The Housing Bubble

A weekend topic starting with Seattle Magazine in Washington. “Representatives of Laconia Development and Realogics Sotheby’s International Realty recently announced that a planned residential tower, now under construction at 600 Wall Street in downtown Seattle, will be delivered as condominiums for sale instead of apartments for rent. It will soon deliver opportunities to own a home in a market where more than 91% of the estimated 30,000 multi-family housing units added to downtown Seattle during the current decade were developed for rent. Dean Jones, CEO of Realogics Sotheby’s International Realty believes renters are increasingly positioning themselves for capital appreciation, mortgage interest deductions and attainable home ownership options before being priced out. He notes that consumer confidence and rising home prices are key for presales, when savvy buyers can purchase a new home in advance of closing and moving in.”

The Battle Creek Inquirer in Michigan. “What difference can a hundred people make? In a downtown the size of Battle Creek’s, potentially a lot. By the end of next year, a total of about 100 new downtown apartments should be coming online in Heritage Tower and McCamly Plaza. ‘It’s the chicken and egg,’ said John Hart, Battle Creek’s downtown development director. ‘Who will come to a district to develop a business if people aren’t going to be there?’”

“The reason why supply hasn’t matched the demand yet is because of how costly it is to create the units versus what banks are willing to lend, Hart said. A project that’s $250,000 might get appraised at $207,000, and making up that gap is what stalls developers, he said. But once a market is established, appraisals will be more favorable and banks more willing to lend, he added. ‘It’s sort of a ripple effect,’ Hart said. ‘The great thing is Battle Creek is there now.’”

From RE Business Online. “Lending intermediaries are not seeing any slowdown in the availability of capital for the student housing sector in 2018. At the same time, many lenders have slowed their lending for all multifamily products, carefully balancing portfolios after the boom in conventional multifamily that occurred in the past few years. Last year was a record year for student housing financing for the government sponsored entities (GSEs) Fannie Mae and Freddie Mac. Together they funded a total of more than $5 billion in student housing volume in 2017. Fannie Mae reported volume of $3.8 billion last year for student housing, while Freddie Mac reported a volume of $1.6 billion for the calendar year.’

“‘Fannie Mae and Freddie Mac continue to be the most active in permanent student housing loans,’ says Peter Benedetto, senior managing director of Berkadia.”

From The State in South Carolina. “Richland County Council reversed course from a decision it made two weeks ago and decided to offer a 10-year, 33 percent property-tax break for a proposed student apartment complex. If the project moves forward, the owner will save nearly $4 million on property taxes over the next decade. But Richland County Council shot down a fifth developer’s request for the tax break for student apartments planned at the BullStreet development, with some council members arguing that the student-housing market was becoming saturated and there was no need to offer a building incentive.”

The Denver Post in Colorado. “Two big builds make up a small slice of the apartment market being constructed in the city, and they are part of a trend playing out in Denver and nationally: developers building luxury apartments at a much higher rate than apartments attainable for lower-income earners. Denver’s seemingly astronomical rent growth since 2000 finally appears to be slowing down. ‘I am concerned about an oversupply of luxury,’ City Councilwoman Robin Kniech said. ‘I think there is this vague hope out there that if developers overbuild luxury, they will lower prices. I don’t see any evidence that is a likely outcome. You may need to offer more incentives to get folks in, like a month of free rent.’”

“The metro area is expected to see 10,000 to 12,000 new apartments delivered this year, according to the Apartment Association of Metro Denver. Scott Johnson, mountain states division president for Lennar Multifamily Communities, acknowledges that apartment occupancy in Denver dipped slightly early last year. Lennar announced this week that it will break ground next year on two 17-story apartment buildings in the Golden Triangle neighborhood, adding another 600 units. ‘We don’t see the same supply numbers coming in the next couple years,’ Johnson said. ‘Construction costs have gone up so much relative to rents. I think we’re in a period where we are going to see starts slow down.’”

The Dallas Morning News in Texas. “Good news for Dallas-Fort Worth apartment residents: Your monthly rent is growing at the lowest rate in years. But you may have to move to get the best deal. The cool-down in rent hikes is being caused by a flood of apartments hitting the market across North Texas. ‘We’ve had some really solid rent growth but now it is beginning to slow down,’ said Greg Willett, chief economist with Richardson-based RealPage.”

“The opening of thousands of D-FW rental units in the last year has put a lid on apartment rent increases in some markets and fueled a rise in concessions that landlords use to attract tenants. Willett said Dallas is on the list of U.S. rental markets where new apartment residents are getting the most freebies, amounting to about an 8 percent concession in rents. ‘You typically get one month of free rent,’ he said. ‘The two markets where we really want to give stuff away right now are Atlanta and Houston.’”

“Atlanta concessions average more than 9 percent and in Houston the giveaways amount to an 8.6 percent break in average rents, according to RealPage. What’s working against landlords and in tenants’ favor is the wave of apartments hitting the market in North Texas. With almost 31,000 units under construction, D-FW leads the nation in apartment development, ahead of the New York area and Washington, D.C., according to RealPage. ‘We will continue to deliver a lot of products for the next couple of years,’ Willett said. ‘There are a handful of places where we are really, really building a lot.’”

From WCPO in Ohio. “Downtown Cincinnati’s West Fourth Street is about to get a makeover. The Loring Group, a Blue Ash-based apartment company with more than 500 units in suburban locations, has acquired four buildings with nearly 300 units that will be renovated to compete against the rising number of high-priced apartments in Cincinnati’s urban core. Class A properties are now fetching rents above $2 but The Loring Group wants to make its units available for roughly $1.50 per square foot. ‘Not everyone can afford to live at The Banks,’ said Scott Davis, a Loring Group partner.”

From Bloomberg on New York. “Apartment landlord AvalonBay Communities Inc. is marketing a stake in roughly $1.2 billion of its Manhattan real estate, according to people with knowledge of the offering. AvalonBay is seeking a buyer for a 50 percent interest in a group of seven properties, including buildings in the Chelsea and Morningside Heights neighborhoods, said the people, who asked not to be identified. Values of U.S. apartment buildings surged to records in recent years as many Americans turned to renting following the recession and younger people put off buying homes. Growth has started to level off after prices climbed to 42 percent above the previous peak, in 2007, according to real estate research firm Green Street Advisors LLC.”

“Apartment landlords in Manhattan are contending with a flood of new supply that has limited their ability to raise rents. They’re cutting asking prices and granting tenants more breaks such as rent-free months as they struggle to keep their buildings full. The company, one of the biggest publicly traded U.S. apartment landlords, said the New York market was one of its weakest performers in the first quarter. Supply in the area ‘is expected to peak late this year and then fall off considerably in 2019,’ Chief Operating Officer Sean Breslin said on the company’s earnings call in April.”