High-Flying Developers Bring Their Work In For A Landing
A report from National Real Estate Investor. “Developers still hope that Millennials will help fill the slowly growing number of vacant apartments across the United States. They might be right. More than a million Millennials still live at home—less than a few years ago, but still a substantial number, including some who are likely to eventually rent apartments. ‘There’s potential upside in demand there,’ says Ron Witten, founder of Witten Advisors, an advisory firm that focuses on the apartment sector.”
“Witten Advisors continues to forecast a relatively healthy apartment market two years from now. ‘Our outlook has remained about the same—slower rent growth, but still above average in most markets, as more supply opens,’ says Witten. ‘The markets generally don’t have an oversupply problem, but many do have a supply concentration problem, with many new projects in the same neighborhoods leasing up simultaneously and softening rents in the short term.’”
From The Herald in Washington. “More than 2,000 apartments are being built across Snohomish County — with more on the way. That leads to the question: How many are too many? ‘It depends on who you’re rooting for — whether you’re rooting for the owners, the developers and the office managers or the tenants,’ said Tom Cain of Apartment Insights Washington, a Seattle real estate market research firm.”
“Most of the development occurring in the county is happening near the Snohomish-King county line, said Tom Hoban, CEO of the Coast Group in Everett. ‘All of it leased up quickly, as we might expect,’ said Hoban. ‘We could see a minor oversupply in the short term, causing vacancy rates to tick up to 6 percent, but long-term fundamentals are strong.’”
From The Oklahoman. “Aircraft carriers and apartment construction have at least one thing in common: Neither can stop on a dime. The multifamily building boom is over, courtesy of the 2014-16 crude oil price slide, but it will be a while before high-flying developers bring their work in for a landing. That’s the gist of the construction section of Price Edwards & Co.’s 2016 year-end multifamily market survey, prepared by broker David Dirkschneider.”
“Historically low loan rates, strong oil prices and a growing workforce caused an expansion in apartment building here for just more than a decade ending with the steep dive starting in early 2014. Nearly three years later, apartments are still going up despite a decline in occupancy to just less than 90 percent, the lowest in recent history, Dirkschneider said. Dirkschneider reported 3,400 new apartments completed last year in Oklahoma City, about one-quarter of them downtown or in the urban core at The Lift, The Metropolitan, the second phase of The Maywood. Only 1,454 were rented.”
“‘Often we receive questions regarding why developers continue to build when the market has already signaled a softening, and the basic answer is they are simply fulfilling projects already in their pipeline,’ Dirkschneider wrote.”
The Miami Herald in Florida. “Downtown Miami’s real estate market is slowing fast, just as developers are preparing to deliver the most new condos in a single year since the last bubble. Nearly 3,500 downtown condos will be delivered this year — a surge since the Great Recession. On the rental side, about 4,900 rental apartments are under construction downtown — which, combined with the 1,000 rental apartments that were delivered last year, should slow rent increases, according to the Downtown Development Authority report. The asking prices for rentals have declined, the report found.”
“While the sliding demand will limit financing for some new projects, it’s also a sign of a market stabilizing after five years of continuous growth that some analysts had worried might lead to another condo glut. ‘I said last year the developers were making decisions based on the timing of the market,’ said Anthony Graziano of Integra Realty Resources and one of the lead authors of the report. ‘This year, their bankers are.’”
The New York Times. “As rents in Brooklyn slip but inventory continues to mount, landlords are locked in a fight to fill their apartments. After lavishing their buildings with outdoor cinemas, high-end markets and spa-caliber pools, landlords have decided to offer hefty freebies, like several months of rent and other concessions. Particularly pitched, brokers say, is the battle playing out along the Flatbush Avenue corridor in Downtown Brooklyn, where rental complexes have quickly sprung up.”
“‘The market seems oversaturated, but I like to use the word oversupplied with my clients so as to not create a panic,’ said Marie Bromberg, a Corcoran Group agent.”
“A renter who is considering renewing an existing lease and who hears about discounted empty apartments in the same building might demand a similar bargain, said David J. Maundrell, the executive vice president of new developments for Brooklyn and Queens at Citi Habitats. Mr. Maundrell added that the rental market may be shallower than many think. ‘It gets to the point where you start to wonder, how many people are out there that can afford rents like this?’ he said.”
