May 16, 2017

About To Suffer From Years Of Accelerated Improvement

A report from the Union Tribune in California. “In the first quarter of this year, local residential building permits were at their lowest since the Great Recession — largely because of a drop-off in apartment construction, said data from the Construction Industry Research Board. Builders and analysts point to about 3,000 new apartments in San Diego County this year already in the pipeline, dissuading builders — at least for now — from starting projects.”

“Builder Wermers Companies said the market has slowed following a surge in new-apartment construction over the past several years and as lenders have tightened credit for real estate loans. Tom Wermers said lenders are skittish about all the new apartments being built and may be concerned rent growth will not be as high as originally thought. Borre Winckel, CEO of the San Diego Building Industry Association, said builders have chased high-end buyers and renters, but there are only so many wealthy people.”

“‘That demographic that can can afford the top tier is thinning out,’ he said. ‘We don’t have the middle market happening anymore.’”

From Bisnow on North Carolina. “There will not be a slump in Charlotte multifamily any time soon, even in new development or investment sales, speakers at Bisnow’s Charlotte Multifamily Growth & Expansion event said. But a slowdown is possible, even likely, for Class-A product — which now includes some amenities hardly dreamed of before this cycle. Top-end development that manages to break ground in the near future is going to have to compete very hard on amenities.”

“More than one speaker predicted a softening of the market, for a variety of reasons. For developers, it will be land and construction prices, and an increasing reluctance on the part of lenders to finance Class-A in particular. For owners, higher rents will be harder to sustain. There are a lot of new jobs in the market, but that will not sustain massive rent growth as it has in recent years because wage growth still lags.”

“Even so, renters now expect much more in the way of amenities than ever before. As more supply comes online, owners need to offer those kinds of amenities to be competitive, such as rooftop pools or massage rooms or workout space with high-end equipment in common areas, and foyers and laundry rooms (as opposed to closets) in the units.”

From Multi-Housing News on Colorado. “The Mile-High City has gone through something of a Renaissance as of late. However, with rents rising at a more pedestrian rate and development still in high gear, is Denver’s multifamily market about to suffer from its years of accelerated improvement?”

“Feeding on a firing-on-all-cylinders economy and rising demand due to its growing population, developers started adding apartment inventory at a frantic rate. Since 2014, roughly 28,000 new units have been added to the market, cementing a housing boom only matched by more established markets like San Francisco and Seattle.”

“Words like ‘bubble’ get thrown around often in similar situations, but the large volume of construction has yielded so much job growth in that sector alone that it has produced demand for market-rate units. Last year saw the creation of 12,400 construction jobs.”

“On the other hand, overbuilding is manifesting itself in the upscale segment, as developers, spurred by high returns, have continued to add projects to the pipeline. As of May 2017, roughly 53,000 units were in some stage of development, despite recent completions having already compressed occupancy to 94.4 percent, 140 basis points below what it was a year ago.”

The Real Deal on New York. “The Bronx has become a destination for investors seeking high returns – not only in new development, which is, by any measure booming, but also in the borough’s existing apartment building stock. From 2010 to 2016, city property records show that investors spent $9.2 billion snatching up Bronx apartment buildings. Deal flow has continued into this year. But even though some sellers have made a killing on their properties, the buildings aren’t generating nearly enough income to keep pace with the sales prices, according to an analysis conducted by The Real Deal.”

“In over half of apartment building transactions between 2009 and 2016, market prices grew at least three times faster than building net income – a disconnect pointing to investor speculation that the fundamental value of buildings will catch up to their sticker price as rent rolls in the borough increase. The assumption, though, may not pan out, and depending on the terms of investors’ debt, overpriced acquisitions may put investors in a difficult position.”

“Jonathan Miller, CEO of appraisal firm Miller Samuel, sees rising prices in the Bronx as being part of a larger trend. ‘There’s a flood of capital worldwide seeking a home,’ he said. ‘Sometimes the financials don’t always make sense.’”

“The increase between 2011 and 2015 is clear. The sale price per unit in multifamily apartment buildings has roughly doubled in this time, closing at nearly $150,000 per unit by the second half of 2015. ‘I think the prices are much too high,’ said Steve Finkelstein, whose firm invested roughly $180 million in Bronx apartment buildings from 2009 through 2014. ‘There are people out there still buying,’ he said. ‘I don’t agree with their valuation, so I’m kind of out of the market right now.’”




