November 1, 2017

Dropping Prices And Changing Up The Terms

A report from the Washington Post. “Average rents at the District’s higher-end apartment buildings have turned lower over the past year, research firm Delta Associates found, as a surge of new projects in the Southwest Waterfront area brings fresh competition to recently gentrified neighborhoods in the middle of the city. The declines were strongest in the Shaw and Columbia Heights neighborhoods, where rents fell by 4.1 percent. The area that includes Logan Circle and the 14th Street corridor experienced a 2.4 percent decline in Class A rents.”

“It was the second quarter in a row that the research group reported falling rents, suggesting the trend could have some staying power. Bob Murphy, chief executive of District-based MRP Realty, said real estate investors are less eager to sink money into ambitious new projects as a result. Funding new construction ‘is going to be much more selective and difficult,’ Murphy said. ‘If you talk to anybody who’s building [downtown], years ago you wanted north of a 6 percent return. Now you never see that anymore.’”

From the Daily Mail on New York. “A grand plan once spearheaded by Jared Kushner to rescue the biggest deal in his career by razing a Fifth Avenue skyscraper and building luxury apartments in its place is all but dead, the co-owner of the building said. The comments from Vornado Realty Trust CEO Steven Roth suggest that Kushner’s most ambitious purchase will continue to bleed money - tens of millions a year - as a deadline for repayment of the giant mortgage on the office building nears. Adding to the troubles, the luxury condo market has shifted recently, undermining a key assumption behind the raze-and-rebuild plan. There is a glut of luxury apartments in Manhattan now, prices are falling and they are taking longer to sell.”

From The Real Deal on Florida. “As Miami’s condo market lags, developers are working hard to sell their remaining inventories and looking long term when it comes to completing major projects like Miami Worldcenter. In 2010, ‘there was a lot of need and a lot of demand and we all thought it was going to last for a long time,’ said Edgardo Defortuna, president and CEO of Fortune International Group. The slowdown has sent developers to other foreign markets in search of buyers, like Turkey, Europe and China. Latin Americans still consider Miami a safe haven for investment, but ‘the perception today is the urgency is not that much anymore,’ Defortuna said.”

“Finding construction financing for Paramount, the luxury condo component of Worldcenter, was especially challenging. ‘There’s never a bad real estate cycle as long as you have time and no debt,’ joked Art Falcone, managing principal of Encore Capital Management.”

The Bend Bulletin in Oregon. ” In the past few months, Bend rental-property managers have gone from managing waiting lists to offering discounts in order to get signed leases. They attribute the slowdown to a surge of newly available apartments. ‘We’re starting to get really competitive,’ said Andee Jesse, owner of A Superior Property Management Company LLC, which manages 400 single-family houses and several multifamily properties. ‘We’re dropping prices, and we’re changing up the lease terms.’”

“That’s a big change from just six months ago, when vacancies were scarce, and rents were rising. From Jan. 1, 2016, through Oct. 4, Bend saw 695 new apartments completed, according to the city’s Community Development Department. A few properties on A Superior Property Management’s website advertise a ‘new lower price!!!’ Two of the price-reduced rentals are single-family houses, one in Redmond and the other in La Pine. Two others are in Bend: A one-bedroom, one-bathroom house off NW 14th Street is listed at $1,295 a month, while a four-bedroom, three-bathroom house in NorthWest Crossing is listed at $2,500 a month.”

“‘Right now it’s more of a renter’s market than it has been in a long time,’ Jesse said.”

From Bisnow on Texas. “Thousands of displaced homeowners in the aftermath of Hurricane Harvey resulted in a quick turnaround for the struggling multifamily sector. Houston posted more than 9,000 units of positive net absorption in Q3 alone, according to CoStar data. But multifamily investors and developers are worried the market’s rebound may disappear just as quickly. ‘We’ve seen an uptick in velocity. We were doing about two-three leases a week, now we’re looking at five-six, but we’re still giving away concessions,’ said Allied Orion Chief Investment Officer Ricardo Rivas.”

“Alliance Residential Managing Director Cyrus Bahrami, behind the redevelopment of the Heights Waterworks, is worried about supply reappearing. ‘There’s a lot of unknowns on both the income and the cost side. Harvey took 15,000 units off the market, what happens when they come back online in nine months?”

The Denver Channel in Colorado. “The cost of renting in Denver has dropped for the second month in a row according to the latest data from rental listing site ApartmentList. Lone Tree, which has the most expensive rents in the metro, also saw the biggest decreases last month with rents down 1.7 percent.”

From the Arizona Republic. “A larger share of renters are ousted from their apartments in the Phoenix area than in any other major U.S. metro area except for one. Only Memphis ranks higher in rental evictions, according to the national research firm Apartment List. ‘We estimate an eviction rate of 5.9 percent for the Phoenix metro,’ said Chris Salviati, housing economist for Apartment List. ‘We have found that evictions are most prevalent in metros that were hit hard by the foreclosure crisis and have high rates of poverty.’”

“Many studies, including this one from Apartment List, show evictions are the leading cause of homelessness. Rapidly rising rents in the Valley during the past few years has made it more difficult for many renters. Nationwide, one in five renters was unable to pay the rent in full for at least one of the past three months, according to the survey.”

From Bloomberg. “On the shores of California’s San Francisco Bay, sizzling job gains have slowed down since 2015 to something pretty … average. My Bloomberg View colleague Conor Sen noted this Silicon Valley slowdown last month. One reason for it is pretty clear: Metropolitan San Jose and San Francisco are the two most expensive housing markets in the country, with median home sales prices in the second quarter of, respectively, $1.2 million and $950,000, according to the National Association of Realtors.”

“So I was curious: What if we looked at all 10 of the large metropolitan areas that score worst on the NAR affordability index? These are, in reverse order of affordability, San Jose; San Francisco; Los Angeles; San Diego; Miami; Riverside, California; New York; Seattle; Portland, Oregon; and Denver 2 — let’s call them, collectively, Expensivia (-ia seems to be the most common ending for fictional-country names). Does employment growth there show the same pattern?”

“Yes, it does show the same pattern, just a little less dramatically. 3 And yes, I checked to make sure that this phenomenon isn’t being driven by San Jose and San Francisco — exclude them from Expensivia, and the chart barely changes.”