August 7, 2018

Investors Got In At Way Too High Of A Price

A report from WAMU. “When she moved into her new apartment complex in Pentagon City, Carol Millman didn’t realize she would be sharing her building with hotel guests. But one morning about a year ago, as Millman stood in line awaiting a free breakfast provided by the building’s management, she made an unnerving discovery: her building was renting out apartments to temporary guests. Unbeknownst to Millman and other residents of The Bartlett, a company called Global Luxury Suites was renting apartments in the building. Millman had stumbled across a practice that’s become common in brand-new apartment buildings in the Washington region.”

“But some say developers and landlords are turning to companies like WhyHotel as a last resort, and overlooking the negatives. Joe Rieling is the co-founder of Nomadic Real Estate, a property management company in D.C. He says WhyHotel strikes him as a sound idea, because it capitalizes on the desperation of property owners that have gotten into financial hot water.”

“Thousands of new rental apartments hit the D.C.-area market around the same time in recent years, Rieling says. Many of them opened after prolonged construction delays that cost developers a lot of money. Then rents stopped rising — largely because of the new supply — and developers found themselves in significant debt without enough rental revenue to make up the shortfall.”

“‘I see it all the time now,’ Rieling says. ‘You’ve got all of these investors … who got in at way too high of a price, got kind of caught up in the frenzy of multifamily housing here in D.C., and as the unfurnished rental market started to return to reality off its peaks in 2013, 2014, the only model that can produce them revenue to generate a profit or even just to break even’ is short-term housing, he says.”

From Curbed Atlanta on Georgia. “Following a short-term visit in June to the Old Fourth Ward, a reviewer named Micheal opined online that he’d enjoyed ‘the best Airbnb I’ve stayed in.’ He hadn’t taken up temporary residence in an O4W bungalow or VRBO condo—but a Ponce City Market studio apartment dubbed ‘The Edison Loft,’ which costs $199 per night. Such brief PCM lodging arrangements will be the new normal.”

“Officials with the Flats at Ponce City Market, the development’s residential component, announced a collaboration this week with Atlanta Luxury Rentals to operate short-term rentals. The changes come at a time when other large apartment developments have been offering concessions—six weeks of free rent, for instance—to lure tenants in submarkets crowded with new inventory, such as Midtown. Earlier this year, property management software specialists RealPage found that metro Atlanta is leading the nation when it comes to average rent discounts.”

The Union Tribune in California. “Long before she got fed up and moved out, Whitney Harchanko said, weird things began to happen in the halls of the Hollywood building she had lived in for years. People rang her doorbell at odd hours, confused about which apartment they were seeking. Drunk strangers sprawled next to the pool. Housekeepers flitted around during the day. Harchanko snapped photos and tracked down online ads for short-term rentals in the building, urging the manager to stop it from happening.”

“‘Nothing ever changed,’ Harchanko said, ‘except they put up a sign in the elevator.’”

“Those signs, posted in the elevators by Redwood Urban property management, declared that subleasing apartments for short stays was not allowed. Yet the building near the famed corner of Hollywood Boulevard and Highland Avenue is still advertised online to travelers by an international company called Ginosi, which rents out furnished apartments to nightly guests.”

“Pelican Residences is another, catering to travelers from across the globe at seven apartment buildings, mostly in Hollywood, according to a manager. That manager, Chris Rivers, said building owners are happy to get rid of apartments that are sitting empty and that renting out units for short stays creates jobs for housekeepers and others who cater to vacationers, who then spend money wandering neighborhoods. ‘It generates money for the city,’ he said.”

From Multi-Housing News on Washington. “What to Expect From Seattle’s Hot Market. Can this last? Billy Pettit, president of local development company Pillar Properties, explains why he anticipates a slowdown. As a multifamily and senior housing developer in the Puget Sound area, Pillar Properties owns more than 1,600 units in the region. Pettit: ‘The new supply has absolutely introduced new challenges to the market here. We have seen downward pressure on rent growth and, for the first time in a while, we have seen the use of concessions appearing more and more in the market.’”

