March 15, 2018

What Were Assets Are Turning Into Liabilities

A report from KDKA on Pennsylvania. “High-end, luxury apartments in Pittsburgh, which typically command top dollar prices, are now going for a fraction of the cost. It’s been a building boom that’s changed the face of neighborhoods. Now, that boom is petering with oversupply – too many units for too few prospective tenants. ‘I think there’s a temporary glut of rental units. It’s definitely a renters market,’ said Todd Reidbord, of Walnut Capital.”

“It was bound to happen. Answering the demand for upscale living, developers built an astounding 4,590 luxury apartment units in the city in just the last five years. Now, vacancy rates are climbing while demand is dwindling. ‘Now, they go from building to building and play one against the other to see how they can come out ahead,’ said Reidbord.”

From Bisnow. “As a deluge of new apartments hits Philadelphia, the multifamily market has seen signs of softening — and the most expensive units have been hit the hardest. At the end of last year, apartments costing more than $3.50/SF were only 60% occupied, compared to 80% for apartments between $3 and $3.50/SF, and 90% for units between $2 and $3/SF. ‘I think [the multifamily market] is definitely slowing down,’ Korman Communities CEO Brad Korman said.”

“‘The problem about any noise with oversupply is that people are building generic buildings at high price points that aren’t differentiated,’ Post Brothers President Matt Pestronk said. ‘People are relying on what third-property property managers are saying and hearing that some are offering concessions, so they offer concessions and it becomes a self-fulfilling prophecy.’”

“But multifamily developers are confident that the right offering would still be positioned for success. Korman claims the softening is unwarranted due to Philly still having substantially fewer apartments per capita than comparable cities like Washington, D.C.”

From the Washington Post. “If it seems as if a new apartment is under construction every month in the Washington area, you’re almost right. Analysts at, owned by CoStar, say the city is among the top three markets in the country for apartment construction, right behind New York City and Dallas-Fort Worth. Approximately 60,000 new apartment units are under construction in New York City, while 38,000 are being built in Dallas-Fort Worth, according to Julian Spiker, a market analyst with CoStar Group in Washington.”

“The D.C. area has 29,000 units under construction on top of the 13,000 units added to the housing stock over the past year. Some suburban areas have an oversupply of apartments. For example, Omeed Naderi, a market analyst with CoStar Group points to Reston, Va., where landlords are offering incentives such as four months of free rent to attract renters.”

The Times-Picayune in Louisiana. “There’s the two-bedroom condo with ‘beautiful floors’ renting for $2,000 a month. Next door, there’s the ‘perfect in-town home or gated getaway’ selling for $400,000. And just a few doors down, there’s a ‘one of a kind French Quarter apartment’ renting for $1,950 a month. And that’s just on one side of the 1000 block of St. Peter Street in the French Quarter. Across the street, a ‘luxury two-bedroom’ apartment is renting for $1,950, and there’s a ‘fantastic rehab opportunity’ for sale for $649,000.”

“It seems nearly every block in the French Quarter has a ‘for sale’ or a ‘for rent’ sign hanging out front, and some of them, like the 1000 block of St. Peter St., have multiple listings. Nearly one year after New Orleans city officials began enforcing a ban on short-term rentals in the French Quarter, the inventory of available real estate is at the highest levels that real estate agent Robert Ripley has seen since the months after Hurricane Katrina.”

“John Ferrara, a longtime French Quarter landlord and a former resident, said it’s as challenging to find long-term renters as ever. ‘People who had condos and second homes in the Quarter, they used them periodically and then they rented them out the rest of the time. Now they can’t do that,’ Ferrara said. ‘You can’t rent — I have vacancies for over a year now. What were assets are turning into liabilities now,’ Ferrara said. ‘My present rentals, it takes four months to pay just the property taxes. I’m blessed — I don’t owe any money on them. But these poor people paying notes on these properties that depended on the money from short-term rentals can’t depend on them anymore. It’s horrible.’”

From WDRB in Kentucky. “A New Jersey developer plans to build a 10-story student housing building off S. 4th Street near the University of Louisville. There have been at least six other privately financed student housing complexes built on or near U of L’s Belknap campus in the last decade. The developers are Brian Rosen and Jared Hutter of Aptitude Development LLC. Hutter said the rash of student housing development reflects how U of L — once thought of as a commuter school — is catching up to other colleges in campus living space. ‘The glut of student housing that was built, it because there was nothing around there,’ he said.”

From the Charlotte Observer in North Carolina. “Uptown Charlotte’s rental housing market looks like a paradox: It’s got the highest number of vacancies, but it’s also where developers are building the most new apartments. That contradiction means that developers will be building more high-priced, luxury buildings inside the Interstate 277 loop even as they offer discounts and breaks on the rent to lure tenants to units that are already there. But developers say they’re not concerned – yet.”

“Figures released this week by Charlotte-based Real Data show the apartment vacancy rate uptown is 21.8 percent. That’s the highest in the city by a wide margin, and more than three times the Charlotte market’s average. More than 1,100 uptown apartments are vacant. And developers are planning more. Just last week, Dominion Realty Partners said it would build 215 luxury apartments in a high-rise shared with bank offices. The number of uptown apartments has more than doubled since 2015. But with almost 1,700 new apartments on the drawing board, developers are set to increase the size of uptown’s market by more than one-third.”

“‘I wouldn’t say there’s a red flag,’ said Charles Dalton, principal at Real Data. He said the high vacancy rate is due to several new apartment buildings with hundreds of units all opening in a few months. ‘That vacancy is all in the new communities.’”

“Kelly Dunbar, manager of developer Childress Klein’s multifamily division, said just under 60 percent of the 394 apartments are pre-leased and the building is about half occupied. He said the rent giveaways are eroding apartment owners’ income, at least in the short-term. ‘With the two months free rent, nobody likes that,’ he said.”

From Mansion Global on New York. “Oversupply of luxury rental apartments in Manhattan continued to put downward pressure on pricing last month. The average price of these so-called super-luxury rentals fell 22% from $20,108 to $15,659, while the segment’s median rent also declined 11% year-over-year to $12,925 per month. ‘This market is still oversaturated with new developments, mostly skewed toward the high-end market, coming onto the market,’ said Jonathan Miller, chief executive of Miller Samuel and author of the Douglas Elliman report.”

The Real Deal on New York. “Rental concessions may be keeping vacancy rates low in Manhattan, but they aren’t preventing prices from slipping, according to a new report. ‘Normally the idea of a concession is to protect face rents,’ said Jonathan Miller. ‘You’re still seeing face rents decline.’”

“Pricing is skewed by the high volume of new development, which also tends to be larger than existing product, Miller said. For instance, the average size for a new rental was 1,202 square feet in 2017, compared to 900 square feet in an existing rental. ‘There doesn’t seem to be a change looming in this market,’ Miller said. ‘In many ways, the rental market, as you skew higher, is still under cover of a wet blanket. There’s a weight on the market that is pulling prices down gradually.’”