April 7, 2018

Investors Need To Bet On Values Increasing

A weekend topic starting with Bloomberg. “In the early 2010s, economic development emphasized renting over homeownership. With the suburban-focused homebuilding industry in shambles, as the rental vacancy rate plunged, apartment construction boomed. In 2017, the number of homeowning households increased by over a million while the number of renting households fell, the first drop in renting households since 2004. Meanwhile, urban cores have to worry about the possibility of being overbuilt. As millennials age into their 30s and homeownership is on the rise, demographics are now moving against urban landlords.”

“As people move into the suburbs and exurbs, they may want employment options other than long commutes into urban cores — a threat to the sparkling new corporate campuses built for this cycle. These questions will become more pressing whenever we get an economic downturn and downtown demand softens.”

From Multi-Housing News on Tennessee. “The Nashville metro area has experienced record-breaking growth in recent years. This has impacted Nashville’s multifamily housing market, with new residential construction at an all-time high. Developers delivered approximately 9,000 units in the past two years, with 12,000 more units currently under construction as of November last year, according to Yardi Matrix. William Kirkland, the The Kirkland Co.’s managing partner, spoke with Multi-Housing News about the changes, challenges and opportunities in Nashville’s multifamily sector.”

“Kirkland: It’s no secret we have delivered too many units in a few submarkets for the time being and have about 10,000 units under construction right now. It’s caused some concession in a few submarkets like Downtown, West End, Charlotte Pike and Germantown, to name a few…It’s definitely harder to sell assets when rents are going the wrong direction, but that’s only in a few submarkets around town that have been overbuilt. Nashville has such a diverse economy and so much momentum in job growth and population growth. These submarkets will absorb the slight oversupply we are experiencing and one day we will overbuild these submarkets again. Guaranteed.”

The Union Tribune in California. “The average rent in San Diego County hit a record $1,887 a month in March, increasing 8 percent in a year. High-end apartment complexes downtown helped raise the rates substantially, especially those that opened in the last few months, according to San Diego-based MarketPointe Realty Advisors. However, there are some indications — such as an increased vacancy rate — that the pace of rent increases could be slowing.”

“Vacancy rates ticked up to their highest point since 2014 in March — 4.08 percent — as the flood of high-end rentals hit the market. More than half of the vacant units in the county were asking more than $2,000 a month in rent. ‘What we noticed was some of the older stuff pushed rents a little too much,’ said Russ Valone, CEO of MarketPointe. ‘We saw a number of new projects where they rolled the rent back.’”

“There are more than 2,000 new apartments expected to open this year, with most in downtown expecting to charge an average rent around $2,489 a month. That’s an increase from the roughly 1,600 new apartments added over the previous two years. Mark Goldman, finance and real estate lecturer at San Diego State University, said lenders will be taking into account any decline of rental rates. ‘Investors need to bet on values increasing,’ he said. ‘As rents start to taper off, values taper off, and investors would not be willing to pay as much for larger purchase prices.’”

The Marin Independent Journal in California. “The rate at which rents are increasing in San Rafael and Novato appears to have slowed somewhat. ‘Rents have plateaued over the last four quarters after rising rapidly over the last couple years,’ said Michael Burke, a Greenbrae real estate agent with Decker Bullock Sotheby’s International who has studied Marin’s rental market. ‘The vacancy rate is still low, which would suggest some continued pressure on rents to rise, but they’ve risen so fast I think we’re in a bit of a correction period.’”

From Habitat Mag in New York. “The advice for New York City co-op and condo shoppers has traditionally been ‘Buyer, beware.’ Thanks to recent trends, it’s becoming ‘Buyer, be aggressive.’ Sales of Manhattan apartments during the first quarter of the year hit their slowest pace since the nadir of the Great Recession, according to an analysis by the Wall Street Journal. Brokers said sales were dampened by a slowdown in closings in new luxury buildings, as well as a rebellion by condo buyers against high asking prices.”

“‘I think prices have gone up too far, and there is straight-up buyer resistance,’ says Donna Olshan, a broker who tracks contracts signed in the luxury market. ‘It has slowed the market down.’”

“Market analysts say many sellers of individual apartments have made deep cuts in asking prices in order to make deals in a less favorable environment. Pamela Liebman, president of the Corcoran Group, says there is plenty of activity in the market – but only if sellers price their properties properly. ‘Buyers are much more aggressive, and in a lot of circumstances they are getting what they want.’”

From the Real Deal on New York. “Less than a month after the first buyer at 432 Park Avenue closed on an $18.1 million pad in 2015, the unit hit the rental market for $60,000 a month. It reappeared this past January as one of the tower’s first resale listings — priced at $17.499 million, or a roughly $618,000 loss.”