“Q: Is there any more room for multifamily expansion downtown? Pettit: ‘The short answer is yes, there is definitely more room for multifamily expansion in the downtown core. It really comes down to timing for us. Do I want to deliver another 2,000 units in the next two years? No. Do I want to deliver another 2,000 units over the next five years? More likely. Do I want to deliver another 2,000 units over the next 10 years? Absolutely.’”

From WBUR in Massachusetts. “Rents in Greater Boston have fallen slightly over the last year — but only for the top tier of the market. For everyone else, they’ve ticked up. The changes in this region’s rental prices are quite small, but follow a trend in big metros that was noted by The Washington Post on Monday. ‘Since last summer,’ the Post reported, ‘rents have fallen for the highest earners while increasing for the poorest in San Francisco, Atlanta, Nashville, Chicago, Philadelphia, Denver, Pittsburgh, Portland and Washington, D.C., among other cities.’”

“The divergences at different rental price points raise questions for local officials about how to address growing housing costs. Many argue that moderating prices should filter down through a growing supply of housing stock; others say more direct intervention is needed.”

“As the Post writes: ‘City officials have said that a boom in luxury housing construction would cause rents to fall for everyone else, arguing that creating new units for those at the top would ease competition for cheaper properties. In part based on that theory, cities have approved thousands of new luxury units over the past several years, hoping to check high rents that have led more than 20 million American renters to be classified as ‘cost burdened,’ defined as spending more than 30 percent of one’s incomes on housing.”

“But although some advocates say the dividends could still pay off for low-income renters, others say more direct government action is needed to prevent poor residents from being forced out of their cities or into homelessness. …”

From Common Dreams. “Diane Yentel, chief executive of the advocacy group National Low Income Housing Coalition, outlined the governing theory that has led to this nationwide crisis. ‘For-profit developers have predominantly built for the luxury and higher end of the market, leaving a glut of overpriced apartments in some cities,’ she explained. ‘Some decision-makers believed this would ‘filter down’ to the lowest income people, but it clearly will not meet their needs.”

From Bisnow on Texas. “Houston’s apartment rents remain cheaper than those in most major metros in the country. Cushman & Wakefield Senior Director Ed Nwokedi said the city’s economy has remained healthy and offered stable affordability compared to other gateway cities. ‘Apartment rents are competitive based upon the continuous population growth and [overbuilding] supply,’ he said.”

“Houston multifamily occupancy was near 90% as of August, with 11,691 units absorbed over the past 12 months, according to ApartmentData. The market delivered 9,806 units or 43 communities within this period with an additional 10,577 units or 40 communities currently under construction. The report also predicts more than 18,000 apartment units or 68 new communities will be proposed by developers before year’s end.”

“‘Like clockwork, you can depend on developers to overbuild apartments ahead of demand,’ Nwokedi said.”




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39 Comments »

Comment by Ben Jones
2018-08-07 12:19:55

Moving along. I’ll have more troll crow later this evening.

‘Chris Rivers said building owners are happy to get rid of apartments that are sitting empty’

Wa? But San Diego? Jingle? Shortage!!

Comment by hunkydory
2018-08-07 15:38:24

Maybe he was talking about shortage . . . somewhere else ;)

They have pills for that sort of thing nowadays, although maybe crow will achieve similar results. He could ask Sum Ting Wong - he might know, his peeps eat all sorts of things to help with, um, shortage issues.

 
Comment by Professor 🐻
2018-08-07 17:15:36

Shortage!

National
The New Housing Crisis: Shut Out Of The Market
August 6, 2018 5:00 AM ET
Heard on Morning Edition
Kirk Siegler
Brian Berumen

New construction rises over an empty field in Meridian, a suburb of Boise, Idaho. Today, home values have rebounded, but people who want to buy a new home are often priced out of the market.
Kyle Green for NPR

Ten years after the housing collapse during the Great Recession, a new and different housing crisis has emerged.

Back then, people were losing their homes as home values crashed and homeowners went underwater. Today, home values have rebounded, but people who want to buy a new home are often priced out of the market. There are too few homes and too many potential buyers.