“‘The markets generally don’t have an oversupply problem, but many do have a supply concentration problem, with many new projects in the same neighborhoods leasing up simultaneously and softening rents in the short term.’”
Maybe, but markets where lots of building has happened have too many new luxury apartments. The millennials aren’t living at home because they simply decided not to shell out $3,000 per month for a studio. They are at home because they can only afford $650. If you want them to move out, there need to be vacant units that they can afford.
Mr. Maundrell added that the rental market may be shallower than many think. ‘It gets to the point where you start to wonder, how many people are out there that can afford rents like this?’ he said.”
———-
And that’s the crux of the problem. If the last unit leased at a very high rate, how do you determine how many more you can lease at that high rate? Luxury is where all the development occurred, but it’s also where the demand is most shallow.
Luxury… class this… class that…. all distinctions without a difference considering it’s all just excess, empty housing units. Record high levels of housing units across the US.
Bonita Springs, FL Housing Prices Crater 8% YoY
https://www.zillow.com/bonita-springs-fl/home-values/
Same thing with cars, clothes, etc. Too many went after the high end in every market because thats the only place where there’s any real profitability left - they’re the only ones with extra money. Problem is there are too few of them.
Have you looked at mountain bikes lately? Furniture? Even eating out - just went to a fancy restaurant a couple weeks ago (not very good btw), doubt if its making any money. Restaurants come and go, lunch trucks seem to have a bit more staying power because they cater to everyone.
Good point on the chuckwagons and it can’t be overstated…. If it’s overpriced, you’re going out of business.
So it is with all items. If it’s overpriced and you paid it anyways, you’re going out of business.
Lunch trucks are pricey - Over $10 now for a burger and fries. In some cases $10-12 for the burger and $3-5 for the fries. Forget about that. $3-5 for a fried potatoes?!?!
We get lunch trucks outside our office Mon, Wed and Fri. Seen so many come and go.
Usually I pack my own lunch but on those occasions when I get busy, too tired, etc I can also now walk across the street to Trader Joe’s and pick up a wrap and big bag of potato chips for 7 bucks… and those chips will last a week+
Have you ever considered how much it costs to start up a food truck, procure the ingredients, produce the meals, pay for labor and make a profit after all is said and done? $10 for a burger and fries seems cheap at that point.
We have a situation in this country where everybody expects to get paid a whole bunch of money, and pay the other guy next to nothing for his efforts. A lot of this is due to the decline in wages and the associated economic pinch in personal budgets, but also a large populace with inflated egos and unrealistic expectations.
If you’re paying somebody for a good or service, you’re paying for that business to stay open. If you are expecting the price of a burger out to be the same as one cooked at home, you’re either delusional or cannot afford to eat out.
Restaurants have to start up, procure ingredients, produce meals, and pay for labor too. However, food trucks don’t have to pay rent or the extra materials and labor for dishes and dining space. CHE cited $13-15. For that price I can get lunch at Applebees… hand delivered to me on ceramic dishes while sitting in a climate controlled dining space, instead of standing on the filthy pavement with dripping paper wraps and napkins, like some third-world street market. If I’m going to eat my meal standing in the street, I would expect to receive restaurant quality food at a slightly lower price.
“If I’m going to eat my meal standing in the street, I would expect to receive restaurant quality food at a slightly lower price.”
Just eat it, Mr. Pink, and pony-up that tip.
The local food trucks in my area are required to have off-site commercial kitchen and food storage space, and that doesn’t come cheap either. I have a friend who went so far as to build his own food service trailer, and he’s now given up on the idea and is going to sell it. Lots of regulations, annual fees & inspections, just like the stationary restaurants have.
Restaurants have to start up, procure ingredients, produce meals, and pay for labor too.
As an owner, unless you live there, most of the employees are stealing from you. Even the good ones. You learn to live with it to a certain extent, or get out.
Minor warning sign…MBA put out some data today showing ARMs have reached a 2.5 year high at 7.7% of mortgage applications. Let’s see if/how this grows.
Rising ARMs in light of a rising rate environment indicate people using them for affordability…ie. stretching farther and farther to purchase. Let’s see if it’s a blip, or beginning of a trend.
arm loan
wow, haven’t done that since the 70’s
No kidding. Rates this low are a gift…for 99% of people, locking in a low rate for the long term is the safest route.
There is no safety in financing a rapidly depreciating asset at a grossly inflated price.
