The Housing Bubble

A report from Multi-Housing News. “In 10 of the nation’s 50 largest markets, apartment supply in 2018 is expected to increase 40 percent or more from 2017 levels, according to a RealPage report. The largest supply increase predicted for 2018 is in Sacramento. Last year, 682 apartment units were completed there; this year, 1,614 will be, for an increase of 137 percent compared with 2017. Los Angeles will also see a large increase in the number of units completed this year: 6,456 in 2017 and 14,087 units this year, for an increase of 118 percent.”

“Other markets that will experience sizable supply increases this year, according to RealPage, include Denver, Providence, R.I., Cleveland, Columbus, Jacksonville, Newark, St. Louis and Phoenix. For its part, Denver, is expected to see nearly 13,000 units come online in 2018— an 80 percent increase from the roughly 6,500 units completed in 2017. Phoenix is scheduled to see new supply of about 8,600 units in 2018, 39 percent above the 2017 volume.”

From the Times-Picayune in Louisiana. “Last year, a New Orleans development team announced plans to build a new five-story, mixed-income apartment building in the Bywater with the goal of attracting former residents who have been priced out of the neighborhood. The team says it intends to move forward with the project this fall, though it will be smaller and less aggressive in its affordability goals. ‘We just don’t think it’s a good bet to go into the market with an apartment that’s $3,000,’ said Curtis Doucette, a managing partner at Iris Development, noting the recent spike in luxury apartments mainly in downtown New Orleans.”

The Press Herald in Maine. “The developer of a shopping center near the Portland-Westbrook line wants to add 750 apartments to the plan, which would make it one of the largest residential projects in the region. But housing developments with hundreds of units have faced pushback in recent years in Westbrook and Portland. Brit Vitalius, president of the Southern Maine Landlord Association, said communities like Westbrook have been absorbing new units in recent years, but rents in Portland appear to be leveling off. He cautioned that Waterstone should be watchful of the market and open the units in phases.”

“‘It’s recognized that we need more housing in the area, and we need affordable housing in the area, and the local landlords fully support that concept,’ he said. ‘But any community can be challenged if there is a glut of housing. Any type of oversupply will throw the market into imbalance and hurt everybody.’”

The Tampa Bay Times in Florida. “Tampa Bay’s apartment boom is continuing unabated with three big, mid-priced projects coming out of the ground. While lenders have begun to rein back on high-end new multi-family construction, location and comparatively affordable rents are selling points for all three projects. There is some concern among lenders that the bay area is becoming saturated with luxury apartments, especially in popular downtown areas where rents can soar to $3,000 and above.”

“Overall, reliable rent figures are hard to come by because most companies surveying the rental market check only large apartment complexes at a time when many people rent single family homes. According to Apartment List, Tampa’s average rent for a two-bedroom apartment has risen 4.4 percent since last year to $1,230, $70 more than the national average.”

From KMIR in California. “There are nearly two-thousand registered vacation rentals in the City of Palm Springs. If you own one of them, you know it can be a good source of income. But if you live next to one, it can be a living nightmare. Palm Springs resident Rich Fearns says, ‘I don’t have a sense of security, don’t have a sense of belonging, don’t have a sense of neighborhood.’”

“Fearns says when he bought his home in 2004, these was a sense of community, ‘my neighborhood has essentially been converted to a hotel district.’ Fellow resident Mike Garibaldi-Frick says, ‘we’ve had lots of nights where we can’t sleep and we’ve been woken up in the middle of the night. I don’t think people realize how disrupting it is until they have one next door.’”

“‘We have 7 houses now in our neighborhood that are short term vacation rentals in our small little neighborhood and everyone is on edge,’ says Garibaldi-Frick. Fearns adds on, ‘I don’t know my neighbors anymore. I don’t have any neighbors.’ It’s not just neighborhoods that are divided. The city, business owners, and the entire Coachella Valley could face some big financial challenges if Measure C passes.”

From Bisnow on Illinois. “It is 7:30 on a Thursday evening and residents of L, Property Markets Group’s apartment building in Logan Square, are flocking to the building’s lawn for an evening of yoga, followed by a post-workout nosh of wine and cheese. But they aren’t alone. The yoga class is open to the public and people who don’t call L home are entering the building to get in a workout, find inner peace and connect with friends and strangers. The prospect of attracting new residents surely doesn’t hurt.”

“Five years ago, it would have been unheard of to allow nonresidents to use in-house amenities. And though some still say opening those doors will hurt the value of a building when it comes time to sell, some developers are opening in-building amenities such as rooftop decks, fitness centers, and kitchens and screening rooms to nonresidents as a way to generate interest in a property.”