Home construction per household is now at its lowest levels in nearly six decades, according to researchers at the Federal Reserve Bank of Kansas City. This isn’t just a problem in San Francisco or New York, where home prices and rents have gone sky-high. It is also a problem in midsized, fast-growing cities farther inland, like Des Moines, Iowa; Durham, N.C.; and Boise, Idaho. In Boise, an analysis by the U.S. Department of Housing and Urban Development showed there is a demand for more than 10 times the number of homes being built right now.

 
 
Comment by Ben Jones
2018-08-07 12:24:36

‘For-profit developers have predominantly built for the luxury and higher end of the market, leaving a glut of overpriced apartments in some cities,’ she explained. ‘Some decision-makers believed this would ‘filter down’ to the lowest income people, but it clearly will not meet their needs.’

I’ve been all over this for almost 4 years and now along comes the Washington Post and golly, it’s a thing!!

The luxury building is one thing. And that’s down to the bubble in land prices (well that and the stupidity of lenders. MEL!) But I’m sure that not one of these news outfits covering this have any idea that the “value add” boom was at least as big a contributor to the problem. Lo and behold, Fannie and Freddie have been up to their neck financing this racket of taking affordable apartments and making them unaffordable.

Comment by GuillotineRenovator
2018-08-07 19:25:12

‘Some decision-makers believed this would ‘filter down’ to the lowest income people, but it clearly will not meet their needs.’

“Filter down,” “trickle down” - it doesn’t work. Never has, never will.

Comment by Apartment 401
2018-08-07 20:02:07

Ben Jones, in the wake of recent social media purges against free speech and the First Amendment, this blog stands strong.

Communists and redistributionists have no place in the United States of America.

We will fight you in the streets, at the ballot box, and if needed, push you out of helicopters ala Pinochet.

Antifa will be crushed, Antifa will be destroyed.

 
 
 
Comment by Ben Jones
2018-08-07 12:25:44

‘Houston multifamily occupancy was near 90% as of August’

What’s the effective vacancy apartmentdata? Anything else is meaningless.

Comment by whirlyite
2018-08-07 12:45:41

Anecdotal - in my neck of the woods, apartments are emptying due to folks whose homes are finally ready to move back in to after rehab from Harvey. I haven’t seen so many signs advertising vacancies in dog’s years….

Comment by bradley fuller
2018-08-07 18:46:47

What gives? I see a lot of Texas plates up here in Missouri and S Illinois. I thought people were moving INTO Texas by the droves?

Comment by 2banana
2018-08-07 19:19:51

Maybe they are recent Texas transplants going back to their old stomping grounds to gloat

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Comment by Professor 🐻
2018-08-07 12:34:24

Why is it again that everyone wants to live in California?

The Financial Times
Natural disasters
California battles biggest-ever wildfires
Mendocino Complex fire revives debates over climate change and water management
2 hours ago

 
Comment by Mortgage Watch
2018-08-07 12:36:00

Austin, TX Housing Prices Crater 5% YOY

https://www.movoto.com/austin-tx/market-trends/

Comment by Josh
2018-08-07 15:30:33

Is that including or in addition to the $3/sq. ft. depreciation?

Comment by Mafia Blocks
2018-08-07 15:43:11

Housing my friend.

Great Falls, VA Housing Prices Crater 7% YOY As Federal Layoffs Ravage Fairfax County

https://www.zillow.com/great-falls-va/home-values/

… And don’t forget to select price from the dropdown menu

 
 
 
Comment by Ben Jones
2018-08-07 12:38:48

‘developers found themselves in significant debt without enough rental revenue to make up the shortfall. ‘I see it all the time now,’ Rieling says. ‘You’ve got all of these investors … who got in at way too high of a price, got kind of caught up in the frenzy of multifamily housing here in D.C., and as the unfurnished rental market started to return to reality off its peaks in 2013, 2014′

Interesting Joe, cuz late 2014 was when I said this was going to happen. And look how far they overshot.

‘Do I want to deliver another 2,000 units in the next two years? No.’

Billy, Billy. The problem, your problem, is that other idiots are bringing a lot more than 2,000 down on your head right now.

‘The new supply has absolutely introduced new challenges to the market here. We have seen downward pressure on rent growth and, for the first time in a while, we have seen the use of concessions appearing more and more in the market.’

Translation = I’m holding 1,600 bags and I’m fooked.