Herndon, VA Housing Prices Crater 12% YoY
http://www.movoto.com/va/20170/market-trends/
It’s not a gift if rates go up and prices go down as a result, therefore locking one into negative equity when the need to sell arises.
Don’t confuse a buy vs. rent discussion with an ARM vs. fixed rate discussion.
If you already own a home with low leverage, but a relatively high interest rate (let’s say 7% to make it easy), you absolutely should refinance.
Should you take out an ARM? Or obtain a fixed rate loan?
I submit that long-term rates, fixed at <5% are a gift.
Tripling your shelter costs by buying it instead of renting it is no gift.
Boulder, CO Housing Prices Crater 6% YoY
https://www.zillow.com/boulder-co/home-values/
‘are a gift’
If it all happens naturally via market forces, maybe. If it happens because of a decade long, massive central bank distortions, which then distorts the price of pretty much everything, it becomes a big sh#t sandwich.
‘The market seems oversaturated, but I like to use the word oversupplied with my clients so as to not create a panic,’ said Marie Bromberg, a Corcoran Group agent.’
This is what I was talking about when discussing market data. These people will piss on your back and say it’s raining.
What’s funny is that “oversupplied” sounds worse to me than “oversaturated”.
“oversaturated”
result = precipitation.
The correct term is supersaturation.
It only takes one little seed crystal to start precipitation in a supersaturated solution… and once it starts it happens very quickly.
The correct word is “overpriced”
Ben:
Can’t wait for your on the ground report down there in the lone Star State. Really glad to hear you continue your on the road reports.
I have heard Dallas is insane in terms of development - cannot bode well down the road - esp when interest rates rise. I am thinking - that all that Multi Family overbuilding now anticipates alot of home loaners defaulting in the future when things turns back and they have to start renting again?
Having moved back to CO after a 30 year absence the housing developments here in the Denver area - 5 county region - is just rolling along unabated. Frankly it is just plain scary. My formerly little burg of Castle Rock in the middle of Douglas county has a very large development going on called Terrain and the houses in this huge development by production builders of all flavors is already causing issues re traffic, road construction, school overcrowding - you name it. I cannot recall how many homes are being built in there but my finger in the wind est says over 1000. Head to Denver airport and similar stuff is going on there. Another development in the southwest part of the city (Littleton) called Sterling Ranch is now under construction and it is massive at full build - something like 12k homes. This with only one access road in and out. Locals there are really pissed given the lack of planning.
Frankly I am appalled at many of the developments - die cut lots- zero lot line stuff and dirt flying everywhere. My gut says this is gonna crater at some point. In the mean time - I see out of state plates all over the place coming from Cali, Indiana, NE, Texas and for some reason VA. They need a place to live, a job and roads to drive on. Rents here I am hearing in downtown Denver are well over 1200 a month for a studio in hipster ville and nearing 3k for upscale 2 bed flats. Boil and boil, toil and trouble!
Still I like it here - and it is a helluva lot better than the utopian paradise called Chicago!!
Best.
Rj
….. and then there is this.
Denver County, CO Rental Rates Crater 5% YoY
https://www.zillow.com/denver-county-co/home-values/
Prices are still rising in Douglas County:
https://www.zillow.com/douglas-county-co/home-values/
Colorado has a structural advantage vs other states thanks to its relaxed reefer rules. When/if the bubble pops nationally, Colorado won’t hurt as bad.
Is there 420-friendly v Children of the Corn economic benefit?
https://www.washingtonpost.com/news/where-we-live/wp/2017/03/08/buying-a-home-this-spring-get-ready-now-the-competition-may-be-fierce/
Where is this demand coming from? I know plenty of couples looking to buy - but going into 500K+ of debt for one these northern Virginia “starter homes”? I know it’s crazier in some of the other markets, but I wonder if there will ever be an end to this madness.
It’s the Washington Compost. Check demand for your area first.
http://files.zillowstatic.com/research/public/City/City_Turnover_AllHomes.csv
dc AREA-maybe they plan on working for state or EPA
‘after five years of continuous growth that some analysts had worried might lead to another condo glut. ‘I said last year the developers were making decisions based on the timing of the market,’ said Anthony Graziano of Integra Realty Resources and one of the lead authors of the report. ‘This year, their bankers are.’
