June 26, 2018

A Glut Has Quickly Turned The Tables

A report from the Dallas Morning News in Texas. “Dallas is on the list of cities where apartment builders may be overdoing it. Apartment construction in the Dallas area will far outpace demand, according to a new report by Yardi Systems Inc. The number of new apartments opening in the next two years in Dallas will be almost three times the projected demand, according to Yardi’s new forecast. More than 45,000 apartments are expected to open in the area during the next two years. ‘In the near term, markets at risk of oversupply include Denver, Seattle, Charlotte, Dallas, Phoenix and Miami, where deliveries are expected to outpace demand,’ Yardi analysts said. ‘We expect construction will moderate after the more than 600,000 units currently under construction are completed’ across the U.S.”

The Seattle Times in Washington. “For years, the Seattle rental market was so heated that renters would constantly monitor online listings and quickly show up to available apartments with checkbooks and references in hand. For many apartments, they’d have to fill out applications on the spot and cross their fingers. Those days are over. A glut of new apartments washing over the city has quickly turned the tables as vacancy rates hit their highest levels since the recession, led by downtown Seattle, where one-fourth of all apartments are now sitting empty.”

“This is all happening because of the region’s record apartment-construction boom. Overall, the city is getting more new units this half-decade than in the previous 50 years combined, and the peak of the openings is happening right now. Even in 2016, the Seattle area was already building the most new apartments per capita of any big metro area in the country, according to ApartmentList — and construction has only sped up since then.”

“At newly opened properties, 40 percent of all brand-new units across the region are sitting empty — that works out to about 5,000 units that have never been lived in, according to Apartment Insights/RealData. About 10,000 additional units across King and Snohomish counties are sitting empty at buildings that aren’t brand new, largely because of regular turnover. A stunning 26 percent of all apartments in the core of downtown Seattle right now are empty, up from just 5 percent a year prior.”

From the Denver Channel in Colorado. “Denver has a new idea to help deal with the affordable housing crisis, but city subsidies to people for existing vacant apartments is also drawing criticism. The program is called Lower Income Voucher Equity (LIVE) Denver. The basic concept is taking existing empty apartments, putting them in a pool, renting them out at a discount to lower-income people, and having the city pay the difference in the form of a subsidy. But not everyone is on board with the idea of subsidizing empty existing apartments.”

“‘We are perpetuating the problem of high rents in this city when we help to subsidize the occupancy of vacant apartments,’ City Council member Kevin Flynn said at Monday’s meeting. Colorado Coalition for the Homeless President John Parvensky also had concerns during an interview with Denver7 earlier this month. ‘If they have vacant units it’s because the rent’s too high. All they need to do is reduce to market level, they will fill up, and there won’t be these empty units,’ he said.”

From National Real Estate Investor. “Campus Apartments CEO David Adelman Talks About What’s Next in Student Housing. NREI: What were some of the markets where supply got too high? DA:I think you’ve seen a lot of supply in College Station, Texas, that’s Texas A&M University. Previously you saw a lot of supply in Statesboro, Ga., Georgia Southern University. There’s a lot of supply at the University of Arizona. It really just depends. In some cases, the school will grow into that supply, in other cases it won’t. At Texas A&M there’s an enlarged enrollment over the next 10 years, so that will probably be absorbed. Some of the other markets—it might not be.”

The Reading Eagle in Pennsylvania. “Advantage Point, the long-delayed student housing project off Kutztown University campus in Maxatawny Township, is going to be built, its developer said. Greg Sarangoulis, developer, said he is not discouraged by Kutztown’s declining enrollment, which fell from 10,707 in 2010 to 8,329 in 2017, a 22 percent decline. In addition, Kutztown now requires freshmen and sophomores to live on campus for their first two years. And there is currently a glut of student housing in downtown Kutztown.”

“‘I remain optimistic about the project,’ he said. ‘I think there’s been a slight uptick in the student population.’”

The New Orleans Advocate in Louisiana. “For years, rising tourism in New Orleans has driven a downtown construction boom, thanks in part to generous tax credits that have made it profitable to bring vacant or underutilized historic buildings back into commerce as hotels. Now, the city is attracting attention from a new sector of the hospitality industry: timeshares, or at least a new version of the half-century-old business model.”

“A handful of recently restored apartment buildings and hotels that are now listed for sale could likely go this route, according to some hospitality leaders — a shift that’s partly driven by a recent zoning law change that allows timeshares in areas of the Central Business District where they previously faced permitting hurdles. With hundreds of apartment units added in recent years, some developers and real estate experts, including Lenny Wormser, senior vice president at Hospitality Real Estate Counselors, say there’s an ‘oversupply of apartments’ in the CBD, which has caused the rental market to soften. At the Elk Place building, for example, the occupancy rate had fallen into the 80 percent range.”

From The Real Deal on Illinois. “Demand for rental units in the Chicago area has not kept pace with the torrid rate of apartment construction. The uptick in vacancy is due to the more than 9,000 units added in the Chicago area in the past two years. In the city, the vacancy rate was up to 6.9 percent from 5.4 percent year over year, despite net absorption of 1,700 units. The suburban vacancy rate, meanwhile, rose from 5 to 5.4 percent.”

“Marcus & Millichap said the large number of completions could slow investor interest amid concerns of oversupply. Deal volume Downtown dropped slightly in the last 12 months, with fewer new or recently built residential buildings changing hands, the report said. While the report projected a slowdown in deliveries, developers have plans to add tens of thousands of new units in the coming years.”

The Chicago Sun Times in Illinois. “No doubt, lots of Chicagoans are having a tough time finding a place to live that won’t leave them broke. Every area of the city, from Jefferson Park to the South Loop to Gage Park to Pullman, has a dearth of affordable housing, especially two- and three-bedroom units that are big enough for families, according to a report from the DePaul University Institute of Housing Studies. Chicago is right to take a hard look at strengthening its 2015 Affordable Requirements Ordinance. The ARO let developers sidestep requirements to include below-market rental units in new construction projects by paying into a fund to finance construction of affordable units elsewhere.”

“The ARO made sense, to a certain degree. Chicago got more affordable units, although fewer than the city projected, and the fund helped support subsidies for very low-income housing. But the program also has been a disappointment. Developers, as it turned out, were willing to shell out up to $175,000 not to build affordable housing, especially downtown or in wealthier North Side neighborhoods. Most of the new units were built in low-income communities on the South and West sides that already have a glut of low-income housing.”