There Is An Air Of Doom And Gloom
A report from National Real Estate Investor. “While apartment rents are still growing nationally, in a few cities and submarkets rents are growing more slowly or even beginning to shrink. The number of new apartments scheduled to open in the U.S. totals 274,700 units, up from 235,300 units added in 2017 and 220,800 units added in 2016, according to Reis Inc. Rent growth is seriously slowing down in a handful of markets. ‘We expect total completions by year-end to reach a new cyclical high. Markets such as Nashville and Charlotte, leaders in new apartment construction, will face more pressure at the top end of the market,’ notes an analysis by CoStar Portfolio Strategies.”
“Flooding damaged many houses in Baton Rouge, La. in 2017. For a time, that helped fill many rental apartments in this small city. But now many of the houses are repaired and are attracting apartment renters, pushing average rents lower over the 12 months that ended in the first quarter. ‘San Antonio is another market where supply is the main culprit,’ according to the research firm. Developers opened 11,000 new apartments over the past two years, a 6.8 percent increase in inventory, which is 24 percent above the historical average for 2002-2016.”
“‘Landlords are offering generous concessions,’ says Barbara Denham, senior economist for Reis. ‘There is significant new construction throughout New York City, including the Upper Manhattan submarket. Secondary core submarkets like Long Island City in Queens are also already showing negative rent growth, and led the nation in the amount of new apartments under construction today, according to CoStar.”
From Realtor.com. “College Station is best known as the home of Texas A&M University and more than 68,000 students. But these Aggie football fans got a little carried away on their latest housing boom, putting up too many new residences. As a result there are more homes for sale than buyers to scoop them up. Hence, the discounts. ‘To be blunt, the housing market is crashing right now,’ says Jeff Leatherwood, a broker at Aggieland Properties. ‘Properties built for the purposes of student housing are just overbuilt. We are a huge college town, and most of our market is rental properties.’”
“This overabundance of housing, particularly homes aimed at students, could get worse before it gets better, local professionals fear. ‘There is an air of doom and gloom,’ Leatherwood says. ‘When the school year starts again in September, homes [that didn't get student renters] will flood the market.’”
From the Seattle Times in Washington. “The shift has been sudden: Last year, rents rose about 4 percent. Just two years ago, rents were soaring as much as 9 percent annually. ‘One, two, three years ago, we would literally have people move out and we’d be there to do a quick cleaning, and change the locks, and have someone literally move in a couple hours later. We didn’t lose a day of rent,’ said Chris Benis, who rents out a dozen houses on the Eastside. Some tenants would even rent houses sight unseen.”
“But in the last couple months, two of his houses became vacant and drew just one tenant application each, and it took about a month to rent out each house. ‘We didn’t have people banging down the door to rent’ them, Benis said.”
“Rents at Seattle-area apartment buildings have also cooled way down recently, and are actually below their highs reached last summer. But dig deeper and it’s a bit confusing: Experts have pinned the apartment-rent slowdown on the record number of new apartments flooding the market. Julie Purchase, principal of Avenue One, which manages about 600 single-family home rentals in Greater Seattle, said the huge jump in new apartments has had a chilling effect on the home rental market, too.”
“Purchase said in the last few years her firm could automatically raise rents about 10 percent when a new tenant came in — now they’re cutting rents 5 to 10 percent just to get enough applicants, and even still, it’s taking about two weeks longer to rent the typical house than it used to. ‘I expect it to be tough (to raise rents) as long as they continue to build 11,000 (apartment) units a year here,’ Purchase said.”
“One wild card to watch out for is whether landlords cash out and sell their houses now to take advantage of the for-sale market, which continues to be as hot as ever — particularly now that home rentals aren’t offering the same returns. Purchase said last spring about 5 to 10 of her clients sold their rental houses, while this spring it’s tripled to about 25 to 30. About 30,000 single-family homes across the region were converted from for-sale to rentals during the housing bust. In all, about 145,000 houses in the Seattle metro area are now rented out. There are only about 4,300 houses on the market right now in the metro area, so even if a fraction of those rentals went up for sale now, it could make a difference.”
From the Daily Camera in Colorado. “A group of Boulder renters are facing rent increases as high as $500 a month after their landlord reneged on lower rates. The complex’s owner says the situation was a result of a mistake made by a previous property management company. Caught in the middle are the tenants of Wonderland Creek Townhomes, who have until June 8 to make a decision: either pay up or move out.”
“The former property management group, Brinkman Construction, of Fort Collins, sent out letters March 28 to residents notifying them of the hikes, and a Saturday deadline to announce their intention to stay or vacate. Four Star took over May 1. On May 16, the company sent out a notice that Brinkman had acted ‘without the owners (sic) consent or approval’ and gave the renters one week to decide whether to renew under increases that were $700 to $800 higher than the rates Brinkman offered. ‘Unfortunately, the renewal rates that were offered by Brinkman cannot be honored by the owner as this would significantly impact the community and interfere with the overall well-being of the asset,’ read the letter, copies of which were obtained by the Camera.”
“As a nod to the about-face, the new, higher rents were presented as discounts from market rates that Four Star could charge; about $200 less, on average. ‘The owner has consciously and generously agreed to a concession,’ the letter read. Scott Woodard, a representative for the group that owns Wonderland Creek Townhomes, said substantial increases were needed because the current lease rates were special, move-in deals offered in the complex’s first year to prop up vacancy.”
“‘We couldn’t continue to honor any more of those rates at that point when we discovered that error’ on May 15, Woodard said. ‘We were back on our heels as far as these letters of intent, and it’s going to cost us a lot of money.’”
“Shelly Darnutzer has already made up her mind. ‘If this is the final offer,’ she said, ‘then I will be moving out.’”
The Democrat and Chronicle in New York. “Kevin Morgan, a nephew of Robert ‘Bob’ Morgan, pleaded not guilty Tuesday morning for his role in a years-old fraud scheme. Kevin Morgan, 42, is accused of fraud in a 62-count indictment that includes Robert Morgan’s son Todd Morgan, 29, and two others — Frank Giacobbe, 43, of East Amherst, Erie County, and Patrick Ogiony, 34, of Buffalo. He was arraigned midmorning in federal court in Buffalo and is being held in lieu of $100,000 unsecured bond.”
“The four men are charged with wire fraud, bank fraud and conspiracy to commit wire fraud and bank fraud. They are accused of obtaining over $167.5 million worth of loans connected to seven properties, including apartment complexes in Buffalo, Syracuse and Avon, Livingston County. Kevin Morgan is the last of the four to be arraigned on the charges in federal court in Buffalo. He is vice president of Perinton-based Morgan Communities, while Todd Morgan is a project manager. Robert Morgan is chief executive officer. Kevin Morgan was indicted on 35 counts, while Todd Morgan was indicted on 26 counts.”
From Rochester First. “Todd Morgan, the son of prominent Rochester developer Bob Morgan, pleaded not guilty to charges of fraud on Thursday. Prosecutors say Todd and his cousin Kevin Morgan misled financial institutions in order to get bigger loans for seven properties across Western New York. Prosecutors say the pair would take steps, like turning on televisions and radios, to make vacant buildings appear occupied.”
“Two loan officers, 43-year-old Frank Giacobbe of East Amherst and 34-year-old Patrick Ogiony of Buffalo, were also charged in the case. And Wednesday, U.S. Attorney J.P. Kennedy said the investigation is still underway and more people could face charges in the investigation.”
