There Seems To Be Surprise After Surprise
A report from the Denver Post in Colorado. “Developers in metro Denver are churning out so many luxury apartments it is depressing rents in the priciest neighborhoods, forcing landlords to provide more concessions and shrinking the premium tenants pay to live downtown. But is it a bubble ready to burst? The real estate community remains divided about what comes next as a record number of units continue to hit the market in Denver.”
“‘I personally believe that Denver is overbuilt,’ Kelley Klobetanz, chief underwriter at Greystone & Co. in Denver., told attendees at a multifamily conference hosted by Bisnow in Cherry Creek on Thursday.”
“Charlie Williams, a senior vice president at KeyBank in Denver, countered that for four years observers have worried about overbuilding in apartments. He even passed on deals that looked too speculative, only to see them succeed. Maybe it takes 18 months instead of 14 to fill a building, or more concessions need to be offered, but every time a new project hits the market, it eventually gets filled, he said. ‘We are a market that is diversified finally. Denver isn’t a boom and bust town anymore,’ he said.”
“But that doesn’t mean the market isn’t straining to absorb what is being built. David Pierce, a market analyst with CoStar Group, detailed the downward pressure all the new supply is having. About one in seven units downtown come with concessions like a month or more of free rent versus 1 in 10 elsewhere. Five years ago, a developer who built or purchased Class A units outside Denver’s core would have enjoyed rent increases of 20 percent versus only 10 percent for those who followed the herd and stayed in the urban core, Pierce’s numbers show.”
“So what are developers doing? Last year, they increased the supply of downtown units by about two-thirds over the annual average going back to 2014. They are doubling down rather than pulling back. In the most expensive submarkets, like Cherry Creek and the Golden Triangle, rents are falling. Another warning sign comes in the narrowing spread in rents between Class A units downtown and the older or lower quality Class B and C units. Typically, tenants have paid a 50 percent rent premium to live downtown in the nicest units, but now the gap is only 25 percent, and even lower once concessions are included.”
“‘The premium to live downtown has narrowed,’ said Pierce, who offered a silver lining.”
From Tulsa World in Oklahoma. “The University of Oklahoma will likely have less of a budget loss than anticipated during the current fiscal year, its president said Thursday. At a University of Oklahoma Board of Regents meeting, James Gallogly said the state’s flagship university was originally going to have about a $15 million operating loss for the current fiscal year, but the university has found about $12.3 million in cost-savings since he took the helm on July 1. He said that the now-projected loss of about $3 million will likely change as he continues to evaluate the budget and identify further cost-saving measures.”
“‘We’ve also discovered some items that we were not aware of relating to some budget categories that weren’t properly accounted for,’ Gallogly said. ‘One of the things I’ll just simply say is that our budgeting process is very weak, and, as a result of that, there seems to be surprise after surprise.’”
“Gallogly first made headlines in June when the then-incoming OU president expressed alarm about the university’s debt obligations, which are more than $1 billion including interest. He then said layoffs were possible as part of the cost-saving measures. At the regents meeting at OU-Tulsa Thursday, Gallogly also described the negative fiscal impact of certain OU student-housing projects on the university.”
“He said the university’s two residential colleges — Headington and Dunham — have about a 63 percent occupancy rate between the two, which equates to about a $2.3 million loss. If 100 percent occupied, the colleges would run about a $1 million loss, Gallogly said.”
“‘At this moment we have about $81.7 million of debt related to those two colleges,’ said Gallogly. ‘I would also point out that one of the things that we learned in the process of during the construction period that the university had contributed an extra $10 million to construction from general funds so this project has been a very, very difficult project for the university. It does have a significant financial loss.’”
“One of the financial ’surprises,’ according to Gallogly, is the expenses incurred by the Cross housing-project. ‘We had been told that we had no fiscal responsibility related to that project and we weren’t involved in the debt,’ said Gallogly. ‘It turns out … the cash amount that goes out the door from the University of Oklahoma related to the Cross project is about $7.1 million a year.’”
The Union Tribune in California. “Materials for construction of San Diego’s newest buildings are rising fast and some in the industry say it might slow the building boom that has altered downtown’s skyline since the end of the recession. Slowed rent growth and increased labor costs are also seen as problems for the building industry.”
“There are enough major building projects ongoing, especially downtown, that it might be a while before anyone notices a slowdown in construction. Companies like Canadian-based Bosa Development have no option but to continue construction on major projects, such as its planned tower off Broadway that will be the tallest residential building in San Diego County’s history.”
