Is It Going To Just Sit There?
A report from Bisnow on New York. “Apartment rents are flat or down in New York City in 2017, and banks have been wary for more than a year about giving developers construction loans. While conventional wisdom might suggest it is time for developers to shy away from building, there are some in New York who say the market is ripe for new apartments. Rents have fallen by nearly 2% in Manhattan this year compared to 2016, and in places like Downtown Brooklyn, where thousands of units are coming online at the same time, fears of a glut have developers offering high concessions.”
“‘Experienced developers realize now is the time to develop,’ Alchemy Properties founder Ken Horn said. ‘Hard costs are coming down now and contractors are a little hungrier. Building permits have gone down in the last two years about 70 to 80%.’”
The Real Deal on New York. “Over the summer, broker Reba Miller had high hopes that her rental listing at 56 Leonard Street would fetch $32,000 a month. The owner had signed a contract on the new condominium more than three years earlier, and the plan was to sell it and collect a tidy profit. But with new development resales ‘not lining up to what everyone dreamed and wanted,’ Miller said the owners decided to rent it out until the right buyer came along. The owners relisted the apartment in August, but with the rent reduced by nearly 30 percent. ‘That $23,000 is a giveaway price,’ Miller said.”
“There are plenty of luxury condo owners facing the same set of issues. Across all price points, the rental market is challenged. Citi Habitats estimates that 21,793 new rental units will be added to the market across the three boroughs by the end of this year. And another 21,434 units are expected to become available next year — meaning the rental glut is only going to get worse. ‘There are more people who bought in the buildings as an investment than I or anyone was aware of,’ said the Corcoran Group’s Robby Browne, whose own unit at 15 Central Park West is now rented for $16,250 a month, a drop from the $18,500 it used to score.”
From the Colorado Real Estate Journal. “Net absorption measures the difference in occupied space between time periods. Most of the multifamily headlines understandably focus on high rents. Yet, the Denver area’s multifamily market in 2017 already has absorbed close to 12,000 units, the strongest absorption in more than 25 years, according to the Denver office of ARA Newmark. At the 2017 Fall Multifamily Development & Investment Conference & Expo last month, absorption was one of the first statistical measures highlighted by appraiser Cary Bruteig. Yet, no single metric tells the entire story, and that is true about absorption as well.”
“Rents in downtown actually ‘are down $2 per sf,’ from a year ago, Bruteig said. ‘How can that be? Why would rents fall?’ at time when absorption is so strong, Bruteig asked. ‘That is because we built more units than we absorbed downtown,’ Bruteig said, answering his own question. Year to date, 2,082 units were added and 1,440 units were absorbed, ‘leaving an excess of 642 units,’ Bruteig’s math shows. Over the past three years, 4,816 units have been added downtown and 3,742 have been absorbed, he added.”
“‘We now have more vacant units downtown than we did three years ago,’ Bruteig pointed out. Not only have apartment rents fallen downtown but also vacancies have been rising, he said. The central business district vacancy rate is now just above 6 percent and it is possible it could be heading over 7 percent, Bruteig said. There currently are 6,650 apartment units under construction in the Denver area, with thousands more on the drawing board. Based on the current absorption rate, that means there is a 3.7-year supply of apartments on the market, Bruteig said.”
“‘Absorption has been really strong in the CBD,’ Bruteig said. ‘But absorption needs to be a lot stronger to keep up with with the new supply. Is that realistic? Or is it going to just sit there?’”
From the Tennessean. “The median price of a Nashville area single-family home fell for the fourth straight month in October, a drop Realtors say reflect a low inventory of homes priced below $300,000. Greater Nashville Realtors President Scott Troxel said that reality has potential homebuyers worn out from competing for available homes and contributed to residential closings falling 1.7 percent year-over-year in October, the first drop since August 2016.”
“‘We’ve reached a point where the quality of the remaining inventory below $300,000 has gone down to where buyers are basically saying what’s left isn’t compelling,’ Troxel said.”
“Troxel said he’s worried that the Trump administration’s proposed tax reform package would hurt current and potential homeowners. ‘Measures like placing limits on the use of the Mortgage Interest Deduction and the elimination of deductions for state and local sales and income tax will reverse the incentives for home ownership,’ he added. ‘Considering that homeowners pay between 80 and 90 percent of all federal incomes taxes, they shouldn’t be penalized through tax reform.’”
The Washington Post. “A proposal to cap the mortgage interest deduction for new purchases of expensive homes was among the most talked-about aspects of the tax overhaul rolled out by House Republicans last week. But the plan takes aim at the mortgage interest deduction in another way, too, by eliminating deductions for mortgages on second homes. This could have a significant impact on certain areas of the country where vacation and second homes make up a disproportionate chunk of the local housing market.”
“According to the National Association of Realtors, 12 percent of residential properties purchased in 2016 were vacation homes. Buyers used mortgages to finance 72 percent of vacation-home purchases that year. In 2013, 70 percent of the total value of the deduction went to the richest 20 percent of households. The 1 percent alone gobbled up 15 percent of the deduction. If the case for deducting interest on primary residences has grown shaky, then the case for doing it on vacation homes is even more so. The policy further inflates housing prices in resort areas, where many of the year-round residents can’t afford them to begin with. Meanwhile, the ultra-wealthy use a loophole in the second-home deduction to write off the interest on their yachts.”
“The census data indicates that there are over 5 million seasonal, vacation or recreational homes in the United States that sit vacant all or part of the year. That’s an awful lot of empty space to be subsidizing via the tax code.”
The Milton Herald in Georgia. “If you are looking for a new home under the $400,000 price range, I know how competitive it is. But after some serious research, I have found a solution for you: go buy a $900,000 house. In the below-$300,000 market, there are fewer than 2.5 months of supply. That is one of the lowest months of inventory in the history of people keeping track of these numbers. In the $300,000 to $400,000-range, it only rises to just above 2.5 months. The $500,000 to $600,000-range is where the market finally starts getting healthy with about 6 months of inventory. Above that and it quickly gets unhealthy again with inventories above 7.5 months.”
“By the way, that $900,000 to $1M-range I mentioned at the beginning of this article has well over 10 months of inventory. Based on the laws of supply and demand, prices on sub-$400,000 homes are rising and prices on the $600,000 homes are lowering. The average price of a new home was $334,977 for the third quarter. With the increased costs, the builders are having to build more expensive homes to keep their margins. But if you look at the more expensive homes – there is a relative glut.”
The Real Deal on Florida. “HFZ Capital Group is canceling Fasano Residences Miami Beach, a 67-unit luxury condo project planned for the Shore Club hotel property, The Real Deal has learned. The New York developer began reaching out to buyers and is in the process of returning deposits, Jay Parker, CEO of Douglas Elliman Florida, told TRD. Fasano Residences joins projects like Auberge Residences & Spa Miami that have been canceled this cycle due to the challenging condo market. The Related Group canceled the Auberge luxury condo project and returned buyers’ deposits earlier this year. Another South Florida project, H3 Hollywood, also has been canceled and will be revived as rentals instead.”
“HFZ’s Shore Club Property Owner LLC paid $175.3 million for the hotel in late 2013, according to property records. The developer planned to close the 309-key hotel by the fall of last year but continued to take hotel reservations into 2018, when it was originally slated to reopen as a Fasano with 85 hotel rooms in addition to the condos. No permits for construction had been filed as of August, according to documents obtained by TRD. The hotel, which has been deteriorating in anticipation of the project, will keep operating.”
