February 1, 2018

There Has Been A Herd Mentality

A report from Bloomberg on New York. “Equity Residential has a New York story, and it doesn’t have a happy ending — at least, not yet. The metro area, where developers are churning out thousands of new rentals, and tenants have the luxury to bargain, was the only one that showed a decline in rent for the publicly traded landlord in 2017. ‘New York was our worst-performing market,’ David Neithercut, the firm’s CEO said on a conference call, ‘We still expect New York to be our worst-performing market.’”

From the Charlotte Observer in North Carolina. “At an economic forecast meeting, apartment developers reeled off some gloomy observations: Land prices and construction costs are shooting up, lenders are skittish, inventory is approaching record highs and rent growth is slowing down. The apartment boom in Charlotte, like much of the country, has been concentrated in expensive areas. But there’s an expectation that rent growth will soon slow, especially as developers finish thousands of new high-end apartments over the next few years.”

“One issue: The concentration of building for renters who can pay top dollar. Michael Cohen, director of advisory services at CoStar, said developers have been focused on the roughly one-third of the market with household incomes of $75,000 or more. About 80 percent of all new apartments under construction in the U.S. would require that income level, putting them out of reach for many renters. ‘There has been a herd mentality,’ said Cohen. ‘It’s all urban sub-markets… More than half the units underway right now are in the most expensive sub-markets.’”

From Curbed Seattle in Washington. “Seattle has been the construction crane capital of the world for a few years running now, and it shows. 2017 was a boom year for residential construction, with 12,008 new units sprouting up in the Seattle area, according to Realpage. That’s around 50 percent more than 2016, which saw 7,935 new units hit the market. And residential construction shows no signs of slowing down, with 11,999 units currently in the pipeline for 2018.”

“Numbers compiled by Seattle in Progress show around 8,000 new units completed in the past year—around 7,500 if you only count multifamily development—in the Seattle city limits alone. More than 30,000 additional units have permits approved, and another 30,000 have applied.”

“This record-breaking year for Seattle construction—2017 exceeded beginning-of-year estimates by around 2,000 units—ended with the region’s highest vacancy rate since 2010, meaning Seattle’s supply crunch could be starting to alleviate. It also shows some early signs of having some effect on rent, with a larger quarterly decrease in cost than usual.”

From The Day in Connecticut. “The city’s business district has long been stymied by a lack of disposable income, but Mayor Michael Passero expressed optimism that market forces are driving a major change. Passero focused much of his time on his optimism linked with to the rapid pace that developers are scooping up downtown properties. ‘If you break it down into sections, the downtown area is just a pocket of poverty,’ Passero said. ‘People who live downtown aren’t going to the symphony necessarily. Developers are telling us this. The dream would be four, five hundred people with money in their pocket living downtown.’”

“An onslaught of residential development proposals in the downtown area — at least 300 apartment units are on the table at the moment — should prove to be the turnaround New London needs to help fill empty storefronts, Passero said. Passero downplayed the recent donation by the Tagliatela family of 21 of its unsold luxury condos at Harbour Towers to the University of New Haven simply as a downturn in the condo market.”

From the Denver Channel in Colorado. “Schools in Denver are feeling the effects of the affordable housing crisis. Enrollment numbers are dropping as families move out of neighborhoods that were once considered accessible. Brian Eschbacher, the executive director of planning and enrollment for Denver Public Schools, says the decline is recent phenomena.”

“‘Over the last 10 years, we’ve been the fastest growing urban district in the country. We’ve added over 20,000 students and sometimes adding 3,000 students in a year. In the last year, suddenly that growth has stopped, and we are projected to lose students this year for the first time since 2004,’ said Eschbacher.”

From the Hollywood Reporter. “As Chinese tycoon Wang Jianlin’s firesale of overseas assets continues, the conglomerate is also looking to sell a $900 million skyscraper in Chicago. Jianlin’s Dalian Wanda Group is ready to sell its remaining two overseas real estate projects, including a much-hyped $1.2 billion luxury condo and hotel complex in Beverly Hills. A little over a year ago, when Wang was boasting of plans to pour billions more into the U.S. entertainment industry, the One Beverly Hills development, as it is called, was being touted as the Chinese conglomerate’s future Hollywood headquarters.”

“Those plans were soon dashed, however, as Chinese regulators upped their scrutiny of Wanda’s heavy debt load and potentially risky bets overseas, transforming the company from aggressive acquirer into desperate seller seemingly overnight.”

“If the deals come together, they will mark the conclusion of a series of asset disposals as frenetic as the acquisition streak that made the Chinese firm a name to know a few years ago. Earlier this month Wanda announced a deal to sell two Australian real estate projects for $913 million. That agreement came just days after the sale of a high-profile London development for around $81 million. The sales are expected to lessen Wanda’s financial strain and help it address upcoming loan repayment deadlines.”

“Last year international credit-rating firms downgraded Wanda’s flagship commercial-property subsidiary to junk status, triggering higher interest payments on its offshore debt. In a company address earlier this month, Wang pledged that Wanda wouldn’t experience any defaults and promised to reduce the company’s debt burden ‘through all available means,’ including the sale of more non-core assets. Wanda Commercial Properties owed more than $2 billion in offshore debt in 2016, according to its most recent regulatory filing.”