The Housing Bubble

A report from LA Weekly in California. “City Hall is well on its way to requiring developers to help pay for affordable apartments, the governor recently signed legislation that could lead to $4 billion in new housing funds, and a slew of new units downtown has goosed the vacancy rate and slowed rent increases. ‘One thing about global cities is they’re all expensive,’ says Richard K. Green, chair of USC’s Lusk Center for Real Estate. ‘New York, London, Sydney — you’ll never build enough to meet the demand of a successful city.’”

From the Los Angeles Times in California. “So far this year, rent growth has actually slowed in both Los Angeles and Orange counties. Richard Green, director of the USC Lusk Center for Real Estate, said that slowdown probably reflects a flood of new apartment buildings that have opened. But he doesn’t expect the trend to continue. ‘We think incomes are going to keep rising and we are not going to build enough,’ he said.”

From Downtown LA News in California. “The Downtown Los Angeles construction boom has produced a glut of new apartments, and despite a steady influx of residents, the community has seen its vacancy rate soar to levels not seen in decades. ‘Cuts in Class B units suggest competition at the top end of the market is trickling into middle-market product,’ RealPage analyst Bill Kitchens wrote last month. ‘Annual rent cuts are likely to persist through most of 2018 as operators continue to focus on filling units over pricing.’”

The San Francisco Chronicle in California. “We all know the San Francisco rental market is tough. In recent years, it has presented challengers for renters, but now it seems to be getting tougher for landlords. If the number of ‘move in specials’ is anything to go by, filling vacant units this fall isn’t as easy as it usually is. The National Real Estate Investor reported in July that ‘It’s probably impossible to overbuild San Francisco at large…..But it is quite possible to overbuild the high-end of the market, and weak rents and rising concessions suggest that developers may have succeeded.’”

The Wall Street Journal on Colorado. “A booming tech industry and strong job market have fueled an apartment-building frenzy in the midsize, mile-high city of Denver. Now, some local real-estate experts say the balance is shifting, with the supply of new housing matching or even exceeding demand. ‘They have totally overbuilt the luxury apartment buildings,’ says Christina Freyer Walker, the president of Colorado & Co. Real Estate.”

The Real Deal on New York. “Rental incentives — which landlords have been using all year to fend off increasing vacancy rates and dipping rents — are no longer working as they once were. In Brooklyn, the net effective median rent fell by 6 percent to hit $2,757 in September. That decline is largest drop since March 2015, according to the from Douglas Elliman report. As is the case in Manhattan, concessions are no longer keeping sliding rents at bay. ‘The market is drifting lower, and the next tool for landlords is going to be cutting prices,’ said Jonathan Miller, the CEO of appraisal firm Miller Samuel and author of the report. ‘We’ve reached the point where we are going to see more aggressive declines in face rents, just to get it in sync with the large amount of supply,’ Miller said.”

From Bisnow on DC. “With developers in D.C. planning and delivering multifamily projects faster than ever, its apartment rents continued to drop during the third quarter, although not in the neighborhoods experts predicted. After D.C. experienced a rare drop in rents during the second quarter — the first quarterly decline in two years and just the third since 2010 — that trend continued in Q3. The Columbia Heights/Shaw submarket, an established multifamily area, experienced a 4.1% decline in Class-A rents. Its vacancy rate now sits at 6%, the highest of any submarket in the District. The second-largest rent drop occurred in Central D.C., a submarket that includes Dupont Circle, Logan Circle and Mount Vernon Triangle, with prices falling by 2.4%. These submarkets still had the city’s highest average Class-A rents.”

The Baton Rouge Business Report in Louisiana. “Nearly four years after Shreveport-based Vintage Realty acquired a 20-acre tract adjacent to Perkins Rowe with plans to develop a multifamily complex, the Park Rowe Apartments, as the project will be called, is beginning to take shape. Developer David Alexander says he plans to start preleasing units by the end of the year. The Baton Rouge market for multifamily complexes has changed considerably since Vintage Realty acquired the tract in November 2013 for $6.5 million. Some 50 new apartment complexes have been completed since then, adding thousands of units to the market.”

“Nearly 3,000 additional new units in the ‘upscale/luxury’ category alone are currently under construction or have recently been completed. Acknowledging the competitive pressures, Alexander says he doesn’t believe the multifamily sector is overbuilt—at least not along the bustling Bluebonnet Boulevard commercial corridor. ‘I know there is concern about the student housing market being overbuilt,’ he says. ‘But we feel confident that being in Perkins Rowe with the amenities, restaurants and medical facilities; that’s a good source for our residents and we’re delivering a good product.’”

“Wesley Moore, an appraiser with Cook Moore & Associates, is more cautious in his assessment. ‘To me, it’s inevitable that the bubble is going to burst,’ he says. ‘That said, I can’t tell you I have seen any evidence of it yet.’”

The Dallas Morning News in Texas. “A third quarter scorecard for Dallas-Fort Worth’s real estate market shows some winners and losers. At the end of the third quarter, about 48,000 apartments were under construction in the D-FW area — down from almost 53,000 units at the recent peak of the market. In the third quarter net apartment leasing in the area added up to only about 400 apartments.”

“Through the first nine months of the year, net apartment leasing in D-FW is running almost 30 percent behind where it was in the same period of 2016. With more than 20,000 new apartments opening their doors in 2017, that’s not what D-FW landlords want to hear.”

From The Motley Fool. “Not long ago, I was talking on the phone with a well-known bank investor based in Dallas. Somewhere in the conversation, he told me he asks every banker he meets what he or she thinks about the state of the lending market. Are things getting frothy? Are banks lowering credit standards and making loans they shouldn’t? I had this discussion recently with a commercial real estate banker at the Minneapolis airport. Given how much time I’ve spent digging into Bank of the Ozarks over the past couple months, and the fact that it’s a major commercial real estate lender, I figured he may have run into it in the marketplace.”

“‘Have you ever heard of Bank of the Ozarks?’ I asked. ‘Yeah,’ he told me. ‘We can’t compete with them. ‘Why?’ I asked. ‘Because they make loans that we can’t,’ he answered.”

“‘Sometimes it seems like Bank of the Ozarks is the only show left in town, lending hundreds of millions to developers across the city amid a condo financing drought,’ wrote Katherine Clarke in April for The Real Deal, which covers real estate news in New York City. ‘Its aggressive approach has led some industry insiders to question whether the Arkansas-based lender is becoming overexposed to a downturn in the New York City condo market.’”

“‘Despite living 350 miles west of Nashville in Little Rock, Ark., [Chairman and CEO George] Gleason and his … Bank of the Ozarks have funneled more money into Nashville’s construction boom than any lender around in recent years,’ wrote Meg Garner for the Nashville Business Journal in April. Even ‘those in the development community warn that the city has too many apartments on the market.’”

“And in Miami the bank is developing a reputation as ‘one of the most aggressive in issuing construction loans to Miami condo developers.’ Now, again, it’s possible that nothing is amiss at Bank of the Ozarks, and that it hasn’t dropped its underwriting standards at all. Yet it seems unusual that so many sources from so many different places would all say the same thing: that Bank of the Ozarks is writing loans that are too risky for other banks. The implication is that it could run into problems if the commercial real estate market continues on its current course.”