The Housing Bubble

A report from KRON 4 in California. “San Francisco is at the heart of the Bay Area housing crises. You see construction everywhere, but most of us are priced out of being able to afford to live in a luxury high-rise. ‘We have 1,000 apartments that are in, what we call, the pipeline,’ said Karoleen Feng, who is with the Mission Economic Development Agency. ‘Some of them are built out, and some of them–we have about 500 that are waiting to be kicked off.’”

“MEDA uses city subsidies to buy old buildings where tenants are on the brink of eviction and keep their rents at affordable levels–which for most families is under $1,000 a month. In the last four years, MEDA has purchased 19 buildings through ’small sites.’ By 2020, MEDA says it hopes to own at least 2,000 apartments in the Mission District. ‘Having affordable housing is the first step to rebuilding this as a Latino hub,’ Feng said.”

The Toledo Blade in Ohio. “On Tremainsville Road south of Alexis, there’s a six-building, 72-unit apartment complex that motorists often scoot past without so much as a passing glance. But It was visible enough last May when word leaked out the 45-year-old complex soon might be available for sale. A buyer from Ypsilanti, Mich., immediately submitted an offer of $2.2 million, which the owners accepted before Hidden Village could even be listed. The sale price might seem surprising, given how the complex last sold nine years ago for $1.65 million and had not received much updating.”

“But such occurrences are common now as demand for properties in Toledo’s apartment market has become red hot. The result has been a sizable amount of complex ‘flipping,’ though not in the traditional sense. ‘It’s not like house flipping. That’s not what’s going on. It’s not like someone put some lipstick on a property and flipped it,’ said Harlan Reichle, managing partner of the Reichle Klein Group, a Toledo commercial real estate firm.”

“Tony Plath, a Reichle Klein real estate agent who handled the Hidden Valley Square transaction, said Toledo used to be a market that was overlooked but is now attracting buyers from all over the Midwest, the East Coast and the West Coast. After spending a minimum amount to spruce up property, they can bump the rent by $10 or $20, Mr. Plath said. ‘What a $10 per unit value will mean to the value of the property is astonishing,’ he said. ‘A $10 bump in rent on a 100-unit complex is $12,000. What does that mean to the value? At an 8 percent cap rate that equates to $150,000 more in value to the property. A $20 bump in rent increases the value by $300,000.’”

“The quest for Toledo apartment complexes has led to bidding wars on properties, with six to 10 offers arriving for some complexes, Reichle Klein said. ‘These owners of properties are ready to move on and they know the market is hot. They’re seeing a price per square foot that they’ve not seen before, so they’re anxious to get out,’ Mr. Plath said. ‘And now there’s a larger pool of buyers. We’ve had people from Mexico, from Canada looking to spend their money here.’”

The Charlotte Observer in North Carolina. “When Richard Simmons moved into his one-bedroom apartment in Matthews, the widower assumed he’d be able to afford it for years to come. Simmons started off paying $650 a month rent to live in Paces Pointe. But that was 2012. Now, the base rent is up to $867, and a raft of new mandatory fees – for cable, package delivery and ‘valet trash’ service – mean Simmons pays $946 a month, or nearly a 50 percent increase over the past few years.”

“Simmons is one of thousands of tenants in Charlotte whose rent is rising in part because of a ‘value add’ deal. It’s a term developers use for buying older apartments, spending several thousand dollars to renovate units with improvements such as new floors, granite counters and updated appliances, then raising the rent. ‘We’ve been fairly alarmed at the rate which apartments are flipping,’ said Julie Porter, president of the Charlotte Mecklenburg Housing Partnership. ‘All of a sudden you’ve got an apartment that used to be $700 (for rent) that’s more than $1,000. We’re losing units faster than we can build them.’”

From Fox 13 Memphis in Tennessee. “The owner of Kimball Cabana Apartments said he is out of money, and a new investor plans to buy the property after the apartments undergo foreclosure. Judge Larry Potter had choice words for the apartment owner, calling the 2015 purchase of the property a ‘bad business decision.’ Allen Walsh is the owner of the property, which is managed by Mississippi Apartments, LLC. ‘All of our money just got eaten up in trying to rehab the units,’ Walsh told FOX13. ‘We have finally run out of money. It just took more than we figured on.’”

From Crain’s Cleveland Business on Ohio. “The owner of the 950-suite North Pointe Apartments in Euclid has tossed in the towel and had its request granted that the lender assign its $38 million loan to a firm specializing in handling distressed loans. The loan behind the troubled four-building complex of apartment towers, two as tall as 20 stories, on Feb. 5 was assigned to the Miami office of Rialto Capital Management, according to Cuyahoga County land records.”

“Woes at North Pointe Apartments have included a sidewalk protest of conditions at the property by tenants last summer that was covered by WEWS-TV, Channel 5. Trepp reports show tenants also are voting with their feet, as its occupancy fell to 67% last September from 86% at the end of 2016. The loan was 60 days delinquent at the end of 2017, Trepp reported.”

“The property gained a dubious marquee presence in the national commercial real estate world when Trepp reported it was the largest distressed loan in the U.S. in January, as loan payments had not been made for 60 days. The notice was part of a report on the state of the U.S. multifamily property business undertaken because of long-running growth in the nation’s apartment market. While focus was on glitzy and elegant new apartment properties, the distress poster child came from the dated precast concrete towers astride Lake Erie.”

From Community Impact in Texas. “Northwest Austin’s apartment rental market might be finally showing signs of stabilization as occupancy rates and rental rates have begun trending downward. For the last two years, the city of Austin has seen an increase in the number of new apartment units coming online, totaling about 11,000 per year in 2016 and 2017, but construction is showing no signs of slowing down, said Bruce McClenny, president of Houston-based ApartmentData, a site that tracks occupancy and rates of apartments in major Texas and U.S. cities.”

“‘That kind of supply, even in the face of very good job growth and a very good economy, is a little too much,’ he said. ‘It all of a sudden becomes more of a renters market.’”

“Occupancy has been trending downward since peaking in June 2013.”

From The Jewish Voice on New York. “The Manhattan rental market is overflowing, causing landlords to offer rental concessions and price reductions in price in order to entice new renters, Bloomberg reported. Concessions jumped to yet another record in January, with 49 percent of newly signed leases coming with some sort of special offer, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate concluded in a report. Concessions in January, reached the highest level seen since appraisal firm Miller Samuel started tracking them back in October 2010.”

“Concessions include, rent-free months, gift cards, then topping off those enticements with reductions in price. Hal Gavzie, who oversees leasing for Douglas Elliman was reported as saying: ‘Landlords have finally realized, ‘OK, we have to adjust these prices because the concessions aren’t doing as much… Customers are looking past the concessions being offered and just looking for the best deals they can find.’”

“Rents fell last month in almost every Manhattan neighborhood, including some of the borough’s priciest, according to data compiled by brokerage Citi Habitats. On the UWS, the median was $3,450, down 2.8% from a year earlier, while on the UES, they declined 5.3% to $3,185, the brokerage said, Bloomberg reported. The average rental price in Manhattan several years ago was $3,800 (2013).”

“For some fun and interesting perspective, the average price for a rental in all of New York City in the 1960’s was $200 a month, the 70’s $335 a month, the 80’s average was $1700, and the 90’s average for the 5 boroughs was around the same as last month’s average of around $3,295 for Manhattan apartments.”