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106 Comments »

Comment by Ben Jones
2017-05-16 07:09:12

The Real Deal article is a good read.

FYI, I’m flying to Texas early tomorrow on business. I’m not sure what time I’ll have for the blog but I do know a good part of the coming week I won’t have internet.

Comment by aqius
2017-05-16 09:37:00

so this friday’s desk clearing will be rolling down all the car windows at 80mph on the freeway?! (Don’t Mess With Texas)

once you go Galt, you may never halt.

Comment by Ben Jones
2017-05-16 09:57:14

I never know. I gave up my wireless wifi because I didn’t use it enough so I have to rely on what I find and it often isn’t very good. Plus I will be doing a lot in a few days. You know what the highway motto used to be? “Drive friendly the Texas way.” I liked that one a lot better.

Comment by Karen
2017-05-16 11:45:20

Unfortunately, there are a lot of aggressive people here on the roads now.

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Comment by aqius
2017-05-16 12:56:58

yep. I remember the “Drive Friendly” slogan along I-10, and agree the “Dont Mess with Texas” is catchy but more harsh.

for awhile in the 80’s & 90’s, my blue CA license plate would attract curious attention. especially in the boonies. friendly questions in the south like: “do you know any movie stars”? “do you surf”? haha - sooooo tempting to spin some wild stories but it’s just not my way.

I always tried to be friendly in return / had many enjoyable conversations w. locals . . . most people are decent if given a chance.

(was quite a hoot how people thought CA was like Baywatch, & FL was like Miami Vice)

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Comment by Blue Skye
2017-05-16 14:39:46

I lived south of Lafayette for a while and the locals thought Pennsylvania was north of I-10.

 
Comment by aqius
2017-05-16 16:56:00

I hear ya’ Blue. when I would specify being from “NORTHERN CALIFORNIA ” peoples eyes would glaze over in deep confusion trying to remember high school geography.

took it all in-stride/helped ‘em out & said Sacramento was inland, about 500 miles north of LA.

not so many movies stars or surfing waves!

(lot of sidewalk surfing in the 70’s at BEALE AFB)

 
Comment by Prime_Is_Contained
2017-05-16 23:37:54

I lived south of Lafayette for a while

Wow, I didn’t know that, Blue—I lived IN Lafayette for a while… :-)

Were you in that area pre- or post- the ’80’s oil bust?

 
 
 
 
 
Comment by Ben Jones
2017-05-16 07:14:53

‘There will not be a slump in Charlotte multifamily any time soon, even in new development or investment sales, speakers at Bisnow’s Charlotte Multifamily Growth & Expansion event said. But a slowdown is possible, even likely, for Class-A product’

It’s already here. Notice that Bisnow in the past boom times would have had lots of colorful quotes and pics of cocktail parties. Now it’s a bit drab.

‘Borre Winckel, CEO of the San Diego Building Industry Association, said builders have chased high-end buyers and renters, but there are only so many wealthy people. ‘That demographic that can can afford the top tier is thinning out,’ he said. ‘We don’t have the middle market happening anymore.’

Gosh Borre, don’t tell me all the assumptions of rich renters willing to pay 60% or more of their income was baloney? That would mean you guys are screwed!

Comment by Blue Skye
2017-05-16 08:05:59

“There’s a flood of capital worldwide seeking a home…”

Ironic how that unprecedented flood of money has impoverished people worldwide, and will now leave a lot of big fish high and dry.

Comment by Ben Jones
2017-05-16 08:12:25

Danielle DiMartino Booth put her finger on this over a year ago. CRE is reacting to way too much money chasing yield. These institutions used to put a good amount in bonds, they need compounded returns, which weren’t there. So they piled in and as prices went up and up, the industry kept making up stories for how they would use it. Super lux retail, student housing, apartments, office.

Yesterday some posters were poking fun at the Michigan lady who pointed out prices were rising too fast. Hey, at least she was applying a little common sense. And she was comparing it to inflation, how about wages? Then it becomes even more obvious.

Comment by In Colorado
2017-05-16 09:23:07

This makes me think of an old Warner Bros. cartoon. In the cartoon, Sylvester the Cat inherits Granny’s fortune. Elmer Fudd. who is apparently his financial advisor, shows up and runs a movie explaining how capital is used to grow the economy, investing in factories, creating jobs and raising the standard of living.

