July 10, 2017

We Were All In It To Win It

A report from the Orange Country Register in California. “Apartment buildings are a hot commodity in Southern California these days, with transactions tripling since the recession and sale prices steadily climbing. In many cases, new ownership can be a blessing, bringing upgrades, renovations and new amenities, like fitness centers, storage, dog parks and barbecues. But often, they’re a curse, with rents tending to go up once a complex changes hands. ‘On a risk-adjusted basis, (the apartment sector) is the best asset in real estate,’ Douglas Bibby, president of the National Multifamily Housing Council, said during a break at the state builders conference in San Diego last month.”

“With higher prices come lower returns. To offset that, investors are looking for buildings with a significant upside — called a ‘value add’ in industry parlance. ‘When you’re buying today, and you pay (today’s) prices and your tax rates go up, then … you have to raise rents,’said Tyler Leeson, a broker with Marcus & Millichap’s Irvine office. Leeson said he has closed 41 apartment transactions this year so far. ‘It’s like any investment,’ Leeson said. ‘Very few people invest in anything that won’t go up.’”

The Miami Herald in Florida. “Since so much of the new construction — from Wynwood’s upcoming micro-units to fancy rentals in Midtown and Brickell — is being priced at market rates, there is concern that the rental market could end up mirroring the overstocked luxury condo market, with prices too high for the average household to afford. Research analyst Elizabeth La Jeunesse, who authored the study, says Miami ranks third in the nation in lowest percentage of rental units under $800 a month — only 16 percent — and saw a loss of 20,000 rentals in that price range over the past 10 years, or a total decline of 13 percent.”

“The supply of high-cost rentals ($2,000 and up) more than doubled, with more than 50,000 units coming to market — an increase of 148 percent over the past decade. Meanwhile, the median household income in Miami-Dade remains flat at $41,913 — one of the lowest in the U.S. ‘You have a lot of developers who came out with condo projects and converted them into rentals because they saw the sales market was softening,’ said Jerome Hollo, executive VP of Florida East Coast Realty.”

The Press Herald in Maine. “The developer behind a 63-unit housing project in Portland has changed course, deciding to sell the units as condominiums rather than rent them as apartments. Vincent Veroneau, president and chief executive officer of J.B. Brown & Sons, said the decision to redirect the project at High and York streets was made mostly because other apartment projects have absorbed some of the pent-up demand.”

“It’s the latest example of aborted plans to add rental housing units in Portland, and suggests the city’s rental construction boom may be slowing after an infusion of apartments aimed mostly at the high end of the market. ‘We sort of felt the market-rate housing has been somewhat satisfied with other projects,’ Veroneau said.”

The Houston Chronicle in Texas. “Apartment rents in Houston and several other area cities declined in June compared with the same month a year earlier, moving in the opposite direction of rents in Texas and nationwide, according to Apartment List. Seven of the largest 10 area cities tracked by Apartment List saw year-over-year drops in rent in June, with Conroe falling by 3.7 percent and Spring showing a 3.6 percent drop.”

From D Magazine in Texas. “With over 50,000 apartment units currently under construction in North Texas, the multifamily market is heating up like Texas summer temperatures. Renters now have more choices than ever and apartment communities are having to rethink their approach to sales and marketing. With the immense amount of data available, we’re able to paint a detailed picture of our residents’ lifestyles: their preferences, where they go, and sometimes even their coffee order. You have all the information you need to engage in a reciprocal conversation. Yet, with all this information, I still see the industry telling audiences what to do (’Lease now! Get your first month free!’).”

The Dallas Morning News. “As black-coated waiters hurried about, Richard Tettamant sat near the head of a long table inside the Park City Club, where Dallas elites gather to talk business. The luncheon had drawn a couple of dozen consultants and money managers who, over plates of corned beef and roasted ham, heard about the real estate outlook for 2017. An executive of Ethika Investments, for whom Tettamant now worked as an adviser, gave the presentation.”

“At 65, Tettamant was in his element. For two decades, he’d served as the administrator of the Dallas Police and Fire Pension System and mingled with power brokers at events just like this. He billed himself as a visionary investment strategist for whom average returns would never be good enough. But today, after the public disclosure of a federal grand jury probe into the pension’s investments, Tettamant is deflecting blame and recasting his role as an official with little real authority, who simply carried out the instructions of a powerful board.”

“There is plenty of blame to go around for the pension’s near implosion. Board members whose votes determined the final say. Police officers and firefighters who elected them. City Council members who sat on the board but often missed meetings. Outside investment managers, consultants and auditors who gorged on fees while enabling bad decisions.”

“For many years, he succeeded. In 2003, the pension had an investment return of 31 percent, ranking it best performer among similar funds. During the next few years, in the frenzy of the housing bubble, the fund embarked on a massive expansion of its real estate holdings. It invested in thousands of acres of raw land in Idaho, a resort and vineyard near Napa, ultra-luxury houses in Hawaii.”

“‘The way they have demonized Richard, I think that’s completely unfair,’ said retired police Sgt. Rector McCollum, a former pension board member. ‘We were all in it to win it. We did great for years.’ The housing crisis, he said, ‘pulled the bottom out of the country, much less the Dallas police and fire pension.’”