The ‘If’ That Has Entered The Room
A report from Southern California Public Radio. “With downtown Los Angeles seeing a vacancy rate that’s three times higher than the rest of the city, landlords are ratcheting up the competition for tenants. Nina Hu and her husband ended up going with a one-bedroom loft at G-12 Apartments, which opened this spring in the South Park district. Between six weeks of free rent and a year of free parking, they’ve saved more than $4,500. Move-in specials, though, have not enticed enough people to fill the new apartment building, which Hu said sits more than half empty. ‘Everyone that I know loves downtown, but I still don’t see that many people rushing downtown to fill up all these spaces,’ Hu said.”
“Thanks to a wave of market-rate rental construction, supply has outpaced demand downtown since 2014. The vacancy rate now hovers around 12 percent — the highest recorded by real estate research firm CoStar Group since 2000. The result has been thousands more luxury apartments than there are renters. CoStar senior market analyst Steve Basham said that in the last several years, landlords have been ramping up concessions to lure tenants. Basham said the high rents are why apartments aren’t filling up faster. ‘The stuff that’s being built right now is really targeting the very top of the renter’s pool,’ Basham said. ‘The majority of the renters in L.A. are not going to be able to afford that.’”
“Basham said vacancies could keep growing next year, while rents could slow — and even drop —as more than 4,000 new apartments come online.”
From Bloomberg on New York. “Manhattan’s construction boom has crowded the borough with so many apartments that even in a month where leasing hit a record, the vacancy rate climbed. ‘It really does show just how much inventory there is out there,’ said Hal Gavzie, who oversees leasing at Douglas Elliman. ‘Yes, we have so many leases being signed — and yet, you still have so many options for customers out there.’”
“With builders still churning out new apartment towers, and condo investors listing their units for rent, there’s more than enough for renters to choose from. Manhattan had 7,497 apartments listed for rent at the end of August, or 31 percent more than the monthly average since Miller Samuel and Douglas Elliman starting keeping the data in January 2008. ‘We’re going to see prices come down a bit as these landlords get concerned about filling the vacancies before the winter,’ Gavzie said. ‘Nobody wants their apartments vacant in November.’”
From Curbed New York. “In Brooklyn, more than 20 percent of all leases had some kind of concession, leading the net effective median rent to drop for the fourth consecutive month. In Queens, the landlord concessions market share was five—yes, five!—times higher than last year, rising from 8.7 percent to 44.7 percent. Inventory was also up 12 percent over the same time last year, with year-over-year increases for the 22nd time in 24 months. And yes, those two things are related: ‘Because 43 percent of all activity is new development, the crush of new supply requires significant concessions,’ explains Douglas Elliman, numbers whiz Jonathan Miller.”
From Chicago Magazine in Illinois. “The 94-story skyscraper, one of the most ambitious residential developments in Chicago since the housing bust, has it all: 21 multimillion-dollar penthouses, a huge foreign investment, and a design by starchitect Jeanne Gang. It’s also got a Chinese developer with an uncertain financial future. The main developer’s Chinese parent, Dalian Wanda Group, has been doing a lot of restructuring. What’s that all about?”
“The Chinese government seems to be pressuring large conglomerates to reduce debt and trim foreign investments perceived as risky. Dalian Wanda, a giant, has the kinds of bets on real estate and entertainment the government appears to be checking. The company sold off billions of dollars in assets this summer, including most of its hotels. And in August, it flipped control of Vista Tower from a publicly listed company to a private one, meaning that potential condo buyers in Chicago will have a harder time divining the developer’s financial strength.”
“The Chinese government has been pressuring banks to decrease lending for big overseas property investments. Vista Tower has a $700 million construction loan from a midtier Chinese bank that has a portfolio heavy with nonperforming debt. If Vista’s loan falters or the Chinese government compels the bank to scale back, the project or its bank might be forced to find a new lender to keep money flowing to contractors. That could cause delays.”
“Linda Greenberg, a prospective buyer from Chicago who toured Vista Tower, says an agent told her that many of the upper floors are reserved for wealthy Chinese buyers. Magellan reports that 38 percent of the residential units are under contract, as of August. It also says that around one-third of the buyers are foreign and 10 are Chinese—but that number could be misleading. Often, foreigners purchase in the United States through shell companies in other countries, such as the Cayman Islands. It is also impossible to know how many Chinese buyers are in for multiple units.”
From KUON in Washington. “Until last week, Seattle’s growth looked endless and predictable. Amazon was hiring at a fierce pace, and planners were struggling with housing and transit needs that are a consequence of all the new jobs. But with Amazon’s announcement that it will build a second headquarters elsewhere, bets about the future of Seattle’s growth are off. Because we lack sufficient housing for the people who have already moved here, says Diane Sugimura who was head of Seattle’s planning and development department until she retired last year, Amazon’s plan to grow somewhere else will not take rents and prices down soon.”
“‘I think it’s still going to be awhile because there are so few houses for sale. And there’s still a gap in terms of those housing units, and my guess is developers will probably try to get that next project done before things start slowing down. If they do,’ Sugimura said. It’s that ‘if’ that has entered the room, where before it wasn’t there.”