 
Comment by Mortgage Watch
2018-08-07 12:50:42

Lompoc, CA Housing Prices Crater 16% YOY As Hedge Funds Liquidate Massive Foreclosed Inventory

https://www.movoto.com/lompoc-ca/market-trends/

 
Comment by Professor 🐻
2018-08-07 13:39:28

‘Too Little Too Late’: Bankruptcy Booms Among Older Americans
By Tara Siegel Bernard
Aug. 5, 2018
Lawrence Sedita, a 74-year-old former carpenter, said he lost his health insurance about two years ago after his union changed the eligibility requirements. He and his wife filed for bankruptcy after living off of their credit cards for a time. Their financial difficulty “has drained everything out of me,” he said.CreditRoger Kisby for The New York Times

For a rapidly growing share of older Americans, traditional ideas about life in retirement are being upended by a dismal reality: bankruptcy.

The signs of potential trouble — vanishing pensions, soaring medical expenses, inadequate savings — have been building for years. Now, new research sheds light on the scope of the problem: The rate of people 65 and older filing for bankruptcy is three times what it was in 1991, the study found, and the same group accounts for a far greater share of all filers.

Driving the surge, the study suggests, is a three-decade shift of financial risk from government and employers to individuals, who are bearing an ever-greater responsibility for their own financial well-being as the social safety net shrinks.

The transfer has come in the form of, among other things, longer waits for full Social Security benefits, the replacement of employer-provided pensions with 401(k) savings plans and more out-of-pocket spending on health care. Declining incomes, whether in retirement or leading up to it, compound the challenge.

Comment by 2banana
2018-08-07 15:36:06

How much of this is self inflicted?

*******

Cheryl Mcleod of Las Vegas filed for bankruptcy in January after struggling to keep up with her mortgage payments and other expenses. “I am 70, and I am working for less money than I ever did in my life,” she said. “This life stuff happens.”

Some parents, Mr. Stern said, had co-signed loans for $10,000 or $20,000 for adult children and suddenly could no longer afford them. “When you are living on $2,000 a month and that includes Social Security — and you have rent and savings are minuscule — it is extremely difficult to recover from something like that,” he said.

Others had co-signed their children’s student loans. “I never saw parents with student loans 20 or 30 years ago,” Mr. Stern said.

Comment by oxide
2018-08-07 17:49:02

Most of the bankruptcies and poverty in general stem from health problems. The rest stem from taking care of children and grandchildren.

Comment by Apartment 401
2018-08-07 18:09:40

health problems

40% of the adult USA population is obese, not overweight, obese.

Why should people who eat healthy and exercise be expected to pay for “Medicare For All” to support this?

“This sucker could go down” — George W. Bush

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Comment by Mafia Blocks
2018-08-07 17:58:07

https://www.zerohedge.com/news/2018-08-06/their-wealth-has-vanished-baby-boomers-filing-bankruptcy-droves

Mortgage Debt. Take a look at the charts. See all those suckers with a mortgage? The cohort with the skyrocketing mortgage debt is the 61-65 year olds. No appraisal cash out refi’s, no appraisal HELOC’s, or just plain old paid a grossly inflated price.

This is what happens when you pay too much for a depreciating asset like a house.

A wise man once said, “If you have to borrow for 15 or 30 years, you can’t afford it nor is it affordable.”

A wise man indeed.

 
 
Comment by 2banana
2018-08-07 15:40:02

Who rents and expects free breakfast provided by the landlord?

*******

“But one morning about a year ago, as Millman stood in line awaiting a free breakfast provided by the building’s management, she made an unnerving discovery…”

 
Comment by Ol'Bubba
2018-08-07 16:21:51

When was the last time Palmetto posted? Last handle I saw him use was “Deferred Maintenance”.

Hey Palmy - are you out there?

 
Comment by Mortgage Watch
2018-08-07 16:23:30

Mukilteo, WA Housing Prices Crater 7% YOY As Seattle Area Tech Layoffs Accelerate

https://www.movoto.com/mukilteo-wa/market-trends/

 
Comment by Ben Jones
2018-08-07 16:44:46

‘I see it all the time now…You’ve got all of these investors … who got in at way too high of a price, got kind of caught up in the frenzy of multifamily housing here in D.C., and as the unfurnished rental market started to return to reality off its peaks in 2013, 2014, the only model that can produce them revenue to generate a profit or even just to break even’ is short-term housing’

Which isn’t what the hotel scammers are saying. They say it’s until it gets leased.

