May 1, 2018

A Glut Of Luxury Buildings Hitting The Market

A report from the Real Deal. “It’s a question other lenders are asking more and more as they find themselves being beat by either Fannie or Freddie. The reason the two loan agencies are outperforming institutional lenders is thanks to government insurance that allows them to charge lower rates than others, explains Real Capital Analytics’ Jim Costello in The Financial Times. Since the crash, in addition to providing traditional loans for homeowner’s mortgages, both agencies have been increasingly financing rental housing, taking on the risk for loans underwritten by commercial mortgage companies. Last year alone, they financed about 1.6 million rental units in the U.S. (In the fall, The Real Deal reported that Freddie was dominating multifamily lending in the New York area.)”

“Fannie and Freddie say it was just the hand they got dealt. ‘It’s not because we’re trying to do more high end or more expensive properties,’ Fannie’s multifamily chief credit officer Manuel Menendez told the Times.”

The Arizona Daily Star. “Within two years, Tucson could face a shortage of more than 1,700 apartments pushing rents to levels not seen before in this market. In 2017, only 318 new units were brought online and 796 units are now under construction. The majority of activity in the multifamily market is among investors buying older properties and fixing them up and increasing rents when leases are renewed.”

“‘The vast majority of everything being built is luxury lifestyle apartments because there’s demand for it,’ said Mike Chapman, a multifamily specialist with NAI Horizon. ‘Where I see the real rub is the lack of workforce rentals. It’s going to be an issue.’”

The Charlotte Observer in North Carolina. “With thousands of new luxury apartments flooding the uptown market in Charlotte, a San Francisco-based startup has a possible solution: Turn some of them into hotel rooms. Lyric has leased a whole floor of one of the two SkyHouse Charlotte apartment towers. The rooms make up only a small percentage of SkyHouse’s 672 studio, one- and two-bedroom units.”

“Lyric will have plenty of opportunities to find apartments in Charlotte, which has a glut of luxury buildings hitting the market in uptown. According to figures released in March, uptown has the highest apartment vacancy rate in Charlotte, at 21.8 percent. That translates into more than 1,100 vacant apartments, according to tracking service Real Data.”

“That’s largely a byproduct of the uptown market’s rapid growth. The number of apartments uptown has more than doubled since 2015, to more than 5,000, and that expansion will continue as developers chase sky-high rents. The number of apartments uptown is expected to reach more than 6,700 in the next few years.”

From Willamette Week in Oregon. “Rents for apartments in newly constructed buildings declined last year—marking a real change, at least temporarily, in the upward trajectory of housing costs. ‘Properties built in 2014 or later were reducing their asking rents across all unit sizes last year—particularly among newly constructed studio apartments, where asking rents decreased up to 6 percent over 2016 prices,’ according to the Portland Housing Bureau’s 2017 State of Housing in Portland report.”

“The data on rent comes as construction continues to boom: 9,639 was the number of new units of housing produced in 2015 and 2016– that’s more than the five-year period of 2009-2013.”

The Real Deal on California. “The troubled investment firm Woodbridge Group of Companies offloaded a 52-unit apartment complex in the northern San Fernando Valley earlier this month. Van Nuys-based Adil A Barakat Family Trust, an investor at least nine other multifamily properties around Los Angeles and the Inland Empire, paid $21.5 million for Granada Pointe complex at 11541 Blucher Avenue, which was built in 2011. The sale includes a $10.5 million mortgage with Seattle’s Homestreet bank.”

“The Sherman Oaks-based firm is embroiled in crisis. The Real Deal reported in November that the Securities and Exchange Commission was investigating the firm for fraud. CEO Robert Shapiro resigned a few weeks later, and the SEC then sued him for a billion-dollar Ponzi scheme that netted him millions of dollars, much of which he spent on luxury items.”

“Word spread in March that the firm had solicited some of the L.A.’s top brokers to sell its residential portfolio, which includes some of the premier homes in Los Angeles county. Woodbridge was asking unusually large sums for many of the properties, in what some real estate professionals have described as an effort to present a rosier portrait of the portfolio to investors.”

The Lohud Journal in New York. “Rental apartment buildings have been sprouting up throughout the region in recent years, and some people in the community are wondering whether there are too many of them for the market to absorb. Multi-family development projects have been a favorite among real estate investors and developers in the post-recession era. The cycle of expansion has recently reached its peak nationwide, but considering the strong economy and continuing demand for rental apartments, the decline would be gradual, said Jeanette Rice, who heads multifamily research for CBRE, a major commercial real estate and investment firm.”

“Just shy of 1,000 new apartments were completed and added to the south Westchester market inventory in 2017. The number is expected to jump to about 1,700 in 2018, said Kimberly Byrum, principal of Meyers Research, who also gave a presentation. The 2018 number is twice as much as her estimate of the area’s annual absorption, about 850 to 900 units.”

“A symposium attendee thought Byrum’s estimate of the new apartments coming on the market in 2018 seemed low, remarking that she was aware of developers ‘worrying that maybe too much coming online already, and they shouldn’t be planning projects.’ Plans for thousands of newly created apartment units have been proposed or already approved in Westchester communities such as New Rochelle, White Plains, and Yonkers.”

“Landlords of existing apartments will have to offer concessions to attract tenants to compete against new apartments, Byrum said. But in a bigger picture, the market will do just fine, she said. ‘I think a lot of things you are hearing within the market is just the concern of the current owners in the market whose buildings are 97 percent occupied,’ Byrum said. ‘It’s (the occupancy rate) going to come down to 93 to 95 percent.’”

“Rice said she does worry about the excess supply of new apartments in certain cities, such as San Antonio and Austin in Texas, where more than 7,000 units — or more than 4 percent of their existing inventory — were added to the market in 2017 alone. Some pockets of Manhattan may also have too many new units coming on the market at once, she said, and added: ‘Don’t worry about any part of New York outside of Manhattan. We are not building that much.’”

From Broker Pulse on New York. “A special new type of resident has hit New York City: the non-existing resident. Rental apartments across the city have become host to a ghost city where today, 247,977 units sit unoccupied. That’s more than 11 percent of all rental apartments in New York City. These numbers released from the Census Bureau’s Housing and Vacancy Survey shed light on an issue that has been growing significantly over the past three years. The number of vacant rentals has grown by 65,406 apartments since 2014, a 35 percent spike in size.”

The Buff State Record in New York. “As a native New Yorker, going home is something I always look forward to. However, every time I go home, I always see more apartments being built that all have the same banner wrapped around them. It usually says something like, ‘Luxury apartments, coming soon!’ The word luxury being used in this case has come to really mean unaffordable.”

“Neighborhoods in Queens, Brooklyn and Manhattan are flooded with these kinds of developments. The rest of the sign might read as, ‘One Bedroom starting at $2,350, Studio starting at $2,050.’ After seeing this, people slowly realize the true luxury is being able to afford one of those apartments. Luxury has changed to really become a means of disguising something that really isn’t a luxury. It has become an illusion because almost all apartment buildings that go up usually have the big banner saying that these are luxury apartments. Because of this idea of luxury, people cannot afford to live there.”