There’s Just Too Much Supply
A report from Bisnow. “Acquisition opportunities for multifamily investors in 2017 have been slim as a record amount of capital flowed into the debt and equity space. While our investors have their eye on value-add, Class-A multifamily may be in a bubble. ‘There’s just too much supply,’ AMLI Residential CEO Greg Mutz said. Of AMLI Residential’s nine markets, Chicago is the most oversupplied, Mutz said. That is most true downtown. Mutz said the company cannot make the numbers work with new development.”
From Berkleyside in California. “Two industry groups – Apartment List and Zumper – are reporting that median rents in Berkeley fell anywhere from 3.8% to 15.9% in 2017, and dropped from 10.9% to 15% in Oakland. After going up for years, rents started to decline in June and have dropped ever since. One manager of about 1,000 apartments in Berkeley and Oakland confirmed the gist of the industry reports, although he put the decline in rents at about 5.8%. Sam Sorokin of Premium Properties said he calculated that number by looking at people who first started renting in August 2016 and moved out in August 2017. His company had to lower rents to attract tenants, he said.”
“‘Something’s up,’ said Sorokin. ‘All the economic indicators are great: strong job market, good wages, we’re not in a recession. Things just aren’t renting for as much. In 2017, a tipping point has happened. The new construction has caused the rents to decline. There is no other reason I can think of.’”
“Since 2014, 910 units have been built across 11 projects, according to a ‘housing pipeline’ study prepared by Berkeley city staff. There are an additional 525 units being built, or which have active building permits, in nine projects. But now that so many of these units are available, the demand has dropped, Sorokin said. Units are sitting empty.”
The Union Tribune in California. “San Diego County is on track to build fewer homes than it did last year, said permit records released this week. Residential building permits for all homes — condos, apartments and single-family homes — are down 18 percent in the first nine months of 2017 compared to the same time last year, said the Real Estate Research Council of Southern California. The only county with slower building was Orange County, which had a 21 percent reduction.”
“The slowdown is led by a drop in permits for multifamily construction, down by 2,209 permits, or 40 percent, compared to the same time last year. Real estate analyst Russ Valone, president of MarketPointe Realty Advisors, said fewer new builders are coming to town because of land costs. He also noted that some lenders are wary of new projects because rent increases for high-end apartments has slowed.”
“‘As those newer projects’ rents push into the mid-$2,000 a month range, we started to see a slowdown in the rate of increases,’ he said. ‘I think you may have some lenders looking at the slowed increases and starting to take a cautious view of the marketplace.’”
The Charlotte Observer in North Carolina. “The booming Charlotte apartment market has been dominated by gleaming new towers and thousands of units packed onto small sites next to the light rail over the past few years, but that could be about to change. Developers in Charlotte are increasingly turning to bigger, more spread-out sites in the suburbs. Charles Dalton, president of Real Data, said markets such as South End and uptown that have been flooded with apartments now have much higher vacancy rates, as landlords compete to fill thousands of new units.”
“‘If you’re a developer or lender, they’re looking at those numbers and saying why are we building in a place that has a 15 or 20 percent vacancy rate, when we could be building in the suburbs that have a 5 percent vacancy rate?’ said Dalton. The trend was on display recently in Charlotte, where developers have filed rezoning plans to build 1,000 new apartments in the last month. None of them are planned in urban locations.”
From WPSU in Pennsylvania. “The Metropolitan is one of the new high-end developments in State College. For Penn State students looking for new, well-appointed apartments close to campus, the buildings are a plus. But for families and renters looking for affordable places to live, the boom in student housing is a mixed bag. The high rises also mean a change in the feel and appearance in parts of town.”
“Jim May, director of the Centre Regional Planning Agency, said the inventory of housing in the area had not improved in a while. But, over the past few years it has. Between 2 and 3,000 new student units have been proposed or are under construction in the past few years. May said a lot of that comes from large national developers attracted to the area.”
“For one thing, the vacancy rate — the number of empty apartments in a building — is still very low. Nationally, that number is about 8 to 10 percent. With Penn State students nearby, the rate in State College is closer to 4 or 5 percent. Eventually, the housing market in the area might max out, May said, but, that hasn’t happened yet.”
“‘There will come a time when the last person in is the one that probably loses money, but I don’t see that happening for quite a while,’ May said.”
From The Pitch on Kansas City. “‘A word you’ll hear me say a lot today is condos,’ said my tour guide, Troy, as we sailed past the Western Auto building on Grand, atop a double-decker bus. What a coincidence: I had been talking about condos just hours before. Or maybe I am just always talking about condos these days. Luxury housing is sprouting up everywhere in this city.”
“It bothers me. Maybe, as some smart people tell me, this influx of new housing will satisfy the market, make apartments less scarce, help stabilize rising rent prices across the city. Maybe. But when I stare at these boxy buildings and envision the 550-square-foot rooms inside them, renting for $1,700 a month, all I can think is that the best thing about Kansas City — that it’s cheap to live here — is slipping away before my eyes.”
“I got a short Americano in the Crossroads the other day and it was three dollars and some amount of cents. Do you know what that means? That means my coffee cost $5. I give the barista a dollar, and who knows what happens to that loose change. It’s never in the car when I need money to park. Five dollars! Call me Andy Rooney, but you know it’s true. I was hardly alone at the brewery the other night, where the cheapest beer was $8 and it came in a 10-ounce glass. Were some of you also wondering when you started getting less beer for more money? Do you really like this Whole Foods–ification of your city?”
“As Troy said at the outset, condos were indeed an inescapable component of the tour. So much of our history is now just housing. The old federal courthouse on Grand is now the Courthouse Lofts. Many buildings in the Garment District — which Troy told us was once second only to New York in terms of clothing production — have been converted into lofts. The Western Auto Building (originally built for Coca-Cola): lofts.”
“All these buildings that were once home to businesses that provided fair wages and pensions for workers are now condos for the upper-middle class, or cafés staffed by overeducated employees with crushing student-loan debt, unprotected by unions, with no chance for retirement. That the zombies of late capitalism have invaded Kansas City and are in the process of making this quiet place unlivable for the average person is horrifying. We should be enacting policies aimed at making life easier for ordinary Kansas Citians. Instead, we give massive tax breaks to developers, ignore our failing schools, and build a streetcar for people lucky enough to work or live along the increasingly expensive route along which it travels. And for tourists. Don’t forget the tourists.”