And soon there will be defaults galore. It is like an aircraft carrier. Once begun there is no option but to finish it. These guys have a 20 year supply of $5M and up, yet they talk about how there are only 12k units on the way! If you wonder how they could get it so wrong, check this out:
‘One of the hallmarks of the current expansion has been the widespread development of high-end apartments. These pricey Class A-plus, or luxury, properties have gone up in metro areas around the country, including many that had seen little, if any, such supply in years past.’
‘This trend toward higher-cost, higher-rent infill construction often seems like a new phenomenon, but it’s not. In many areas of the country, rising land, development and construction costs have long made it such that high-end or tax-credit properties are most often the only new developments that pencil.’
‘The high cost of new development in many of these metros means that rents for new apartments may exceed, perhaps by a lot, the 90th percentile rents on the existing stock. In addition, many residents may prefer to spend less than 30 percent of their incomes on rent, even if it means fewer amenities or an inferior location.’
‘To return to the question of whether the industry is in danger of overbuilding at the high end of the market, our analysis suggests that, from a macro-market perspective, there is still a substantial reservoir of households that could afford upscale apartments.’
‘Mark Obrinsky is the senior vice president of research & chief economist for the National Multifamily Housing Council.’
It is like an aircraft carrier. Once begun there is no option but to finish it.
I dunno about that. The Russians only finished one of their their aircraft carriers, the other one was sold, unfinished, to China.
You can’t move a tower. They do get halted. IIRC, there are 4 stopped in Miami Beach because they can’t get funding, and a few in Manhattan. But as I saw in Houston, they are seriously oversupplied and actively working to finish what’s begun. I did get some video of one downtown condo that looks like it stopped unfinished at 4 floors.
They do get halted. IIRC, there are 4 stopped in Miami Beach because they can’t get funding, and a few in Manhattan.
This is bananas…the idea of starting a project without the money to finish is crazy. Most traditional lenders require all equity to be contributed before they fund a dime, which makes me wonder:
1. Who provided the capital to start these projects?
2. Are there cost overruns that caused problems? Many lenders will have rebalancing provisions…if there are cost overruns, they will stop funding until someone shows up with the money necessary to provide enough money to complete the project.
3. Were these projects started on the backs of “nonrefundable” deposits from buyers? And did sales stall?
Stalled condo project ordered to foreclosure auction
South Florida Business Journal-Mar 2, 2017
The stalled H3 Hollywood Condominium project was ordered to foreclosure auction over … Miami attorney Jill Nexon Berman, who represents Hollywood Station …
https://therealdeal.com/miami/2016/09/21/h3-hollywood-halts-construction-and-sales-at-60-presold/
And let the lawsuits begin…~150 buyers put 50% down. Does anyone want to guess where the money went? It’s not a stretch to assume it went right into the concrete and steel.
False assumptions turn a project into a death march. Better abandoned soon rather than later. Stop work and financing is unavailable. Chicken or egg doesn’t matter.
If you make $18 an hr, you can’t spend more than $900 a mo on housing. (half your check) and your employer better be paying for your $485 a month health insurance and you will be taking the bus.
‘We could see a minor oversupply in the short term, causing vacancy rates to tick up to 6 percent, but long-term fundamentals are strong.’”
Why of course! Fundamentals are always strong. Thank goodness. For a moment I was worried.
Regards,
Roidy
“Crude Is Crashing”
http://www.zerohedge.com/news/2017-03-08/crude-crashing
Nothing accelerates the economy, creates jobs and raises the standard of living like falling prices to dramatically lower and more affordable levels. Nothing.
Clothes are sure cheaper now than when I was a kid.
gotta love competition!
The Chinese rubbish is cheaper. Quality stuff is expensive, but you won’t find it at Walmart, Target or Kohl’s.
All my clothes are made of hemp from Berkeley, CA.
Shop local.
Yes, I’ve seen the organic apparel. It costs just as much as Macy’s but is appropriate for a yoga studio and not much else. I work in a real office, thanks.
This just in:
‘Shares of Urban Outfitters Inc. and Express Inc. fell on Wednesday after the apparel chains gave a dour outlook for the industry, renewing concerns about America’s overabundance of retail stores. Urban Outfitters Chief Executive Officer Richard Hayne said the holiday season was disappointing, with higher markdowns than expected.’
‘But the broader problem is there are just too many stores, he said on a conference call Tuesday evening.’
