September 21, 2017

When You Can’t Fill Units, The Price Has To Drop

A report from City Lab. “If renters paid just what they could afford in rent, the average household would have $6,200 a year more in their pocket to spend on groceries, childcare, medical care, and education—things one in five households have been skimping on to make rent. Collectively, that would amount to $124 billion that can help fuel economic growth.”

“These estimates of the 100 most populous U.S. cities come from a new analysis by the National Equity Atlas—a joint project by PolicyLink and the USC Program for Environmental and Regional Equity. ‘Renters are the lifeblood of cities,’ said Angela Glover Blackwell, CEO of PolicyLink. ‘If rents were affordable, renters could meet their basic needs like transportation, food, and child care and contribute even more to thriving communities. This would have a positive ripple effect throughout their regions.’”

The Mercury News in California. “The Bay Area’s brutal spikes in home prices have spurred more than half of its residents to dream of escaping from the expensive region, and the urge to flee is strongest among millennials, according to new poll results. The new Berkeley Institute of Governmental Studies Poll determined that 65 percent of the Bay Area’s registered voters and 48 percent of voters in California describe the issue of housing affordability as an ‘extremely serious’ problem.”

“‘The only folks who are cheering our region’s astronomical housing costs are the folks at U-Haul who are helping residents move right out of the state,’ said Carl Guardino, president of the Silicon Valley Leadership Group.”

The Salt Lake Tribune in Utah. “Real estate agent Kip Paul gets the question all the time: ‘Are apartments being overbuilt?’ With all the big apartment buildings going up in downtown Salt Lake City and Sugar House, it seems like a logical concern. Governments around the Salt Lake Valley issued 4,500 permits for new apartment units in 2016, the most since 1984. As of July, nearly 6,600 units were under construction in 35 complexes, and another 6,400 were in various stages of approval.”

“This scenario is good for owners of apartments and the contractors who build them, Paul said. As for renters, ‘if you can afford that top-line project, and you want something new and contemporary and are willing to pay for it, there are a lot of fantastic choices in Salt Lake with amenities you can’t believe,’ he said. ‘But if you’re a moderate or low-income person, these rising rents are hurting you.’”

“Because of the high demand, only 22 percent of the apartment communities surveyed by Cushman & Wakefield were offering incentives to entice people to sign leases. But more could be in the offing. With 13,000 apartment units projected to hit the market in the next four years, the report said, “the supply of new rental units could exceed demand by as much as 1,000 units by 2020 … which could result in a vacancy rate near 6 percent by year-end 2018.”

From AZ Big Media in Arizona. “Arizona’s housing market is getting more competitive leaving those at the lower end of the market struggling to compete, and many developers opting to build luxury homes and projects instead. Rental housing may be the next housing bubble to burst. ‘The problem is in renting, because people do not go through the underwriting process like they do when they are applying for a mortgage loan,’ said Mark Stapp, a real estate professor at Arizona State University’s W.P. Carey School of Business. ‘This leads to people getting in over their heads with rents they cannot afford.’”

“Landlords may be realizing they have outpriced many tenants, Stapp said. ‘When you can’t fill units, the price of rent has to drop,’ Stapp said.”

From Montana Kaimin. “One thing comes to mind when thinking of college houses and dorm rooms: Luxury. Affordability is of little concern to students at UM. More than half of renters spend over 30 percent of their income on housing, which the Missoula Organization of Realtors considers an ‘inadvisable’ amount. But since when were college students considered advisable?”

“But do not fear. If budget cuts force you to drop out, you can still live at ROAM, despite being touted unexceptionally across its website as student housing. According to the site’s frequently asked question of ‘Do I have to be a student to live here?,’ the answer is simply, ‘No, you do not.’ So don’t sign any extended leases on that overpriced shit hole you’re in now, because this time next year you could be the proud new tenant of a private, luxury, student (not limited to students) housing unit.”