It is sad how pretty much nothing in that cartoon applies anymore. We hardly make any of the items we consume anymore and our economy is based on speculation and not the creation of wealth.

I could see a latter day version of Elmer telling Sylvester that he needs to invest his money in flips and building luxury apartments.

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Comment by Puggs
2017-05-16 15:35:23

Now a days is about paying fees for paper shuffling, or handling yer bags.

 
 
Comment by Karen
2017-05-16 11:51:49

Yesterday some posters were poking fun at the Michigan lady who pointed out prices were rising too fast. Hey, at least she was applying a little common sense. And she was comparing it to inflation, how about wages? Then it becomes even more obvious.

The “Michigan lady” you quoted was a tax assessor who still thought house prices should rise faster than inflation. No common sense to be found there. Nor compassion for us peons tortured by constantly rising prices.

“Sieloff prefers housing prices to rise two to three times the inflation rate, not the current situation of five to 10 times.”

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Comment by Ben Jones
2017-05-16 12:13:29

I know, but she at least acknowledged a limit. Unlike the anything-goes attitude in the rest of the world. “We’re just catching up to Vancouver!”

 
Comment by Rental Watch
2017-05-16 12:57:26

I wonder how much of her view was related to her job.

I’ll bet the complaining she gets when she pushes the assessed value of a home only 6% in a year pales in comparison to when she is pushing 15%-20% in a year.

 
Comment by Karen
2017-05-16 16:28:46

I guess we’ll take what we can get these days. Nearly everyone has gone insane with bubble-sickness.

 
Comment by Prime_Is_Contained
2017-05-16 23:44:14

I’ll bet the complaining she gets when she pushes the assessed value of a home only 6% in a year

I laugh when fools complain about this—assessed value only affects your _property_taxes_, not your resale value!! These people _prefer_ to pay MORE in taxes??!?

 
Comment by In Colorado
2017-05-17 08:39:56

These people _prefer_ to pay MORE in taxes??!?

This must explain why no other state has TABOR. Prop 13 is perhaps the closest thing, but it only keeps property taxes in check.

 
 
 
 
 
Comment by Ben Jones
2017-05-16 07:22:36

More from Bisnow, grasping at straws:

‘Co-Living Grows Up: Scrappy Startups Preparing To Disrupt Housing On Massive Scale’

‘As the country’s growing need for affordable housing coincides with its oversupplied rental market, co-living has emerged as a possible bridge for that fundamental divide, and it could shake the multitrillion-dollar housing industry to its core.’

‘The years of apartment construction in America’s major cities finally caught up to, and passed, the demand for new multifamily buildings. Rent growth is stagnant, developers are offering a month or more free to entice tenants and the construction pipeline is still full: more than 360,000 new units are expected to deliver nationwide this year.’

‘Many of these new apartments have few things to differentiate themselves from one another. They come with fitness centers, package rooms, rooftop decks, concierge services and other amenities that have become standard. In a time of oversupply, anything a building can do to stand out becomes critical. Co-living is a sensible way for developers to hedge their bets.’

Here’s how you differentiate. You default, I buy it for pennies on the dollar, slash rents and go live on a beach. But you guys keep thinking some nerds on a stage with microphones are going to save your bacon, because it is so amusing.

Comment by Blue Skye
2017-05-16 08:14:15

I fail to see the logic in this co-living idea. A surplus of apartments is not going to make dormitory style living all the rage.

The living on the beach scenario seems likely.

Comment by Ben Jones
2017-05-16 08:32:27

It’s just an expression. Beaches aren’t that great. But opportunities will arise - tricky though. Oversupply will vary and persist. Throw in a recession and the type of buildings. For instance, I don’t know if I would touch these towers at any price, much less one with a glass bottomed swimming pool hanging off the side of the roof-top dog park. And you have to set aside money for future maintenance. A lot of it is new and shiny now but that will reverse in short order.

Comment by trader jack
2017-05-16 11:10:08

60 years ago, one of the question on the appraisal exams I used [paraphrased] was this one:
you are appraising a 7 story apartment building in the desert of California , how would you determine the value, if it were vacant and new?

