The Glut Has Indeed Come To Pass
A report from the Charlotte Agenda in North Carolina. “For nearly a decade, Charlotte’s high-end apartment market has boomed. Developers bought up land in the city’s hottest neighborhoods and built luxury communities, each one fancier than the last. Rent continued to climb, and each new building filled up with the crush of young professionals moving to town. Could all that be nearing an end? Industry insiders have been watching for the peak of the market for several years now. There are signs that the peak is finally here — at least in some parts of the market. The latest development: New luxury apartments are increasingly turning to special offers, discounts and incentives to get people in the door.”
“Novel NoDa is offering $2,000 off rent, plus a smart home device. SkyHouse and Novel Stonewall Station are offering two free months rent on some of its units. The Abbey in Montford Park is giving new tenants a $1,000 gift card. And at least a half-dozen other apartments are offering a month of free rent. The apartment communities offering discounts tend to have a few things in common. They were built in the past year. They’re in markets with a lot of construction activity. They charge high prices — generally about $1,200 a month for a studio and $2,000 for a two-bedroom unit.”
“It’s just simply harder to find people who can afford to live there. To make any money on an apartment building in Uptown or South End or NoDa, developers must charge a luxury-priced rent. As we’re finding out, the demand for apartments in that price range has diminished. Fannie Mae recently estimated that the number of new apartment completions would hit a record high in another year or two.”
From Philly Mag in Pennsylvania. “Are you still stunned over Monday evening’s announcement that Dranoff Properties will sell all of its apartment buildings in the Philadelphia area to the Apartment Management and Investment Company of Denver for $445 million? Deep down inside, Carl Dranoff himself might be too, for he wasn’t looking to sell the properties even though the glut of apartments both he and your section editor saw coming last year has indeed come to pass.”
“‘I’m an outlier,’ Dranoff said. ‘I’m not like most developers who build a building, then turn it over to someone else to run. I’m a long-term steward of my properties, and I had no intent of selling them.’ But AIMCO was intent on expanding its presence in the Philadelphia market.”
From Urban Milwaukee in Wisconsin. “It’s obvious that downtown Milwaukee has grown in recent years, but by how much? By quite a bit, it turns out. Department of City Development Commissioner Rocky Marcoux told members of the Common Council that since Mayor Tom Barrett took office in 2004, 11,450 housing units have been constructed in what he calls the greater downtown area. Marcoux, who was presenting a status update on a number of downtown projects, told the committee that 1,487 additional units are ‘in the queue and we believe will be in the ground this year.’”
“Alderwoman Milele A. Coggs asked Marcoux if the housing market is overbuilt. Marcoux responded that he has seen some signs the market is softening, citing deals where tenants can get a month of free rent with a year lease. But overall, the commissioner said the city has a minimal risk even if the market is overbuilt. ‘We have not subsidized the downtown market. The market is acting as the market is going to act,’ Marcoux said.”
“The city will have to increase the supply of homes to increase the population. A recent U.S. Census Bureau report found that Milwaukee County’s population fell for the third straight year, falling to 952,085 residents. The population of the region as a whole has been stagnant in the same time period.”
From RE Business Online. “Developers of student housing properties have been holding steady volumes of new product on their books. According to CoStar Group, developers have added about 22,000 new units each year since 2010. Secondary markets are gradually beginning to see heavier waves of student housing development. In Texas, this trend appears to still be in its infancy. Lubbock and College Station have experienced huge building surges over the past few years, with the former in particular being a hotbed for development. The largest student housing property in the country, the 3,406-bed Park West, opened in College Station this past fall. Irving-based student housing firm Servitas developed that project.”
“‘College Station is moving toward being overbuilt,’ says Matt Myllykangas, senior vice president of development and construction for Servitas. ‘And housing projects seem to be moving further away from campus.’ Brent Little, CEO of student housing development firm Fountain Residential Partners, concurred with those notions, noting that occupancy is down and rents have backtracked in College Station. His firm sees similar levels of activity and competition in Waco, home of Baylor University.”