“The decision to open amenities to nonresidents is coming amid signs of softening in rental markets nationwide and in Chicago in particular. Zumper’s national rent report for May showed Chicago one-bedroom apartments rents declined 10.7% in the past year, while two-bedroom rents dropped 15.8% during the same time frame. RealPage reports 10,545 new units were added to the city’s inventory in 2017, and another 3,350 are expected to come online this year. Yardi Matrix estimates 360,000 new apartments will be delivered in 2018 across the country, a 20% increase over last year.”

“Developers — starting in Miami and the West Coast and now those in Chicago — are increasingly hoping open doors will change that course. Danish coffee house chain Joe & the Juice opened a Chicago shop at 8 East Huron that is accessible to residents of the 26-story River North apartment tower, as well as passers-by. ‘It’s advertising for the building,’ Luxury Living Chicago Realty founder and CEO Aaron Galvin said.”

From Senior Housing News. “Two new developments point to signs of financial distress at Mainstreet. An unopened transitional rehabilitation facility developed by Mainstreet is facing foreclosure after falling behind on monthly interest payments. Avana Capital, an Arizona-based commercial lender, last week moved to foreclose on the $17.5 million Healthcare Resort of Wichita in Kansas, according to a Wednesday report in the Wichita Eagle.”

“The 94-bed facility had initially been slated to open in 2016, but remained vacant as of Tuesday after a complex series of transactions that have brought multiple owners and potential operators. Mainstreet gained prominence in the industry by developing hotel-like facilities as part of its ‘healthcare resort’ model. More recently, it has moved to a new concept dubbed ‘Rapid Recovery Centers’ — also a higher-end rehabilitation facility, designed to improve outcomes and reduce lengths of stay. It plans to operate these facilities through its Mainstreet Health arm.”

“Invesque and Mainstreet both have Zeke Turner in common; Turner founded both of the Carmel, Ind.-based companies. He’s no longer involved with Invesque, which focuses primarily on real estate investment, but remains the CEO of Mainstreet.”

“But Mainstreet has run into problems in recent months, pulling out of the Arizona market in March and laying off 70 workers. At the time, Turner told Skilled Nursing News that the company remained committed to the Rapid Recovery Center model. ‘We have three centers open in Texas right now and are scheduled to open five more over the next 12 months,’ Turner said at the time. ‘This is already a huge undertaking and commitment, which did contribute to the Arizona decision.’”

From Bloomberg on New York. “For New York City apartment hunters, April was another good month to find a deal on rents. But no one fared better than those in northwest Queens. Rents there dropped 12 percent from a year earlier, to a median of $2,646 a month, after landlord giveaways were subtracted, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Those giveaways were offered on 65 percent of all new leases signed in the area, excluding renewals, a record share in data going back to the beginning of 2016.”

“New York City tenants are crossing borders to compare deals in a market groaning under the weight of new supply. Landlords, who’ve accepted they need to compete to keep their units filled, are working to attract new tenants and offering sweeter renewal terms to keep the ones they have, said Hal Gavzie, Douglas Elliman’s executive manager of leasing. In Manhattan, 44 percent of all new leases came with a landlord concession, such as a free month of rent or payment of broker fees. In Brooklyn, the share was 51 percent, a record for the borough.”

“The number of new leases in Manhattan and Brooklyn fell 3.5 percent and 1.6 percent, respectively, a sign that renters there found good reason to stay in their current apartments, Gavzie said. ‘Tenants negotiating a renewal, they’ve looked around to see what deals they can get,’ he said. ‘So their landlord gives them a sweet offer to stay.’”

From New York City Lens. “Walk down Broadway on the Upper West Side of Manhattan, and you will find a wasteland of sorts littered with ‘For Rent’ signs and empty storefronts that seem to go on forever. ‘It’s unbelievable,’ said Joanne Scott, 64, an Upper West Side resident. ‘It looks like a war-torn environment.’”

“Not that the buildings are destroyed, but in many cases they are empty. A recent report compiled by Councilwoman Helen Rosenthal, of Manhattan’s 6th District, found that of the 1,332 Upper West Side storefronts surveyed, 12 percent were unoccupied. A recent New York Times story estimated SoHo commercial vacancy rents are as high as 20 percent. ‘It’s disturbing,’ said Ramon Nieves, a manager at P.C. Richard & Son on 86th and Broadway. ‘It’s only banks and Duane Reade now.’”