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Comment by James Joyce
2017-05-16 12:38:47

Interesting scenario

 
Comment by aqius
2017-05-16 13:05:43

60 years ago in CA desert eh? hmmmm

I’d see if Pancho Barnes & Co. was nearby . . .
watering holes?
truck stops?
any retiree trailer parks popping up?

 
 
 
Comment by In Colorado
2017-05-16 09:25:49

When I first read about the “co-living” concept with shared spaces, especially kitchens, my first thought was that few would actually help to keep those areas tidy (especially the kitchen).

Comment by redmondjp
2017-05-16 09:45:08

Nailed it. It’s bad enough at work with the coffee maker. Even the “your mom doesn’t live here” signs have no effect.

The only way to do it is to have a cleaning contract, paid for by the monthly HOA dues.

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Comment by In Colorado
2017-05-16 10:21:23

The only reason our coffee break areas at work are tidy and the coffee is ready is because paid contractors take care of it. Otherwise it’s like you said, it becomes a pigsty and stays that way until someone gets fed up and cleans it (becoming “mom” for a day)

 
Comment by new attitude
2017-05-16 10:33:22

choose your roommates wisely.

Expensive places like Santa Barbara are full of 40 yr olds with roommates still. They prefer to share a house and yard vs their own studio.

 
Comment by James Joyce
2017-05-16 12:42:18

I’ve found some really good stuff at estate sales in Santa Barbara because it’s such an awesome place to live. Thus, the people have real money. But just as often you find people just hanging on by their fingernails living in some converted garage or other substandard situation.

 
Comment by Oscar Goldman
2017-05-16 13:36:37

Everyone hanging on by a thread in CA. It’s the poorest most impoverished state in the US.

“Why Does California Have The Nation’s Highest Poverty Rate?”

https://www.forbes.com/sites/chuckdevore/2016/09/28/why-does-california-have-the-nations-highest-poverty-rate/#2f498d8812d9

 
 
 
 
Comment by Ben Jones
2017-05-16 15:07:20

The WSJ has an article on this too:

‘Big Developers Roll Out Co-Living Units to Woo Millennials’

I don’t subscribe but I wonder if it has this part:

‘its oversupplied rental market…The years of apartment construction in America’s major cities finally caught up to, and passed, the demand for new multifamily buildings. Rent growth is stagnant, developers are offering a month or more free to entice tenants and the construction pipeline is still full.

 
 
Comment by Apartment 401
2017-05-16 07:35:25

53,000 units in Denver? This won’t end well…

Comment by Ben Jones
2017-05-16 08:16:43

We hear these numbers: I saw 58,000 in greater Houston. 50,000 in greater Dallas. Boston, NYC, Florida, Seattle and Oregon. If you add it up 360,000 sounds low. And this isn’t counting condos which are kinda interchangeable with apartments. Something like 60,000 in San Francisco which we read the other day is the weakest sector of the market. And now lenders pull back?

Comment by ibbots
2017-05-16 08:52:48

‘Ouch! D-FW apartment rents set new record in April.’

‘The average rent for a Dallas-area apartment hit a new high of $1,141 a month, according to analysts at consulting firm Axiometrics. That represents about a 3 percent rise in average rents from April 2016. It means renters are paying about $32 a month more than a year ago. Fort Worth-area rents were up, too, rising 4.4 percent year over year to an average of $1,035.’

However…

‘The steady gains in rents come in the face of record construction and a rising number of apartments offering lease-up concessions.
Almost 30,000 D-FW apartments are scheduled to open their doors this year.’

30k this year alone, that’s a lot of apt’s to fill.

https://www.dallasnews.com/business/real-estate/2017/05/16/ouchd-fw-apartment-rents-set-new-record-april

Comment by Ben Jones
2017-05-16 08:55:33

The DMN recently reported that in the first quarter apartment absorption was slightly negative.

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Comment by ibbots
2017-05-16 09:10:43

Right. Of course the avg rent is going up since all the new units coming onto market are at higher prices. It isn’t like there’s a scarcity of apts or anything which caused the increase.

These apt investors are instructed by a lender representative on the ground who says ‘we’ll lend you $4M on these apts, but you need to put $550k into repairs / improvements in order to get the rents up in order to justify the price.’

The rent increases in many instances are not organic.