The Daily Illini in Illinois. “Just last semester we celebrated a big anniversary for our University; it’s been 150 years of truly impacting the two cities which we span. With this in mind, realize how many ‘luxury’ student housing complexes have opened in the last decade. This summer, two new ‘luxury’ apartments were completed in time for Fall 2017 move-in, both within a block of each other.”

“But many are planned and operated by the same realtors, doing the most to make sure your money is in their pockets — even if that means using questionable construction practices to make sure their properties are built as quickly as possible before the next ‘hot property’ comes along. I am not calling out HERE apartments, but then again, their elevators never work and last year the elevator inspection sheets hung up were months out-of-date.”

“In fact, the ‘luxury’ apartment buildings are housing so many students that it is leaving many houses in ’senior land’ and Urbana vacant. The vacant houses in these areas go down in rent. Of course, I enjoy the amazing view, staring right at another apartment building through my window (ha). But I know I will do my best to convince my friends to live with me in a cute Champaign house next year because, if anything, I am never waiting 13 minutes (I timed it once) for an elevator at 8:00 a.m. on this campus ever again.”

From Bisnow on Illinois. “Conventional wisdom dictates the multifamily construction boom in Chicago will not last forever. So do the numbers: over 12,000 new apartments are being added to downtown Chicago’s inventory through 2019. A tipping point may be near in this development cycle. Fifield Cos. CEO Steve Fifield compared the growing confluence of factors to the apartment boom of the 1970s and ’80s. Developers believed that boom period would go on forever, but then the Cook County Assessor reclassified apartment complexes as commercial properties, which sent real estate tax bills skyrocketing 2.5 times overnight. ‘We’re taking for granted that this period will continue,’ Fifield said.”

“The problem is that those rent increases get passed down to tenants, who are already struggling to pay their monthly notes. Another indicator that a reckoning is coming is in the percentage of renewed leases. Fifield said retention rates at his firm’s apartments last winter fell for the first time in five years. Golub Executive Vice President Lee Golub said that with abatements on new lease-ups, like one month free rent, apartments have become a transient business for the renter. Golub has seen retention rates decline at some of his firm’s developments over the past two years, and said sometimes 35% to 45% renewal rates are seen as strong. With a growing inventory of new apartments, renters have opportunities to seek out favorable abatements to keep their costs down, and shop the market. ‘A real renter does not care where they are,’ Golub said.”

“JRG Capital Partners principal Harry Huzenis said the length of the development cycle and changes to the ARO are negatively affecting land pricing. He believes Chicago is in the late innings of the cycle, judging from the number of apartments in the pipeline, flat downtown rent increases, and vacancies in submarkets where there were waiting lists a couple of years ago. ‘You cannot get bigger units rented,’ Huzenis said.”

The Milwaukee Business Times in Wisconsin. “It was surprising to hear the recent announcement that Bartolotta Restaurant Group will end its partnership with Phoenix Hospitality Group for four restaurants at The Mayfair Collection development in Wauwatosa. The first of those restaurants, Osgood’s, opened less than two years ago. The move raises an interesting question. After several years of a boom of new restaurants in the Milwaukee area, is the market now oversaturated? Several new restaurants have opened in the area in recent years, and a slew of additional new restaurants are on the way.”

“Speaking of closures, Associated Banc-Corp recently revealed that 36 bank branches will be closed and their operations consolidated with nearby branches in its acquisition of Bank Mutual Corp. Brick-and-mortar branches are becoming a smaller part of the banking business. So who is going to make use of the 15 vacated branch buildings? It is going to be hard to find banks to absorb all of them. Restaurants are another option but, again, how many more of them can the market support?”

“Another sector showing signs of oversupply in the area: hotels. Several new hotels have been built in recent years downtown and in the suburbs, and more are under construction or being planned. Occupancy rates have dipped this year. Case in point, the Park East Hotel near downtown Milwaukee was recently sold to developers who plan to convert it into an apartment building. But apartments are another sector that has been built up in recent years, especially downtown. Two of the area’s largest multi-family apartment developers have indicated they are tapping the brakes on additional downtown projects, for now.”