October 9, 2017

A Race For The Bottom

A report from NBC Montana. “The city of Missoula has issued more than 1,100 building permits so far this year and residents hope it will even out rent prices. New Missoula residents Carly and Greg Hill moved to the Garden City for law school with the hope of finding affordable housing. The Hill family found many vacant places to rent but struggled to find a place with adequate space and an affordable base rent. Greg Hill said they eventually decided to buy a place instead. Now, they look at their new home as an investment. ‘Even though we are only going to be here a few years we can sell this place and kind of get our money back but rent will be cheaper,’ Greg Hill said.”

“As for others moving to Missoula in the near future, Greg and Carly Hill recommend looking at as many places as possible, because there are a lot of options.”

From The Tennessean. “On July 24, the Gallatin Municipal-Regional Planning Commission did not recommend approval of a resolution to approve an amendment to the plan, and on Aug. 15, the council requested additional discussion on the amendment for Hunter Pointe which includes Hunter Pointe Apartments. After a public hearing was held, the council voted to approve the amendment on first reading, and on Sept. 19, voted to approve the second reading, 6-1. Gallatin Mayor Paige Brown expressed concern about the ‘overall swell of apartments coming in here.’”

“Although growth is inevitable, Brown expressed concern about the possibility of an over-saturated market down the road. Overbuilding could eventually lead to lower rents and less maintenance on those properties, she explained. ‘Right now these are nice expensive apartments, but that could decline over time,’ she said.”

From Business Den in Colorado. “The standard one bedroom at Archer Tower Apartments in Capitol Hill rents for $1,440 a month, unless tenants plan on listing their unit on Airbnb. Then they get a discount, and get to run a little side-hustle with their landlord’s blessing. The 300-unit building has been telling prospective tenants on Craigslist to ‘reduce your rent with Airbnb!!!’ Commit to listing your one bedroom on Airbnb for 10 days a year, the ad says, and your monthly rent becomes $1,380. Commit to 60 days, and rent drops to $1,075, a 25 percent cut. A similar ad can be found for studios.”

“Most other Craigslist rental ads that mention Airbnb say it’s prohibited. The San Francisco-based online marketplace has had a testy relationship with landlords, who tend to be suspicious of the service, which brings people they don’t know into their units for short-term stays. Earlier this year, Denver-based Apartment Investment and Management Co., one of the country’s largest owners and operators of apartments, sued Airbnb, saying the company helped its tenants violate their leases.”

From Banker and Tradesman in Massachusetts. “Yes, Boston has seen a surge in luxury condo and apartment development over the past few years. But more luxury units are not the reason middle-class families are moving out of the city. Rather, the culprit is a long-term shortage of housing that built up over the ’70s, ’80s and ’90s, when few new apartment and condo developments were built in Boston. The new construction that has taken shape over the last two decades has helped satisfy some of that pent-up demand, and there’s some evidence that it is moderating or even bringing down rents in older units in other parts of the city.”

From the Real Estate Journal. “Rents have risen at differing rates from September to October across the country. In Lincoln, Nebraska, median rents dropped 4.7 percent from September to October, the fourth biggest drop in the country. In fifth place came Lexington, Kentucky, where median rents fell 4.3 percent, just ahead of sixth-place finisher St. Paul, Minnesota, where the median monthly rent of a one-bedroom apartment fell 3.6 percent. St. Louis also appeared on the list of biggest percentage rent drops. The median one-bedroom rent here fell 2.8 percent from September to October, the ninth biggest drop in the country.”

From Crain’s New York. “A group of developers has secured a $215 million loan to finance construction of a 27-story condo tower at 537 Greenwich St. A partnership between Strategic Capital, Forum Absolute and Cape Advisors received the debt from Bank of the Ozarks to help fund the 170-unit tower. Construction loans for high-end residential condo development have been more difficult to secure as concerns have lingered about an oversupply of units. Residential market data for the third quarter depict a buyer’s market in which sellers in Manhattan have had to discount asking prices by an average of 6%. One in three sellers cut their asking price to sell their apartment or townhouse.”

“Bank of the Ozarks has been one of the busiest construction lenders in the city in recent years, pouring hundreds of millions of dollars into development deals as other major lenders have pulled back. In July, however, Dan Thomas, head of the bank’s real estate lending group, suddenly resigned, plunging the company’s stock by almost 12% and stoking questions about whether there are problems in the bank’s portfolio of loans and if it might pull back on lending in the city.”

From The Real Deal on Florida. “Condo developers have been markedly quieter these days, holding off on any new launches as the supply of preconstruction condos slowly gets absorbed in South Florida. Gil Dezer of Dezer Development, for example, hasn’t made moves on his next luxury condo tower in Sunny Isles, which he previously planned to launch earlier this year. He completed Porsche Design Tower last year, where a number of buyers are now looking to flip their units.”

“Behind closed doors, developers and agents are negotiating pricing on a case-by-case basis, insiders tell TRD. And across the region, sellers are finally adjusting their prices, leading to more transactions. In some areas, like Brickell and the barrier islands, the industry is bracing for a flood of new construction to hit the market as projects get completed. Together, Bal Harbour, Surfside and Bay Harbor Islands are already facing more than three years of luxury condo inventory, and that excludes preconstruction units, according to a recent report from Condo Vultures Realty.”

“In South Florida, nearly 48,000 condos have been proposed, planned, delivered or are under construction since the start of this cycle.”

The Dallas Morning News in Texas. “A big chunk of North Texas’ building boom is apartments. For the last few years, the Dallas-Fort Worth area has led the nation in new apartments. More than 100,000 new units have opened their doors in the last four years. And average rents in the area have jumped by almost 30 percent since 2012. While there are still almost 48,000 rental units under construction in the D-FW area, a slowdown in rent growth and soaring building costs are likely to tamp down the hot apartment building market in the coming year.”

But don’t expect a crash in the rental market. ‘We’ve got the jobs that keep churning in this town, and we continue to be underserved in apartments,’ said Bradley Miller, president of builder Encore Multi-Family LLC. ‘Yes, there is a boatload of high-end apartment product coming through the development pipeline. It will be interesting to see what happens with that.’”

“With only 5 percent of the D-FW apartment market vacant, it’s hard to get too worked up about a slowdown. ‘Vacancy rates are still low,’ said Jay Denton with RealPage. ‘Apartment demand is pulling back a little bit because job growth is not quite what it was.’”

The Bisnow on Texas. “Checking off apartment properties as profitable does have its challenges in San Antonio, said Angelique Goodnough, an executive vice president at Roscoe Properties. The challenge for Roscoe, with 13 apartment complexes in the San Antonio area, is twofold: strong candidates for professional management jobs and residents that can easily afford the housing shadow market.”

“Goodnough said 97 multifamily properties have been proposed over the next two years in San Antonio. Several thousand apartment units will be coming online in the next 24 to 36 months. But they will face stiff competition for occupants from the single-family market. The median price of a house in San Antonio is $170K. The median price in Austin is $376K. San Antonio families want larger units in the suburbs, Goodnough said. ‘If you can get a three-bedroom house for $1,500 a month, that puts a cap on what you can get for a three-bedroom that’s well amenitized,’ Goodnough said.”

“Traditional strategies to draw prospects, such as concessions, do not work in a market where the profit margin is as thin as San Antonio, Goodnough said. ‘When you have properties performing with concessions between 8 and 16%, that’s just a race for the bottom,’ she said.”