 
Comment by Ben Jones
2017-05-16 09:16:04

If it doesn’t say effective rents, it isn’t including concessions and vacancies. But generally you’re right. 90% plus of what’s been built is luxury, and I’d add the new category, super luxury, which will drag the non-effective rent up.

 
Comment by junior_kai
2017-05-16 15:25:41

Looks like we’re on our way to making ghost cities ourselves. Take that china!

 
 
 
Comment by IPFreely
2017-05-16 10:34:39

But only 3000 in all of San Diego county! San Diego is a huge county geographically. Essentially San Diego has decided that only a few luxury apartments will be built each year to keep some money coming in but the county is closed to regular folks. Meanwhile the flood of people moving in from all over the world continues as the domestic population is forced to move to places like Texas where they actually still build things. Most of California is the same way. It amazes me that CA continues to be competitive at all with such an anti growth stance.

Comment by Ben Jones
2017-05-16 10:44:24

Apparently 3,000 is too much. Overbuilding is bad for everybody. You can see that in downtown LA, where they are building many thousands with a vacancy rate of 12%. Better empty and ready for more appropriate housing when land prices come down. BTW, check out what the developer said in the article about there being no land.

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Comment by CHE
2017-05-16 12:10:56

California is basically a third-world country. Once the tech money dries up - it’s all over.

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Comment by James Joyce
2017-05-16 12:52:30

I saw a bicycle rider carrying an 8-foot couch lashed on to back of his bike going down a dirt road in the Kawangwari slum in Nairobi, Kenya. His girlfriend was on top of the couch in her Sunday best holding a parasol. The side of the road was an open sewer with little kids playing in it. Now that’s third world.

 
Comment by MightyMike
2017-05-16 12:58:10

That’s a good example. Something about California drives people to hyperbole.

 
Comment by scdave
2017-05-16 15:19:44

+1 MM. I just laugh.

 
Comment by Puggs
2017-05-16 15:32:46

Californian’s think of third whirld status when there are more than 2 cars in front of them at the Starbucks drive-thru.

 
Comment by junior_kai
2017-05-16 15:33:40

Its because hollyweird and the lamestream media push a fake version of clownifornia that doesnt exist. I remember back when I lived there getting yelled at by a midwesterner because he took his family there and the ocean was freezing. Hadnt thought about it before then, but all those baywatch type shows have people frolicking in the water when its probably in the 50s. Phony, just like all the LA skyline shots they take on those 3 days a year when it doesnt look like a scene from bladerunner. And dont get me started on the landscaping, trying to make it look like hawaii when its a coastal desert. All that water devoted to the illusion while they have to do toilet to tap or otherwise have water that smells and tastes foul.

But hey, theyre living the dream! Too bad its only a dream.

 
Comment by Rental Watch
2017-05-16 17:22:38

My wife grew up in Southern California, I grew up in Northern California.

We went to Hawaii together, and she was shocked to find out that I had never swam in the ocean. For her, it was a common occurrence.

For me, swimming in the ocean (Bodega Bay) was like taking a bath in a dirty ice bucket. No thank you. Great oysters though…

 
Comment by butters
2017-05-16 17:28:35

Now that’s third world.

No that’s filth world. Few blocks walk from LA downtown and the fresh aroma of urine and defection, that’s turd world.

 
Comment by rms
2017-05-16 18:10:54

I used to swim in the Pacific from San Francisco to San Diego. It is cold, all of it, because of the north to south currents caused by the Coriolis effect.

 
 
 
 
Comment by In Colorado
2017-05-16 09:31:22

53,000 units in Denver? This won’t end well

Especially since they are mostly pricey “luxury” units that few can actually afford. I’m not sure Denver will add 100,000 people this year, much less 100,000 high income people.

Comment by PitchforkPurveyor
2017-05-16 11:00:02

My experience with downtown Denver when I stayed in a hotel there, was that it’s a dump. This was quite some time ago, but I was less than impressed.

Comment by Puggs
2017-05-16 11:22:50

IMHO anything outside the Union Station, Brewery corridor still is.

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Comment by butters
2017-05-16 12:12:13

That’s the problem with the gentrification and urbanization. They are way overestimating the number of people who would want to stay in the city; like NYC, SF or Chicago. If they do, they can just move to those cities, no reason to hang around in Denver, Minneapolis or LA.

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Comment by acutehemroid
2017-05-17 09:45:23

“They are way overestimating the number of people who would want to stay in the city…” I’m sure that’s true enough.