“In the last six months, 13 resales at Macklowe Properties and CIM Group’s supertall have quietly hit the market, nearly triple the number of sponsor units available, according to StreetEasy. Brokers said that although the luxury market has cooled — meaning sellers may not get top dollar — rising inventory on Billionaires’ Row and lingering uncertainty about the market has made some skittish investors eager to cash out before competition heats up.”

“New development sales — particularly sales of ultra-luxury pads — have dipped since 2015 amid a flood of competing inventory. The median price during the fourth quarter was $2.7 million, down 7 percent year-over-year, according to Miller Samuel. The number of sales during the quarter was 387, down nearly 30 percent from 2015. And some resales at competing buildings like One57 have traded at a loss since the market began to slow.”

“‘If you look at that particular subset of uber-luxury real estate near the park, you have an onslaught of new development inventory that is coming down the pike,’ said Douglas Elliman’s Michael Graves. ‘If you are an owner seeking to move that asset, now is going to be your best moment to do it.’”

“Buyers at 432 Park who signed contracts and closed on their units in 2016 got an average discount of 10 percent, according to data from Miller Samuel. The discount wasn’t that steep when Macklowe and CIM re-sold a half-floor pad on the 65th floor, after the original buyer decided to trade up. The original buyer paid $27.04 million for the unit in 2016; the sponsors resold it in December for $606,028 less.”

“‘If you’re an investor, it’s not a great time to sell unless you want to put your money into something else,’ said Compass’ Toni Haber. But that could be worth it for some uber-wealthy investors whose life circumstances changed and who may want to liquidate their purchase. ‘Some people don’t mind just taking the loss.’”

From the Lone Peak Lookout in Montana. “How we really feel? Responses to the ‘Big Sky Employee Survey—Housing Needs and Preferences’. ‘After living in the Big Sky area for nine years, rent became too expensive. I love the Big Sky area for work and play and have been forced to do the deadly commute from Bozeman knowing one of these trips I will meet my demise.’”

“If you choose to rent in Big Sky, you forgo any ability to save a down payment to one day buy your own home. AirBNB and VRBO just add to the inflated rents here in town. Seriously, drive through the Firelight condos and chalets, it is quite easy to tell that about a third of the units are VACANT most nights.”

The Chicago Tribune in Illinois. “A German company is looking for 10,000 Chicagoans to rent small bedrooms within shared apartments, betting that communal living is primed to take off in big cities. Medici Living Group will open its 175-resident Quarters property in Chicago’s Fulton Market district on April 15, CEO Gunther Schmidt said. Since emerging in recent years, co-living has been derided as dorms for adults but hailed by proponents as a way for young, transient professionals to afford to live in desirable areas of costly cities.”

“Apartments accommodate one to five people, with a kitchen, one or more bathrooms and bedrooms ranging from 77 to 198 square feet. Rents, which start at $1,200 per month and will average $1,600 per month, aren’t cheap relative to the small unit size but include expenses such as utilities, wireless internet and Netflix movies. ‘There’s an urban affordability crisis fueled by a ‘luxury’ oversupply,’ Gottlieb said. ‘Modern professionals have student debt, less earning potential than previous generations, a growing craving for real-world connections away from curated lives on social media feeds, and no longer value home ownership as a status symbol.’”

“Chicago rent prices are going down — that’s according to Zumper, an apartment listing platform. In Chicago, ‘both bedroom types are down over 15 percent since this time last year, which are the largest rent dips in the nation,’ said Zumper Marketing Manager Crystal Chen. ‘This steady downturn in prices the past year is most likely due to the influx of newer apartment buildings with move-in specials and an overall increase in inventory, which may be a relief to renters.’”

“The steady increase in inventory over the last few quarters, especially among the city’s most affordable units, has continued through the start of 2018 and should leave renters more confident in their ability to find an affordable apartment,” said Joshua Clark, economist at HotPads. HotPads’ recent rent report, released in late March, found that there are 77 percent more new one-bedroom rental listings in Chicago than a year ago. The report went on to specify that rental inventory in Lakeview, as listed on HotPads, went up more than 44 percent, and climbed over 26 percent in Logan Square, over 56 percent in Rogers Park and over 59 percent in West Town compared with a year ago.”

“‘New construction is a big part of the inventory growth,’ said Clark, and experts note that many new buildings offer incentives, such as one or two rent-free months, to get renters in the door. ‘Those neighborhoods where we saw incredible inventory growth from last year also saw some of the most teardowns according to permits submitted to the city of Chicago.’”