July 30, 2017

The Ongoing Positive Economic Cycle Raises The Question

A report from the New York Post. “Is the private sector allowed to do anything anymore? For nearly 80 years, Washington has subsidized homeownership — creating massive distortions both in house prices and in what neighborhoods look like. Now the feds will subsidize rental homes as well — expanding government control over even more of the economy. Freddie Mac wants to provide $1 billion to medium-size landlords for rental housing, the New York Times reports. This just a few months after Fannie issued its own $1 billion guarantee for Blackstone, a huge rental property owner. The big picture is the definition of a reasonably functioning free-market economy: If you want to buy a house, you should be able to find someone willing to lend you the money to do so, provided you have the resources to repay the loan.”

“If you want to rent an apartment, you should be able to find someone to rent you an apartment, whether you can afford modest rent or high rent. Likewise, the apartment owner should be able to find a lender, based on your rental income. The government should target subsidies only to people who can’t work because of disability or age, and give temporary help to others — not declare the entire market broken and take over.”

The American Statesman in Texas. “In a good sign for Austin apartment dwellers, the metro area’s average apartment rental rates slowed their swift rise in the first half of the year as supply began to catch up with demand, industry experts say. The overall occupancy rate dipped slightly, averaging 93.3 percent across the metro. Over the past six months, 4,136 apartment units came online, and a net of almost 2,400 units were leased, which caused the decline in occupancy, said Charles Heimsath’s Capitol Market Research, which tracks the apartment market.”

“RealPage, a rental housing technology and analytics firm based in Richardson, shows that ongoing construction has slowed to about 15,200 units, down from a recent high of 19,000 to 20,000 units. But the oncoming additions still translate to aggressive growth of 6.6 percent in Austin’s supply of new apartments, said Greg Willett, chief economist for RealPage. Sam Radbil, Abodo’s senior communications manager said that the region’s slower job growth ‘could keep rents in check, as developers and property managers attempt to keep vacancies at a minimum. No one wants an empty luxury apartment building,’ Radbil said.”

From San Francisco Curbed in California. “Rental site Zumper released some figures this week comparing Bay Area cities in terms of median rents compared to one another and to the same time last year. The results—rents are down significantly year over year almost everywhere. Redwood City is down 10.5 percent ($2,970/month). Palo Alto ($2,720/month) is down 1.8 percent year over year. Moving up the peninsula, South San Francisco and Burlingame are both down as well ($2,410/month, minus 10.7 percent and $2,350/month, minus 13.9 percent respectively).”

The Longmont Times Call in Colorado. “Construction has stopped suddenly on an apartment complex east of Longmont after a change in contractors and revisions to the foundation plans. Work on Springs at Sandstone Ranch, a 240-unit development, has ceased for the time being. A visit to the site showed three partially-constructed buildings. The walls on one were lilting precariously, and weeds had grown up around the foundation. Workers at a nearby project couldn’t recall how long the site had been dormant. A security guard at the property declined to answer questions.”

“The developer of the project is Wisconsin-based Continental Properties. Officials for the company did not respond to multiple requests for comment. It’s unusual to see projects halted for foundation issues, said Longmont developer Keith Burden. ‘I can’t recall a time I’ve ever seen that,’ he said.”

The Star Tribune in Minnesota. “A Hennepin County judge has appointed an administrator to oversee 17 apartment complexes owned by a Minneapolis landlord under fire by tenants and city regulatory authorities. The receivership covers more than a quarter of Stephen Frenz’s properties in Minneapolis and includes 436 apartment units. The order was issued by Hennepin County District Judge Mel Dickstein, after a mortgage lender initiated a rare foreclosure action, largely over allegations that Frenz failed to disclose that Spiros Zorbalas, who was banned by the city from owning apartment properties in Minneapolis, had a financial interest in Frenz’s buildings.”

“A foreclosure over misrepresentation of ownership ‘is very unusual,’ said Larry McDonough a Dorsey & Whitney attorney who wrote the law creating housing courts in Hennepin and Ramsey counties. ‘Foreclosures are almost always about nonpayments’. Frenz’s company, National Housing Fund, took out a $26.5 million loan on the properties in 2014 and did not make a March payment, putting him in default, but the lenders focused on the allegation that Frenz reneged on a pledge to not make Zorbalas an owner.”

“Nathan Morda, who rents a studio apartment from Frenz in a building facing foreclosure, said he was optimistic that a new receiver could lead to repairs. He said his apartment has mice and insect infestations, mold and plumbing problems and is not warm enough in the wintertime. ‘These buildings need a thorough upgrade,’ he said.”

The Banker and Tradesman in Massachusetts. “Rising construction costs and a slowdown in the luxury rental market may accomplish what neighborhood opposition could not: put the brakes on a 44-story apartment tower in Boston’s West End. Developer Equity Residential is taking a wait-and-see attitude on development sites in coastal markets, CEO David Neithercut said.”

“‘We’ve got some sites that we currently have in L.A. and in the Bay Area and in Boston that we could do something on but we’re not going to pursue those very aggressively at the current time,’ Neithercut told analysts this week during a conference call to discuss the company’s second-quarter quarter earnings. ‘The teams continue to work on them, but we’ll just sort of see how things play out.’”

“Equity Residential owns 23 apartment communities in Greater Boston totaling approximately 6,103 units with average rents of $2,941 and an occupancy rate of 95.7 percent as of June 30. Executives have said they are monitoring potential headwinds in the local multifamily market because of rapid development in Boston and Cambridge, with three-quarters of the new supply competing against their existing properties.”

From Bisnow on Massachusetts. “A leading Boston developer says a limited supply of high-end condos in the market is behind his firm’s push for condo conversions at its latest residential development. HYM Investment Group’s decision to convert 118 apartments into 55 condominiums at its Bulfinch Crossing residential tower comes as thousands of market rate rentals are poised to hit the market and several developers shift to offer for-sale units.”

“About 12,000 market-rate residential units are expected to hit the greater Boston market in 2017, according to the Q1 2017 NAI Hunneman Metro Boston Multifamily report. The current 2.5% vacancy rate is still below the market’s average over the last five years, and the number is only expected to moderately increase with all the new supply. The ongoing positive economic cycle still raises the question of whether the city is post-peak pricing and heading for a crash.”

“Boston’s diverse economic portfolio and attractiveness to foreign investment are constantly cited as to why the city is in a great position, but, with eight years since the last recession, it seems logical the city is overdue for a crash even if Boston’s condo market is a new revenue stream. ‘I’m a developer, so we see nothing but blue skies and sun,’ HYM Investment Group founding partner and managing director Thomas O’Brien joked. ‘There is a cycle of things, and we’re in a part of the cycle where we have to be mindful of a recession looming.’”