What is also being over-estimated is the ability of people to afford staying in the city. Cities used to be Joe sixpac/middle class. They are now just a layer of extremely wealthy with their attendants/assistants and the poor who are out in the street or nearly so.

We are way overdue to rethink the world we live in. What has happened to science? Rationality?
Regards,
Roidy

 
 
 
 
 
Comment by Just Some Dude
2017-05-16 08:00:42

Avalon bay Communities stock price is ~$191.94 this morning, with a $1.42 per quarter dividend. A two bedroom apartment next to the BART station in Pleasant Hill is $3080 per month, or $9,240 per quarter, or $10,870.59 per quarter pre-tax (15%). This isn’t counting $20/month for trash collection or $150/month for parking.

In order to pay your monthly rent with dividends, you’d need to own 7,655.345 shares, or $1.47 MM worth of shares, or 0.0055% of the company.

Is that apartment worth $1.47MM?

Comment by Justme
2017-05-16 08:25:23

That’s an interesting way of looking at it, comparing the rent to the dividends of owning corporation.

 
Comment by Just Some Dude
2017-05-16 08:57:40

I recalled shortly after writing this comment that tax rates on REIT distributions are slightly higher at the individual’s earned income tax rate. If we assume that the usual Avalon Bay dweller is in the 25% tax bracket, then the apartment must be worth $1.67MM. Or if the dweller is in the 28% bracket, $1.73MM.

A condo slightly south of that Avalon Bay property is on the market for $469K.
(https://www.redfin.com/CA/Walnut-Creek/2738-Oak-Rd-94597/unit-152/home/1484033)

So either AVB will need to increase their dividend rate, the price of their stock will need to decrease, or the rent will need to decrease - assuming that this analysis makes sense.

However, wth do I know.

Comment by Blue Skye
2017-05-16 09:06:19

You know that the rent is too high.

 
Comment by Just Some Dude
2017-05-16 09:07:40

Ben,

We really ought to have an edit button for these comments, because here I am forgetting about California income taxes!

So if our incredibly wealthy Avalon Bay dweller must pay 9.3% to California, then all of a sudden that apartment costs $1.9MM for the 25% guy, and $1.99MM for our 28% guy.

I wonder what Equity Residential works out to. Maybe it’s just this one REIT.

Comment by Just Some Dude
2017-05-16 09:43:34

http://www.equityapartments.com/san-francisco-bay/pleasant-hill/wood-creek-ca-apartments##bedroom-type-section-2

Wood Creek apartments near-ish that AVB property, which are not walking distance to the BART, rents for $2,433. Dividend of $0.504, $64.78 share price, 34.3% taxes, etc. = $1.43MM for a two bedroom.

According to Ycharts, the shares outstanding of EQR and AVB have both increased by ~20% since 2013, so the low dividend isn’t because of share buybacks. I wonder if the inclusion in the S&P 500 is increasing the passive, price-insensitive ETF buyer artificially increasing the price.

I’ll have to look into a non-S&P500 REIT. Anyone know of one to check?

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Comment by Rental Watch
2017-05-16 13:10:25

The piece you are missing is that REITs like AVB don’t pay out 100% of their cash flow. They are required to pay out at least 90% of taxable income…which is a different number than cash flow.

ABV generates approximately $2.04 per share in cash flow each quarter. The difference between what they generate per share and what they pay out goes back into the business.

Unless you account for the growth in the asset base of the business, you are missing a meaningful component.

Not saying I’d buy AVB at today’s prices…too rich for my blood, but adding in the extra cash flow is meaningful to the analysis.

Comment by Just Some Dude
2017-05-16 14:25:12

I suppose you have a point - to pay the rent one could sell a portion of the shares every month to cover the difference between the payout and the FFO per share. I’m also taking the assumption that the share price would increase with the difference, which is not exactly fair since price+(FFO-Div) wouldn’t remain static if a shareholder values off of a DCF analysis. I presume that the share price would increase faster than the difference between the two, if reinvestment increased the FFO.

In which case, our renter is still dumb for selling shares to pay rent (though I recall a facebook engineer doing this). But never the less, it reduces the capital cost of the apartment (from the renter’s POV) from $1.9MM (using dividends only) to $1.3MM (selling shares).

To rish for my pocketbook as well. Any REITs you do suggest?

