September 4, 2017

A Lot Of Investors Aren’t Happy

A report from the Business Insider. “An inconvenient math for housing is beginning to dog Chicago: The third largest city in the US has been losing population for years. Since 2012, nearly 26,000 multifamily rental units have been completed in the city, according to Fannie Mae, which for 2017 sees ‘elevated volume of new supply, particularly in the Loop/River North/Gold Coast submarkets.’ This does not include condos and single-family homes that were bought by investors and have reappeared on the rental market. Over the same five-year period, Chicago’s population has dropped by 9,000 people.”

“According to Zumper’s National Rent Report for August, the median asking rent in Chicago dropped by 13.7% year-over-year to $1,510 for a one-bedroom apartment, and by 15.7% to $2,200 for a two-bedroom. From their peaks in late 2015, asking rents have plunged 26% and 17% respectively. These are asking rents in multifamily apartment buildings. Single-family houses or condos for rent are not included. And they do not include incentives, such as ‘one month free’ or ‘two months free,’ which effectively slash the rent for the first year by another 8% or 17%.”

“In San Francisco, the most expensive major rental market in the US, the median asking rent for a one-bedroom apartment dropped 1.5% year-over-year to $3,390 and is down 7.6% from the peak in October 2015. For a two-bedroom, the median asking rent dropped 5.0% year-over-year to $4,560 and is down 8.8% from the peak. In New York City, the median asking rent for a one-bedroom dropped 8.9% year-over-year to $2,850. For two-bedrooms, it dropped 8.3%. Measured from the peak in March 2016, asking rents — not including incentives — have plunged 15% and 20%.”

“In formerly red-hot Oakland, which received the San Francisco housing refugees, median one-bedroom and two-bedroom rents plunged 16% and 14% from their peak. And Honolulu, with an 18% and 23% plunge from the peak, nearly rivaling Chicago.”

The Herald Tribune in Florida. “Multi-family housing has been on a hot streak throughout Southwest Florida. Rental real estate here has drawn investors from New York to California, as well as local buyers. Ian Black Real Estate has handled four multi-family deals during what its owner called ‘a very busy summer,’ with $15.6 million in sales in complexes totaling 156 units.”

“‘Demand from buyers is as strong as ever and shows no signs of abating,’ said Ian Black, head of the Sarasota-based firm. ‘Most of our sales are to local privately funded investors due to the size of the complexes. Our buyers are typically well funded and, in a lot of cases, are reinvesting sales proceeds to defer taxes. No question that sellers who have owned complexes for a number of years are recognizing it is a good time to sell and become liquid in the event of a market correction.’”

“The flurry of sales of existing complexes, some of them decades old, comes as developers are building or have plans for more than 1,700 new rental housing units in the city of Sarasota, plus several sizable new complexes closer to I-75. Rent increases appear to have slowed down. Industry players are watching to see whether the new apartment communities coming on line will impact sales of older complexes. ‘The jury is out on the question,’ Black said. ‘The big question is the depth of demand for not only the new complexes downtown but in the region and may well have an impact when you increase supply over demand.’”

From OU Daily in Oklahoma. “OU moved 30 freshmen into empty rooms in the new Residential Colleges as unoccupied apartments and rental houses around campus continue to linger on the market. The inclusion of freshmen in the Residential Colleges comes at a time when the university is competing with other upperclassman rental options in a market where there is a surplus of student housing. OU also announced a public-private partnership in July for more on-campus housing that is currently under construction.”

“Norman-based realtor Brian Eddins said he believes this surplus stems from an overdevelopment of rental apartments in the area, which has decreased demand for traditional rental houses. Older apartment complexes in Norman have also felt the strain of this housing surplus. Cindy Martinez, leasing manager for the Crimson Park apartment complex, said the complex is at 71 percent occupancy — less full than last year. Amanda Barth, leasing manager at Millennium Apartments, said Millennium has a current occupancy of 55 percent. Millennium opened in 2015.”

“‘I do think the opening of the Residential Colleges and Callaway House played a part in (the competition),’ Barth said. ‘I just think there’s a lot of cheap housing options coming up.’”

“Eddins said he predicts more students will return to renting properties near campus as these new housing options wear down over the years. ‘I can’t blame OU for getting into the real-estate business,’ Eddins said. ‘I know there are a lot of investors in town who aren’t happy about it.’”

From San Francisco Curbed in California. “At last, rents are really dropping in San Francisco, at least on this one block. Change is in the air at 570 Jessie in SoMa, and not just because it’s a new building. Last time this place popped up on Comparisons less than two weeks ago the advertised price was $3,750/month for a one bed, one bath apartment. This week, all of sudden, new ads pop up with a whopping discount down to $2,850/month. Is it a scam? Leasing agent Kory Powell-McCoy tells Curbed SF no. ‘We decided to do a little restructuring of the pricing to get things moving,’ says Powell-McCoy.”