“‘It’s ridiculous,’ said Nat Bosa, president of the company, said of steel price increases. ‘It’s costing us a few million bucks more.’”
“Rent prices are still going up, but they have slowed considerably compared to past years and the influx of new apartments has meant more open units. New apartment complexes have the highest vacancy rates, according to CoStar. East Village’s newest tower Shift — known for its orange 240-foot tower — has a vacancy rate of 73.6 percent. It has 368 apartments and opened this spring. AV8, a 130-unit aviation-themed complex in Little Italy that opened this spring, has a vacancy rate of 76.9 percent.”
“Darcy Miramontes, executive vice president for commercial real estate firm JLL, said it is possible developers might decide to sit on land where they have already gotten approvals to start building. ‘I know there is a perception out there that there are a lot of greedy developers,’ she said, ‘but I will tell you that no developer is really hitting it out of the park on returns at this point.’”
“Bosa said it will ultimately be up to market conditions in the coming years if the cranes that have dotted the skyline for several years will continue. ‘If the market (renters and buyers) is willing to pay for it, then it’s OK,’ he said. ‘If the market is not willing to pay for it, then everything comes to a halt.’”
The Williston Herald in North Dakota. “Vacancy rates went up quite a bit during the downturn, stoking fears that the multifamily sector had overbuilt for the long-term need in the Williston region. However, with crude oil prices in the $60 range, Williston apartments have filled up fast. Despite the fact that apartments are running out of room, however, Mike Elliott, managing principal of Energy Real Estate Solutions doesn’t expect to see too many more multifamily units built, at least, not in the near future.”
“The replacement cost on multifamily is $180,000 to $220,000 per unit, Elliott said, ‘and they are still trading below $100,000. So it will be a long time before we see developers for multifamily units coming back to market.’”
‘Developers in metro Denver are churning out so many luxury apartments it is depressing rents in the priciest neighborhoods, forcing landlords to provide more concessions and shrinking the premium tenants pay to live downtown. But is it a bubble ready to burst?’
Affirmative.
‘Companies like Canadian-based Bosa Development have no option but to continue construction on major projects, such as its planned tower off Broadway that will be the tallest residential building in San Diego County’s history.’
‘It’s ridiculous,’ said Nat Bosa, president of the company, said of steel price increases. ‘It’s costing us a few million bucks more.’
You know Nat, a peanut farmer knows he can hedge commodities.
Of course this is horse hockey. The San Francisco developers tried this recently when their entire downtown market shut down.
How could construction costs be going up when things are coming to a halt?
“We are a market that is diversified finally. Denver isn’t a boom and bust town anymore,’ he said.’”
Interesting because weed, and all the hipsters moving here because of it, is what fueled our growth the last 6 years. After the last election we are no longer that special in that regard, and are beginning to bust. Inventory is up about 60% from its lows and rising. Prices are beginning to drop. I wish this people would do at least 10 minutes worth of research before making such comments.
‘The replacement cost on multifamily is $180,000 to $220,000 per unit, Elliott said, ‘and they are still trading below $100,000.’
Equity gone, you’ve lost everything in just a few years.
‘He said the university’s two residential colleges — Headington and Dunham — have about a 63 percent occupancy rate between the two, which equates to about a $2.3 million loss. If 100 percent occupied, the colleges would run about a $1 million loss’
August 14, 2018
From News OK in Oklahoma. “Upperclassmen move into campus housing Wednesday at the University of Oklahoma, but many rooms will be vacant. OU’s efforts to entice more students to live on campus after their freshman year began last fall with the opening of two elegant residential colleges that together can accommodate 600 upperclassmen. Officials predicted there would be a waiting list to get into Dunham and Headington going forward.”
“But this fall’s occupancy for the two residential colleges is at 70 percent, OU spokeswoman Erin Yarbrough said. Another 1,230 beds for upperclassmen are available for the first time this fall with the opening of Cross Neighborhood, a luxury complex that has an occupancy rate of 28 percent for the fall semester. New OU President Jim Gallogly said earlier this summer the residential colleges were ‘cash negative from Day 1.’”
“They feature spacious dining halls, made-to-order food options, private courtyards, game rooms, comfortable lounges and libraries filled with books and artwork on loan from the campus museum. Before he took office July 1, Gallogly announced the university has been losing money every year. Total debt is nearly $1 billion at the Norman campus and debt service costs are almost $70 million a year, he said.”
