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Apartments Lead Way in Improving Commercial RE Sector
Industry News
Renting Has Been Better Than Buying for Some Time Now
Philadelphia Apartment Vacancies Dwindle as Demand Soars
Camden Readies Up to $600M in New Development
Aimco Reports Q2 2011 Results
Colonial Makes Deal for Apartments
Equity Residential's Quarterly FFO Rises
Cap Rate for Apartments Drops Year Over Year
Douglas Emmett Obtains Loan Fixed at 3.74 Percent
Rental Apartments to Rise in Downtown Chicago
AvalonBay FFO Rises 8.7 Percent Amid U.S. Apartment Demand
Aimco Prices Stock Offering
Apartment Owner Morgan Properties Seeks $800 Million in IPO
Legislative/Legal News
Fed Finds That Foreclosure Effects Not So Bad
Detroit Companies Launch Live Downtown Program
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Time Warner Cable Community Solutions has proven success partnering with MDU owners, providing quality voice/video/data products to their residents.
Apartments Lead Way in Improving Commercial RE Sector
Digested From "Moody's: Commercial Real Estate Outlook Improving"
Business Week (07/25/11)
A new Moody's report shows that the nation's commercial property sector is showing increased signs of stability, led by burgeoning demand for apartments. The firm's review of U.S. commercial real-estate trends in the first three months of the year shows modest market improvement, ranking markets' health on a scale of zero to 100 -- the higher the score, the stronger the market. The overall commercial real estate market ranking for the United State rose two points to 67. Keith Banhazl, a senior credit officer at Moody's, remarks, "Scores for the central business district and suburban office markets rose moderately, while those for the multifamily, retail, and industrial markets were consistent with the previous quarter." Looking at the individual categories, the U.S. apartment market registered a score of 88 -- the highest ranking in Moody's first-quarter review. Registering individual apartment market scores of 94 or higher were Newark, N.J.; Portland, Ore.; Ventura County, Calif.; and Miami.
Industry News
Renting Has Been Better Than Buying for Some Time Now
Digested From "For the Past 30 Years, Renting Was Generally Better Than Buying"
The Atlantic (07/29/11)
A new research paper by Eli Beracha of East Carolina University and Ken H. Johnson of Florida International University found that, over the past 30 years, Americans were better off renting than owning their homes between 65 percent and 75 percent of the time depending on the investment alternative. The researchers looked at eight-year periods in assessing renting versus owning. They concluded: "Unless someone possesses the cash necessary to buy a residence, he or she will be renting one way or another. The choice is between renting the property directly or instead renting the capital necessary to buy the property. The amount of capital to be rented is a function of house prices, while the bulk of a mortgage payment is interest, which is the rental payment on this capital." They went on to note that the principal component of each mortgage payment -- i.e. the portion of the mortgage payment that goes towards reducing the principal mortgage balance rather than interest -- is an added expense those who rent do not have. On the downside, the analysis' methodology fails to take into account the biggest reward of owning a home: living rent-free once the residence is paid off.
Philadelphia Apartment Vacancies Dwindle as Demand Soars
Digested From "Home Economics: Philadelphia Apartment Vacancies Dwindle as Demand Soars"
Philadelphia Inquirer (07/29/11) by Alan J. Heavens
The lingering housing downturn and the likelihood of further price declines have pushed more Philadelphians into rental apartments to wait things out. Marcus & Millichap notes that the region's apartment vacancy rate was 5 percent in the first three months of this year compared to 6.3 percent a year earlier. In Philadelphia's Center City, some property analysts are putting the rental vacancy rate at 1.8 percent. About 86 percent of Center City adults up to age 34 currently live in rental housing, reports Paul Levy, executive director of the Center City District. Many apartment communities were converted to for-sale condominiums during the housing boom, which cut into the supply. While some rental apartments are now in various stages of planning and development, they will not be ready for quite some time. Rich Lauletta, chief marketing officer of the Philadelphia Apartment Co., states, "Our advice to the prospective renter is to bring a checkbook, because if you find something you like and delay a decision, it could be gone in 20 minutes." Such websites as Rental.com, Apartments.com, and Google let prospective apartment residents compare monthly rents, availability, and amenities without having to visit the communities to narrow the choices, said Christina Aragon of Rent.com. Others are getting in touch with Realtors who specialize in rental situations.