“The U.S. market is oversaturated with retail space and far too much of that space is occupied by stores selling apparel,” he said. “Retail square feet per capita in the United States is more than six times that of Europe or Japan. And this doesn’t count digital commerce.”
‘Too much square footage was added in the 1990s and early 2000s, with thousands of stores opening, he said.’
“This created a bubble, and like housing, that bubble has now burst,” he said. “We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.”
Now who was it that said there was going to be a CRE bust? Oh, right, that was me. BTW, he’s wrong about the per capita square footage compared to Europe. I read it was 3 for Europe and something like 40 for the US. You know what else I saw huge amounts of in Texas? Brand new express type hotels. They were everywhere I went and more being built.
“Manhattan Retail Vacancies Soar”
http://www.zerohedge.com/news/2017-03-07/retail-vacancies-soar-manhattan-proving-big-apple-not-immune-retail-rout
Soaring retail and residential vacancies and cratering rents.
Scenes From An HBB Western Road Trip
1) left arm sunburned
2) back seat full of Carls Jr. / In-N-Out wrappers
3) ok to turn right on red?
4) smoking indoors?
5) acutely aware of regional gas prices, billboards & cranes.
Bonus: rooms w/free breakfast, free WiFi = livin’ large!
Finding a straight stretch of highway with a good cell signal to moderate.
A video on Tucson housing. Prices down, listings up 81%.
http://www.kvoa.com/clip/13148948/stats-on-the-ups-and-downs-of-the-housing-market
“A video on Tucson housing. Prices down, listings up 81%.”
That’s shocking!
Because it was actually reported on MSM…
“A video on Tucson housing.”
I imagine $140k buys a nabe with a cars parked near the front door and a few roosters that wake everyone at the first crack of dawn?
test
http://www.bbc.com/news/world-africa-39208946
‘Reader: Denver Has Gone From Queen City to Whore of the Rockies’
“Crime has increased 44 percent (at last count) over the past few years; increased violent crimes such as carjackings, shootings, stabbings, smash and grabs, etc.”
Diversity is our strength.
“Or perhaps it’s because the salary ranges for most jobs have not kept pace with the increasing cost of living here.”
Glad to see the main-street slaves are finally waking-up.
“Mega-Bears Smell Blood As REITs Tumble”
http://www.zerohedge.com/news/2017-03-08/mega-bears-smell-blood-reits-tumble
I wouldn’t hand a penny to these clowns. Ever.
‘Each week, “Just Reduced” spotlights properties in Arlington County (VA) whose price have been cut over the previous week.’
‘The number of the week is 10. Why, you ask? Well, we’ve seen a 10 percent uptick in detached home listings over last week. We’ve also seen a 10 percent uptick in the number of townhouse listings over the past week. And, while we’re at it and for the purpose of this column, our number of homes experiencing a price reduction has jumped more than 10 percent as well.’
‘So, what does all of this mean for you? It means that more and more listings are hitting the market, meaning that more and more sellers need to be competitive with their pricing.’
Boots!
Soon to be x fed bueracrats
Herndon, VA Housing Prices Crater 12% YoY
http://www.movoto.com/va/20170/market-trends/
Heckova job, Draghi. What kind of idiot would “invest” in bonds paying negative interest rates?
https://www.forbes.com/sites/kenrapoza/2017/03/06/trillions-disappearing-from-europes-negative-bond-market/#39ee53b95eaf
Jobless people in our Obama-Fed-Goldman Sachs “recovery” aren’t doing much driving, evidently.
http://www.cnbc.com/2017/03/08/market-alert-us-oil-price-plunges-to-50-as-a-perfect-storm-brews.html
“We may break below that range for about 90 days, but in the end I think we’ll be above it come driving season,” he said. “From now through let’s say May, it may be stormy times,” he said.
Hehe… high tide doesn’t last forever. Got shorts?
Tapped-out, debt-ridden ‘Murican consumers can’t even afford discount stores in our Obama-Fed-Goldman Sachs “recovery.”
http://banyanhill.com/discount-retail-next-shoe-drop/
Unfunded liabilities of largest US pension plans increase. Combined with the Fed’s debasement of the dollar, retirees are going to have a lot less purchasing power and income than they’d counted on.
http://www.ai-cio.com/channel/NEWSMAKERS/Unfunded-Liabilities-of-Largest-Pension-Plans-in-U-S–Increase,-While-Assets-Rise/
Which will collapse demand for everything even further.