‘as the unfurnished rental market started to return to reality off its peaks in 2013, 2014′

I’ve been saying these guys bought so high they will lose money renting. This 3-6 or even 7% cap rate is financial suicide. If you had to borrow the money (interest expense isn’t included in the cap rate) you’ll lose money every day until you default.

They counted on pro-forma incomes statements which included hefty rent increases every year. Big mistake. They counted on being able to cash out refi - repeatedly, and then sell for the big bonanza. I know, I listen to their radio shows. They still don’t know it’s over.

Comment by 2banana
2018-08-07 18:01:07

And they counted on zero vacancies and zero month long evictions

Comment by BlueSkye
2018-08-07 18:33:47

They counted on Oxide’s spreadsheet.

 
 
 
Comment by OneAgainstMany
2018-08-07 17:05:02

Short burn of the century in progress?

Musk Elaborates On Plans To Go Private In Email To Employees

Aug. 7th, 2018
Elektrek

Love or hate the man, that’s one of the most bada** moves I have seen on the financial markets for a long time.

“You have some very powerful people like billionaire hedge fund manager David Einhorn who keeps justifying every quarter to his investors why they are losing money on his decision to bet against Tesla. It will be interesting to read his next letter to investors.”

“There’s also an army of internet trolls who live for the purpose to support the bear case against Tesla and they will most likely lose their purpose if this goes through.”

“And even if it doesn’t, Musk just showed them that he has a special weapon in his pocket, which leads me to believe that we might have seen the peak shorting on Tesla no matter what happens next.”

https://electrek.co/2018/08/07/elon-musk-tesla-privsate-plans-like-spacex/

Comment by BlueSkye
2018-08-07 18:38:20

Musk is not truthful. A spectacular crash is likely.

Do not invest in mania.

 
Comment by GuillotineRenovator
2018-08-07 19:32:31

A simple Tweet is now considered “one of the most badass moves on the financial markets?” How about making a profit? I bet Musk is lying through his teeth. I have zero respect for him.

 
Comment by GuillotineRenovator
2018-08-07 19:35:08

By the way, he’s probably going to get sued for that one. Stupid, stupid move.

Comment by OneAgainstMany
2018-08-07 20:07:43

Depends on if he has financial backing secured to complete the privatization.

Comment by GuillotineRenovator
2018-08-07 21:18:14

The guy’s a loudmouth who doesn’t think before he speaks. His company is failing and so he’s lashing out at critics rather than taking care of business. He’s a thin-skinned narcissist.

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Comment by rms
2018-08-07 21:41:23

“The guy’s a loudmouth who doesn’t think before he speaks.”

Gotta wonder how the employees feel… keep that resume updated each month.

 
 
 
 
 
Comment by azdude
2018-08-07 17:34:18

Im drinkn a cold beer on my equity tonight. God bless the bagholders that will end up with my risk assets.

The economy is booming my friends.

Comment by rms
2018-08-07 19:25:25

Ahem… the well-heeled don’t drink beer unless it’s micro brew.

 
 
Comment by Mafia Blocks
2018-08-07 18:09:13

“94,785,000 Not in Labor Force; At 62.9%, Labor Force Participation Stuck Near 38-Year Low”

https://www.cnsnews.com/news/article/susan-jones/no-records-set-august-number-employed-americans-drops-participation-rate

100 million unemployed adults…. There’s no more a shortage of labor than there are a shortage of houses.

Anyone saying there is a shortage of either is lying.

 
Comment by MWR
2018-08-07 18:28:20

the only model that can produce them revenue to generate a profit or even just to break even’ is short-term housing, he says.”

I was looking at a condo in South Carolina as the price I had come down over the past two years. Found out in my research that the association allows short term rentals. I quit researching it. NO thank you.

Comment by 2banana
2018-08-07 19:24:45

Nothing like circumventing hotel tax, fire and health laws for the ONLY model with a chance to make a profit…

 
 
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