Comment by Rental Watch
2017-05-16 17:47:09

I’ve been an investor in industrial REITs for many years…I really like the management at ProLogis and Terreno. I also hold First Industrial (mainly because my basis is low, and warehouses are good assets to own today). I don’t think I would add more today of any of the industrial REITs…they are pretty fully valued, IMHO (dividend yield in the 3%ish range).

With the move of commerce to the internet, I’m not selling any either.

I also own ROIC (grocery anchored shopping centers) and DDR (”Power” centers).

Most of these I bought at distressed prices in a taxable account, and so I have a big tax bill to pay if I sell. But, if I were to order them by quality…I’d probably list them:

1. PLD
2. TRNO (CEO/CFO were from AMB, which merged with Pld–great management)
3/4. FR or ROIC (ROIC is in a weaker sector, but has good management)–flip a coin.
5. DDR

The ironic part is that DDR has gotten the *#!$ kicked out of it recently, and it paying an 8.5% dividend yield at its current price.

They have a billionaire on the board who owns a huge percentage of the company and has recently added more to his holdings, and just changed the entire executive team.

Over the past several years, they have sold off sub-par assets and concentrated only on prime retail property, and paid down debt.

HOWEVER, they apparently didn’t pay down enough debt fast enough, own some retail in Puerto Rico, and they were put on negative watch recently by one of the major ratings agencies.

I strongly suspect that they will cut their dividend to pay down debt faster, or at least get the ratings agencies to delay any downgrade.

Despite all the retail BKs, they are 94% leased, and at the current stock price, their portfolio trades at approximately an 8.4% cap rate, and on $3.2B of market capitalized value, they have $4.5B of debt (and $650MM of NOI)…so even at today’s beaten up price, they are approximately 60% leveraged.

DDR is certainly not without risk, but I personally think the stock is pretty low at the moment. Do your own diligence…I’m not recommending anything–but think I’m going to add to my position tomorrow.

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Comment by Just Some Dude
2017-05-17 07:30:55

Thank you for the suggestions and the run down. I couldn’t in good conscience get into CRE with DDR. It might turn around, and I might miss out, but the risk of it just ticking down everyday wouldn’t suit me. That’s probably why I read this blog.

 
 
 
 
 
Comment by Albuquerquedan
Comment by Blue Skye
2017-05-16 09:05:06

The people who would stop claiming the MID because their standard deduction is bigger wouldn’t be harmed directly, so the argument is subterfuge.

Comment by In Colorado
2017-05-16 10:26:01

It would basically become a tax break only for the UMC and above.

 
Comment by Rental Watch
2017-05-16 17:51:43

The argument is worse than subterfuge. It’s ignoring all the renters out there that would have a larger standard deduction.

And yes, the MID benefit would only go to the upper middle class and higher, but a lot of those folks will also lose the ability to deduct property taxes and state income taxes.

The only part of the Trump tax plan that is a big kiss to the rich is the supposed ability to only pay 15% taxes on income that comes from LLCs…which I think is absolutely an absurd idea.

Comment by Prime_Is_Contained
2017-05-17 00:03:44

but a lot of those folks will also lose the ability to deduct property taxes and state income taxes.

The don’t “lose the ability” per se—they just get the same amount of deduction under a different name: the standard deduction. I don’t see how anyone loses anything, other than the ability to feel like they are getting deductions that renters don’t get.

(Comments wont nest below this level)
Comment by Prime_Is_Contained
2017-05-17 00:04:59

Oh, sorry—think I misread your comment, RW. I withdraw that comment…

 
 
 
 
Comment by In Colorado
2017-05-16 09:27:57

I doubt he’ll get his new tax plan passed, not the way he wants it. The bankers will make sure that the MID won’t be phased out.

 
Comment by new attitude
2017-05-16 10:34:31

I welcome doubling of the standard deduction. I like money.

Comment by Albuquerquedan
2017-05-16 11:40:53

me too

 
Comment by MightyMike
2017-05-16 13:01:31

“When it is a question of money, everybody is of the same religion.”

― Voltaire

 
Comment by oxide
2017-05-17 07:39:10

Doubling the standard deduction is going to hit charities HARD. Someone would one need to donate something like $15K(?) to a charity to get the tax benefit. People who usually donate $150 may not bother donate, and that adds up.

