February 12, 2018

The Boccee Ball Is In Their Court

A report from Bisnow in Washington DC. “D.C.’s investment sales market started off hot in 2018, but amid an environment with falling multifamily rents and tepid office leasing, some investors think deals are being overpriced and are shying away from buying in the District. Crowdfunding platform Fundrise in August 2016 had announced plans to invest $200M annually in D.C. multifamily properties, as part of a JV with Insight Property Group, but Fundrise CEO Ben Miller said he has since become less bullish on D.C. ‘The market has gotten very pricey, and there is a lot of new supply of multifamily,’ Miller said.”

“The District’s Class-A apartment rents fell 3.9% in 2017, according to Delta Associates, coinciding with the delivery of 4,789 units, 45% more than hit the market the prior year. That supply growth is expected to increase even more this year. Given these fundamentals, Miller said it does not make sense for investors and developers to keep putting money into new projects. ‘Every cycle you build an industry; this cycle they built an industry around multifamily. A lot of multifamily real estate companies have to stay active, so they’re going to continue to do deals even when they shouldn’t,’ Miller said. ‘If you look at the supply of multifamily coming in this year and next year, and Class-A multifamily rents went down last year and probably will this year and the following year, why do they keep building? Why are they still supplying the market?’”

The American Statesman in Texas. “Ever since 2010, Austin-area renters could count on one thing: Renting an apartment was going to get more expensive every year. But real estate consultant Charles Heimsath’s latest report shows that – at least for now – the market has become more forgiving to renters. Experts say the shift was brought on by several factors: a surge of new apartment construction, more renters jumping to home ownership and a slight slowdown in the region’s job growth.”

“Last year, developers added 10,727 new apartments to the market, nearly equaling the record of 10,780 in 2016, Heimsath said. However, only 55 percent of the new supply was leased last year, in contrast to 81 percent in 2016, he said. On the occupancy side, the rate fell to 91.3 percent — a level unseen since 2010 — and down from 95 percent five years ago, said Robin Davis, manager of Austin Investor Interests. The decline was due in part to an ‘over-saturation’ of new apartment construction, Davis said, along with other factors, including job relocations and losing tenants to home purchases or home rentals.”

The Chicago Sun Times in Illinois. “Apartment hunters have the proverbial ball in their courts, particularly in new luxury buildings near public transportation, where some developers are offering free rent and other incentives to fill up their buildings. ‘There is no question it is a great time to be a renter in Chicago right now; there’s a lot of options,’ said broker Aaron Galvin, CEO of Luxury Living Chicago.”

“Galvin’s firm helps people to find apartments in the ‘Luxury Class A’ market made up of newer buildings constructed since 2000. He predicts March will hit ‘peak vacancy’ with roughly 5,000 new luxury apartment units up for rent in Downtown and surrounding neighborhoods. According to Galvin, buildings that stand out from the pack offer free ride-sharing pools, third-party services (organized dog walking, food delivery, on-site dry cleaning) and shared amenities such as study rooms, where residents work in open co-working type spaces. Social hangouts like bocce ball courts and demonstration kitchens are also draws.”

“Spoke, a 363-unit apartment community, was opened in December by Bond Cos. on the grounds of the demolished Gonnella Bread Co. Rents start at $1,795 for a studio, while a two-bedroom unit goes for $3,880. There’s also a two-bedroom, 15th-floor penthouse with a terrace for $6,345. New Spoke residents get a welcome gift that includes a package of Gonnella breadcrumbs as a nod to the site’s past. Through the end of February, Spoke is offering two months of free rent on 18-month leases. Damon Dance, vice president of Bond Cos., said the free rent concession ‘equalizes Spoke’s pricing in a competitive market.’”

From The Real Deal on New York. “Leasing at the Eugene, the first completed ground-up tower at Brookfield Property Partners and Qatar Investment Authority’s Manhattan West megaproject, launched to great fanfare in March. But almost a year later, the $800 million, 844-unit building’s revenues are off to a slow start.”

“The rental tower at 435 West 31st Street contributed just $1 million in funds from operations — a common measure of real estate investment trust earnings — in the fourth quarter, Brookfield’s real estate CFO Brian Davis said during an earnings call. That’s a far cry from the $10 million Brookfield expects the tower to make annually once stabilized.”

“According to StreetEasy, units at the Eugene are no-fee and come with two months free rent on a 14-month lease and three months free rent on a 27-month lease. A surge of new supply over the past two years has pushed rents down and concessions up across the city. Landlord concessions, which often come in the form of free rent, reached a new record for the fourth consecutive month in January, according to a new report by appraisal firm Miller Samuel.”

From Curbed New York. “The January market reports are out, and it looks like the New York City rental market is kicking off the new year much like it spent the last one. ‘The prevailing theme across the board was the record number of market-share concessions set,’ says Jonathan Miller, author of Douglas Elliman’s report.”

“Rental concessions from landlords are at an all-time high in Manhattan, Brooklyn and Queens. In Manhattan, the share of new leases signed with some kind of concession was a whopping 49.3 percent, up from 30.9 percent. In Brooklyn that share was 47.5 percent, up from 18.1 percent. And in Queens, the share came in at a whopping 50.8 percent, up from 38.5 percent.”

“In Manhattan, the median rental price fell 2.8 percent to $3,275 and the net effective rent—which takes into account concessions—declined 3.6 percent to $3,141. (That drop in the net effective rent is the largest annual decline in more than six years.) The size of concession was 1.4 months of free rent or equivalent, up from 1.3 months the prior month. In Queens, January marked the fourth time the concession market share reached a new record high. The median rental price was $2,650, down 1.9 percent, and the net effective rent declined 4.7 percent to $2,507. (That’s the fifth year-over-year decline in net effective rent in six months.) The size of concession was 1.8 months, up from 1.1 months.”

“More than 40 percent of rental transactions brokered by Citi Habitats offered a free month’s rent and/or payment of the broker fee to entice new tenants in January, up from 41 percent in December. ‘These incentives remain remarkably high,’ the firm notes, and they’re being offered on both new construction units and re-rentals.”