“‘Our debt has more than doubled in the last 10 years as we’ve been on a building campaign,’ Gallogly said. ‘As a result of that, we have a beautiful campus and a lot to be proud of, but during that period of time, we spent approximately $730 million and that’s why the debt has gone up to that level.’”
http://thehousingbubbleblog.com/?p=10541
Also from that link. Yes, it’s part of the bubble and it’s already popping:
From Bloomberg. “Isaac Sitt and Elliot Tamir had been investing in real estate for years when they stumbled onto the idea. They decided to put up ads at the nearby Wyckoff Heights Medical Center, expecting to lease to doctors. Instead, they got medical students. With jobs scarce, tons of people were going to school, they realized. Sitt remembers thinking, ‘Hey, this is a good business,’ even in a downturn. ‘Not only does it make sense, but I think we can raise equity for it.’”
“Today, Sitt and Tamir run Vesper Holdings LLC, one of the largest owners of student housing complexes in the U.S. It’s been a lucrative niche. One of the few dangers for the business is bringing back the draft, Sitt jokes. ‘That would be a problem for the college population,’ he says. The other, he adds, ‘is overbuilding.’”
“That second danger is no joke. Too many of those dollars flowed to projects around schools where there were low barriers to development, such as Texas A&M and the University of Oklahoma. Landlords in those areas have had to offer discounts and freebies to get ‘heads on beds.’ Some properties are going bust, leading to downgrades of bonds that backed the development. Now, veteran investors in student housing say they’re being careful about their next moves, even as money continues to pour into the industry.”
“Analysts caution that there’s a broader demographic shift under way that could hurt demand—or at least cluster it around a few flagship schools. Millennials, one of the biggest generations in the U.S., are aging out of their college years, says Hans Nordby, managing director at CoStar Portfolio Strategy. ‘The tide’s going out,’ he says. ‘There are fewer of these kids every day.’”
Proud of what you wasted borrowed money on, sad.
Portland, OR Housing Prices Crater 14% YOY As Ripped-Off Homeowners Deliberately Default On Mortgages
https://www.zillow.com/rose-city-park-portland-or/home-values/
*Select price from dropdown menu on first chart
Before he took office July 1, Gallogly announced the university has been losing money every year. Total debt is nearly $1 billion at the Norman campus and debt service costs are almost $70 million a year, he said.”
Sounds like a lot of lucrative crony-capitalist rackets going on between university administrators and developers. The corruption goes in before the concrete gets poured, with student fees being padded to stick mom & dad with the costs.
‘So what are developers doing? Last year, they increased the supply of downtown units by about two-thirds over the annual average going back to 2014. They are doubling down rather than pulling back. In the most expensive submarkets, like Cherry Creek and the Golden Triangle, rents are falling’
Again, the most expensive. And has there been one of these overbuilt markets where they didn’t charge ahead at the end?
‘Class A units downtown and the older or lower quality Class B and C units. Typically, tenants have paid a 50 percent rent premium to live downtown in the nicest units, but now the gap is only 25 percent, and even lower once concessions are included’
So lux stuff is around the price of B and C. The first time we saw this was in Manhattan.
So lux stuff is around the price of B and C.
I’m sure the price of B and C won’t be affected. Lux is an outlier.
April 19, 2018
From Seven Days Vermont. “The granite countertops, sparkling appliances and panoramic lake views look like they belong in a posh condo development. Instead these amenities enhance a new six-story, off-campus apartment building that Champlain College is leasing to undergraduates in Burlington. The newly constructed units are helping to finally cool the long-overheated student rental market. More than 2,000 units are in the pipeline. In response, some landlords are cutting rents. Others are waiving deposits and aggressively marketing by doling out free pizza and Red Bull to student renters who aren’t used to being wooed.”
“‘The competition among landlords is markedly increased,’ said Rick Sharp, a longtime Burlington investment-property owner. This spring, for the first time in roughly 20 years, he reduced rents in an effort to find tenants for a pair of four-bedroom apartments. This year, Sharp got no takers from ads on Craigslist. He dropped the rent from $2,800 to $2,700 a month, but still has not found tenants. ‘We may have to go to $2,600,’ he said.”
“Mayor Miro Weinberger, who has pushed for new housing downtown, hails the construction. Weinberger finds the increasing vacancy rate and anecdotes of discounted rents encouraging. ‘That sounds to me like the early stages of a market reconciling, kind of recalibrating to deal with the fact that there’s substantial amounts of new supply,’ Weinberger said.”
http://thehousingbubbleblog.com/?p=10407
This year, Sharp got no takers from ads on Craigslist. He dropped the rent from $2,800 to $2,700 a month, but still has not found tenants. ‘We may have to go to $2,600,’ he said.