OFA, MoveOn, and other orgs better watch out.

 
 
Comment by Oscar Goldman
2017-05-16 10:58:05

Raising the standard deduction puts a knife in the MID…. it doesn’t make sense for most debtors right now…. Raise the standard deduction in a big way and it makes sense for even fewer people.

Planned obsolescence my friends… Planned obsolescence

Comment by In Colorado
2017-05-16 11:44:54

Which is why the banking clan, which has most of congress in its pocket, will make sure it doesn’t happen.

 
 
 
Comment by Senior Housing Analyst
2017-05-16 09:55:45

Boulder, CO Housing Prices Crater 11% YOY

https://www.zillow.com/boulder-co/home-values/

 
Comment by Puggs
2017-05-16 10:00:31

“Well, I’m not going to GIVE it away…”

Sure you are pops. Now get slashing Shorty!

Comment by Puggs
2017-05-16 11:19:06

You say it’s got the master suite upstairs??

Stairs are such a B. Slash it by 50%!!

Same goes for yer RV parked out back, Muchacho.

 
 
Comment by aNYCdj
Comment by new attitude
2017-05-16 11:13:52

USAA does not need branches.

Comment by aNYCdj
2017-05-16 13:03:20

the problem is some banks dont have branches or free ATM’s close by ….but some stop and shops and ShopRite will give you $200 cash back

 
Comment by rms
2017-05-16 18:18:05

“USAA does not need branches.”

Neither does Ally.

 
 
 
Comment by trader jack
2017-05-16 11:22:06

reminds me of the 1960’s. form a corporation, borrow 110% construction loans, build a large subdivision, and default on the loan on completion, and let the lender sell the stuff.

Comment by oxide
2017-05-17 07:48:42

Taking a nice little cut on the way, I imagine.

Thank you for the living history! I guess people weren’t all that moralistic back then either.

 
 
Comment by aNYCdj
2017-05-16 11:33:04
Comment by rms
2017-05-16 18:21:06

You can get a sermon online and PayPal the tithing.

 
 
Comment by Andrew
2017-05-16 11:35:06

“There will not be a slump in Charlotte multifamily any time soon…… But a slowdown is possible”

Fools. A slowdown IS a slump. In an era where everything is leveraged and dialed-in and growth-based….any slowdown is a slump.

 
Comment by Senior Housing Analyst
2017-05-16 13:22:43

Highland Park, IL Housing Prices Crater 10% YoY

https://www.zillow.com/highland-park-il/home-values/

 
Comment by butters
2017-05-16 16:03:57

Do you trust housing data?
Do you trust FB “monthly active users”?
Do you trust company earning reports?

If so, you must trust government data, too. LOL

US Government Officials Admit GDP, Inflation Measurements Are Incorrect

 
Comment by butters
Comment by MightyMike
2017-05-16 16:40:23

Do you trust this latest statement from the government statisticians?

Comment by butters
2017-05-16 17:16:51

No I don’t. The numbers are much worse than they are letting on.

 
 
 
Comment by azdude
2017-05-16 16:11:54

can I interest any of u sheep in some amazon shares for 1000 each?

Comment by butters
2017-05-16 16:36:39

Janet is buying. You have no chance.

Comment by Raymond K Hessel
2017-05-16 17:23:25

When this car with Grandma Yellen at the wheel goes into the ditch, no one will have seen it coming.

 
 
 
Comment by Mafia Blocks
2017-05-16 16:52:33

crushing.housing.losses.

 
Comment by Raymond K Hessel
2017-05-16 17:15:20

Futures sinking like a mob informant in the East River. Are the retail investor marks belatedly figuring out they’ve been “investing” in a Ponzi?

http://www.cnbc.com/pre-markets/

 
Comment by Raymond K Hessel
Comment by Albuquerquedan
2017-05-17 07:57:31

Gold stocks with options written on them but the options expire soon and they will be out of the money unless we have a very strong rally

 
 
Comment by new attitude
 
Comment by Taxpayers
2017-05-16 17:23:03

I wonder what zillow break even calculator says if prices fall 2-3% a year for 3-4 years

 
Comment by Senior Housing Analyst
2017-05-16 17:39:22
Comment by Taxpayers
2017-05-18 13:31:38

U can b/e in 6 months !
How do they get that w a 1% forecast?

 
 
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