The Housing Bubble

A report from Real Estate Weekly on New York. “A glut of rentals has New York’s landlords offering deep discounts this holiday season. And although landlords’ use of incentives skyrocketed, they could not hold down the Manhattan vacancy rate where inventory rose to the highest level in over eights years. ‘While historically concessions increase as we enter winter, we haven’t seen them this prevalent since the depths of the Great Recession,’ said Gary Malin, president of Citi Habitats. ‘While there is still demand, the market remains price-sensitive. Even with these incentives, Manhattan’s vacancy rate is the highest it’s been in over eight years.’”

From Bisnow on Pennsylvania. “The panelists looking ahead at Bisnow’s 2018 Philadelphia Forecast event covered a diverse range of topics…though some are resistant to using the term ‘oversupply’ to describe the ongoing influx of apartments in Philadelphia. A common refrain among the capital markets crowd is that a deep pool of investors sits ready to deploy capital, but there are not enough deals to be done. That has contributed to the debt market seeing a host of new entrants.”

“According to RAIT Financial Trust Senior Managing Director Gregory Marks, that should be cause for concern. ‘There are way too many capital sources in the market,’ Marks said. ‘As the most cynical lender up here, I liken this to the end of 2006 where a lot of groups saw the returns being realized by debt funds and the CMBS market. There were a lot of new entries, and many of those aren’t around today.’”

“Some of that concern is due to the increase in debt funds over the last few years from players that wish to capitalize on the hot market. Life companies with similarly deep pockets are also putting pressure on banks and other established debt sources. ‘We’re competing against players that we have no business competing against, like life companies blowing us out of the water with rates we can’t match,’ Marks said.”

From the Daily Reflector in North Carolina. “The Greenville housing market is over-saturated with student housing and lacking a healthy supply of market-rate housing, according to a consultant hired by the city, who said the situation is projected to continue getting worse. According to the presentation, Greenville has just over 11,000 units (bedrooms) targeted for student in the housing market. The aggregate vacancy rate at these student-targeted communities is 11.6 percent. Communities located further than three miles from East Carolina University or Pitt Community College campuses — about one-third of the units — had a vacancy rate of 18.7 percent.”

“Jessica Rossi, a planner with Kimberly-Horne, said the rates of vacancy are expected to increase as new apartment properties open their doors. According to her report, there are an additional 1,930 bedrooms under construction in Greenville, and another 656 have been proposed. ‘The question that will be interesting to see after the lease-up for the start of the 2018 school year, when three of the four under construction communities will come online, is how many people gravitate to those communities leaving some of the more distant communities at even higher vacancy rates,’ she said.”

From Multi-Housing News on Texas. “Austin’s multifamily market shifted down a gear in 2017, due to 2016’s strong wave of supply. As a result, rents contracted. Continued construction pushed the occupancy rate to 94.6 percent as of September, down 70 basis points in 12 months. This figure is likely to keep falling in the short term, while the metro absorbs the new stock.”

“Transaction activity continued to decelerate in the second half of 2017, with $961 million in apartments trading in the first 10 months of the year, half of last 2016’s volume. Nearly 3,700 units were delivered this year through October, a third of last year’s new stock, but almost 17,000 units were still under construction as of October.”

Northern Nevada Business Weekly. “Reno ranked 8th in the nation for apartment concession-related deals, according to Zumper. In cities across the country, the rapid new apartment construction boom of the past five years has begun to create a housing glut. Landlords, faced with higher vacancy rates, are now looking to attract new tenants any way they can – many times through flexible lease terms, offers of free rent, and other concessions.”

“Listings and buildings offering deals such as free rent, reduced security deposits, gift cards, Netflix/cable subscriptions, and even Uber credit were considered. That was weighed next to the total percentage of ‘concession listings’ relative to the total amount of inventory in each city. Reno had a percentage of 3.08 of concession-related deals. By comparison, Winston-Salem, N.C. topped the list at 6.81 percent.”

From Inforum on North Dakota. “There is an epidemic in Fargo, especially in south Fargo, called ‘apartments.’ A lot of people I talk to agree we have too many. There are very few city blocks in the the south Fargo area that don’t have an apartment on them, and I bet that there is a plethora of vacancies. The last I checked, the vacancy rate was at 11 percent, but if you drive around town it appears that it is considerably higher. Well, it would make perfect sense that when a census of the developers is taken asking about vacancy rate that they are lying just to be able to build more empty buildings.”

“In addition, they are also granting these ridiculous tax breaks to developers to redevelop areas.”

From Bisnow on Illinois. “Last year was one for the record books in Chicago multifamily real estate. Apartment sales downtown and in the suburbs set records for volume. This year, downtown multifamily struggled with new inventory resulting in flat rent growth, declining lease retention rates and developers of newer assets struggling to find buyers. KIG managing partner Todd Stofflet said the plateauing of downtown multifamily is related to the flood of new deliveries this year. KIG estimates over 2,800 downtown apartments brought to market in 2017 have not been able to go under contract.”

“KIG Senior Director Jason Stevens said institutional money is chasing opportunities near highly rated schools, lifestyle centers and grocers. Foxford Communities Managing Director John McFarland said Foxford Station was originally intended to be a 52-unit apartment project during the entitlement process, but the company decided to build larger condos after seeing the flood of new apartments being built.”