Tell ya what, Sharp…what would you say if I told you that you may need to get below 2k before this is over? And every month you wait is money you’ll never get back…
How much money has this greedhead forfeited by letting his rental sit vacant while he clings to his wish price?
ouch’ie ouch’ie ouch. IDX (GE Life Sciences\) r&d is moving to Seattle and northern Europe. So hopefully General Dynamics is continuing to invest. Also - have you looked at the 5 year GE shareprice.
It is incredible to believe that Burlington Vermont has a ‘hood. But it does (at least in the ’90s it did).
The largest employers in the city proper are the University of Vermont Medical Center (formerly Fletcher Allen Health Care) and the University of Vermont, employing 6,823 and 3,137 people, respectively.[citation needed] Other companies in Burlington include the G.S. Blodgett Company, one of the oldest and largest commercial oven companies in the country, which manufactures restaurant equipment. Its history dates back to the mid-19th century.[citation needed] General Electric develops software for the healthcare industry in South Burlington at the former headquarters of IDX Systems, which it purchased in 2006. General Dynamics Armament and Technical Products division employs 450 workers locally. A solely owned subsidiary, the division is based here.[40] Dealer.com, a leading automotive internet marketing company, employed over 450 employees as of March 2011.[41]
Ben & Jerry’s began in 1978 when Ben Cohen and Jerry Greenfield opened their first ice cream scoop shop in an old gas station in Burlington.[42] Vermont Teddy Bear Company, whose founder started on a cart on a Burlington street, now ships custom teddy bears worldwide.[citation needed]
Corporate headquarters located in Burlington include Burton Snowboards, Bruegger’s, Lake Champlain Chocolates, Rhino Foods, and Seventh Generation Inc.[citation needed]
It had a clear hood around North street in the 1970s and it persisted into the 90s in a diminished form. But I cannot say it is visible now. I grew up in Burlington but left in the early 90s. But visit the area and are amazed how most of the working class have been pushed out. The progressive city still loves to bring in third world refugees but the winters tend to drive them out.
You’d think those reductions would eventually make their way down to B and C grade apts. Time will tell. Seems like in the SFR market, all the reductions are at the mid to high price ranges.
“Older D-FW apartments are seeing the biggest run-up in rents”
‘Dallas-Fort Worth renters are paying record monthly rates for apartments.’
An average North Texas apartment will run you more than $1,100 a month, according to the latest data from RealPage. That’s up 35 percent from 2010.
“All the top 10 submarkets on the cycle’s rent growth leaderboard feature mostly Class B and C products, with the Mid-Cities neighborhoods doing especially well.”
https://www.dallasnews.com/business/real-estate/2018/09/10/older-d-fw-apartments-seeing-biggest-run-rents
Remember Nobel Prize winning economist from Yale, Robert Schiller, who said just recently that housing has only one way to go and that is UP, UP, UP!
Well, now, just a month later, he’s changed his tune. From CNN Money today: “Shiller said he was worried that the combination of rising stock prices and higher housing prices in many American cities could lead to another bubble.”
Why the sudden change, Bobby?
Liberals need to slow the Trump economy before the election. The blue wave is receding before the first votes are cast.
Here’s a treat - media sob stories from “accidental landlords,” all Millennials, who like so many of their generation are completely devoid of anything resembling personal responsibility or accountability. It’s always someone else’s fault that they were “rushed into” or forced to make bad decisions, and as victims, someone else needs to fix this. I would not want to rent from any of these failed human beings.
https://www.marketwatch.com/story/accidental-landlords-an-unwelcome-consequence-of-the-housing-market-shock-2018-09-14
I like this quote from the tail end of the article:
“I just had this idea that rent was throwing money away. I don’t know if I think that any more. There’s a lot of convenience and freedom in renting, feeling that my life can develop and move, whether for career or personal decision. That freedom is worth some of the financial trade-off.”
Buying can be a good choice at the right place, at the right price, and for the right reasons. But I remember a catchy ad on an apartment complex that I thought had some sublime wisdom: “Rent your place, own your life.” We would definitely buy if prices weren’t stupid, but there is some psychic comfort in knowing that if we want to try a different city for travel or job purposes there is not a huge cost or hassle in making the move.