“‘We looked at Waco recently and there were already five or six student housing deals under construction or in the pipeline,’ he says. ‘And that’s for a school with just 10,000 students.’”
From Seven Days Vermont. “The granite countertops, sparkling appliances and panoramic lake views look like they belong in a posh condo development. Instead these amenities enhance a new six-story, off-campus apartment building that Champlain College is leasing to undergraduates in Burlington. The newly constructed units are helping to finally cool the long-overheated student rental market. More than 2,000 units are in the pipeline. In response, some landlords are cutting rents. Others are waiving deposits and aggressively marketing by doling out free pizza and Red Bull to student renters who aren’t used to being wooed.”
“‘The competition among landlords is markedly increased,’ said Rick Sharp, a longtime Burlington investment-property owner. This spring, for the first time in roughly 20 years, he reduced rents in an effort to find tenants for a pair of four-bedroom apartments. This year, Sharp got no takers from ads on Craigslist. He dropped the rent from $2,800 to $2,700 a month, but still has not found tenants. ‘We may have to go to $2,600,’ he said.”
“Mayor Miro Weinberger, who has pushed for new housing downtown, hails the construction. Weinberger finds the increasing vacancy rate and anecdotes of discounted rents encouraging. ‘That sounds to me like the early stages of a market reconciling, kind of recalibrating to deal with the fact that there’s substantial amounts of new supply,’ Weinberger said.”
The Real Deal on Illinois. “The long-awaited plans from Golub & Company and CIM Group for the Tribune Tower property call for a massive mixed-use development that would transform the area where the Magnificent Mile meets the Chicago River. In addition to all the new retail, luxury hotel rooms and condos, the $1 billion project would include 439 new rental units in the proposed 96-story skyscraper that would go up east of the landmarked tower starting in 2020.’
“But with Chicago’s Downtown rental market already showing some signs of oversupply, will the area be able to handle all the new inventory? Last year, more rental units were delivered Downtown than in any year on record — 4,348 — according to figures from Integra Realty Resources, an appraisal and consulting firm. While the firm expects the pace to slow this year, with a total of about 3,000 units to deliver, it’s projected to rebound in 2019, with about 4,200 new units. The annual average over the past 25 years has been 3,200 new units, according to Integra.”
“And deconversions, like the $60 million, 292-unit deal Golub and USAA Real Estate recently closed at Century Tower, are tipping the inventory balance even more toward rentals in many parts of the city, including Downtown. Kyle Stengle of Marcus & Millichap’s investment, national multifamily and mixed-use group, said the rental boom Downtown is unlikely to last much longer. ‘At some point there’s just going to be too many units and we may already be there. The overall feeling is that the market’s getting over-saturated.’”
From Bisnow on Florida. “‘Palm Beach is completely on fire,’ said Todd Michael Glaser, a high-end homebuilder who made his name in Miami but has lately been concentrating on Palm Beach County. ‘I’ve never seen the amount of $8M to $70M homes as in the last three and a half, four months. It’s staggering.’ It’s not just single-family homes that are hot, but a new wave of high-end condos and mutifamily apartments, especially in downtown West Palm Beach.”
“Kolter Urban President Bob Vail, who is developing the Alexander, said that there is something of an arms race for amenities in the new supply of high-end homes. ‘You see that across the U.S. There are [apartment] buildings in Atlanta, Denver and Dallas that are nicer and more fully amenitized than condominium units, because that’s what it’s going to take to get people to choose that building,’ Vail said. ‘It’s just sort of a differential advantage. It’s really become a race in those more in-demand markets.’”
“Though the market is healthy now, the developers agreed a slowdown is possible as new supply takes time to be absorbed, construction costs rise and actionable sites get harder to find. Low salaries in Palm Beach County mean that not many workers can afford high rents. When an audience member asked whether they were concerned with an economic downturn, Vail responded half-jokingly, ‘Condo developers, we don’t forecast those kind of things, you know what I mean? We’re just go, go go,’ he said. ‘And the faster we go, the faster we get to the closing, and then, I’m not going to say we don’t care, but … ‘ The audience chuckled as he trailed off.”
