxury play. Kahn’s only concern with the healthy market is communities renting units for $3/SF. ‘Until The Taylor delivered around $2.50/SF in 2014 and Brady delivered around $3/SF in 2015, we never saw that. Now we’re basically about to quadruple the amount of high rents in this small area in a couple of years.’”

The Sacramento Bee in California. “Six out of the seven least affordable metropolitan areas across the U.S. are in California. They are Los Angeles, San Francisco, San Jose, San Diego, Riverside and Sacramento. ‘It’s getting harder and harder to live here,’ said David Shulman, a senior economist for the Anderson Forecast. ‘The state is running out of people who can afford the $3,500 per-month rents so those prices are beginning to fall…but if you look at the one-bedrooms for $1,500, those rents are continuing to go up.’”

From Bloomberg on New York. “Donald Trump’s office properties aren’t bringing in as much cash as banks that loaned him money had expected. The buildings — 40 Wall Street, Trump Tower, and 1290 Avenue of the Americas, a tower in which Trump holds a 30 percent stake — are victims of a changing New York office market, where gleaming new skyscrapers are attracting tenants and demand for space in vintage properties is falling.”

“‘We’re in the biggest development pipeline in Manhattan since the 1980s,’ said Keith DeCoster, director of real estate analytics at Savills Studley. ‘Older buildings — circa 1980s, 1990s — are having a tougher time competing.’”

The Real Deal on Florida. “When the development firm lead by condo king Jorge Pérez hit the brakes on Auberge Residences Miami, a three-tower, luxury project planned for Miami’s Arts & Entertainment District, South Florida’s real estate community took notice. When the king lays off the gas, that doesn’t usually bode well for others.”

“Q: Do you think that slow and steady is the new normal for South Florida? A: I would think that we will always be a city of bumps and highs, a little bit like a roller coaster. At heart, developers are cowboys. They like the business, and we try to control them, but I don’t have control. The good part about Miami is this huge international demand. The bad part about Miami is every time they [foreign buyers] come in, we also have developers coming in from Colombia and Argentina and they have these projects and we say, ‘Are they kidding? They don’t know the market.’”

“‘I’m not going to throw anyone under the bus, but you’re seeing some projects [where] I’m saying, ‘Even in a good market, these should not be developed. It does not make sense,’ and we’ll get some of those.’”