Camden Readies Up to $600M in New Development
Digested From "Camden Readies Up to $600M in New Development"
GlobeSt.com (08/01/11) by Jennifer Duell Popovec
Camden Property Trust is planning to capitalize on what Chairman and CEO Ric Campo calls the "best multifamily operating environment" in a decade by ramping up its development activities. The REIT's plan is to break ground on $150 million in new developments before the end of this year and to advance $400 million to $600 million in ground-up construction opportunities next year. Camden currently has eight apartment communities under development, including the Camden LaVina community in Orlando and Camden Royal Oaks II in Houston. In addition, the company started construction during the quarter on three more communities totaling 978 apartments for a total cost of $141 million. They include Camden Montague and Camden Westchase, both in Tampa. According to Campo, the development starts for 2012 are situated throughout Camden's portfolio, including Atlanta, Austin, Denver, and the nation's capital. He further reports that land prices are nearing the peak levels of 2006 and 2007, but adds, "The good news, however, is that construction cost continues to be much less than peak."
Aimco Reports Q2 2011 Results
Digested From "Aimco Reports Second Quarter 2011 Results: Rental Rates Accelerating, Pro Forma FFO Ex-Items Up 16 Percent Year-to-Date"
MarketWatch (07/29/11)
Apartment Investment and Management Co. (Aimco) on Friday posted its second quarter results. The apartment REIT's quarterly pro forma FFO of $0.27 per share exceeded the upper end of Aimco's guidance range by $0.05 per share thanks mainly to strong operating results. Rental rate increases accelerated from April through June, with renewal rate increases of 3.6 percent and 5.1 percent growth in new lease rates. Aimco Chairman and CEO Terry Considine remarks, "Aimco's business improved significantly during the second quarter with rising rental rates, continued high average daily occupancy and sustainable expense reductions. We begin the second half of the year in a strong position to generate competitive earnings growth through solid operating performance, further reductions in off-site costs, lower cost of leverage, and accretive investment activities." Aimco ranks as one of the nation's biggest owners and managers of conventional and affordable apartments, with 607 communities in 38 states, the nation's capital, and Puerto Rico.
Colonial Makes Deal for Apartments
Digested From "Colonial Makes Deal for Apartments"
Wall Street Journal (07/27/11) by Dawn Wotapka
Colonial Properties Trust has agreed to sell as many as 5,700 apartments for $338 million reportedly to a subsidiary of Elco Holdings Ltd., an Israeli-based investment company. A total of 18 apartment communities in four states -- Georgia, North Carolina, Texas, and Virginia -- are set to change hands. The average age of the communities is 25 years old. Like many apartment REITs, Colonial is looking to sell older assets in order to place greater emphasis more modern multifamily housing that is less expensive to operate. The deal comes at a time when demand for apartment communities is particularly strong. Analysts calculate that he cash flow of the units will give Elco an initial yield of around 6 percent. That is a "more than fair price for the quality and the location of the assets involved," states Haendel St. Juste of Keefe, Bruyette & Woods.
Equity Residential's Quarterly FFO Rises
Digested From "Equity Residential's FFO Rises"
Benzinga (07/27/2011)
Equity Residential's second-quarter funds from operations (FFO) increased 3.4 percent from the same period a year ago to 60 cents. For the year, the apartment REIT has recorded net income of $2.33 per share, topping analysts' consensus projections of $2.28 per share by 2.2 percent. Equity Residential President and CEO David J. Neithercut states, "As we enter the final months of our primary leasing season, we are pleased that fundamentals remain strong across all of our markets and that same store net operating income results for the full year should be at the high end of our original guidance range. However, we expect normalized funds from operations for the year to be slightly below our original guidance midpoint due to increased disposition activity."
Cap Rate for Apartments Drops Year Over Year
Digested From "Returns of Offices, Apartments Drop"
Wall Street Journal (07/27/11)
Capitalization rates continued to decline in June for apartments. The average cap rate for apartment communities was 6.45 percent last month versus 6.95 percent a year ago. Cap rates are used by property investors to measure the annual return of income-generating properties.
Douglas Emmett Obtains Loan Fixed at 3.74 Percent
Digested From "Douglas Emmett Obtains $530 Million Term Loan Fixed at 3.74 Percent"
Business Wire (07/29/11)
Douglas Emmett Inc. confirms that it has closed a secured, non-recourse $530 million term loan that will mature on Aug. 1, 2018. The loan bears interest at a floating interest rate that has been effectively fixed through an interest rate swap contract at 3.74 percent per annum until Aug. 1, 2016. Douglas Emmett ranks as one of the biggest owners and managers of multifamily housing and high-quality office properties in premier submarkets throughout Southern California and Hawaii. The REIT's properties are concentrated in 10 submarkets, including Beverly Hills, Burbank, Santa Monica, and Honolulu.
Rental Apartments to Rise in Downtown Chicago
Digested From "New Life for Stalled Project"
Wall Street Journal (07/27/11) by Eliot Brown
In a bid to restart construction at one of the most prime sites in the Windy City, Related Cos. this week purchased control of a half-developed skyscraper in downtown Chicago. Construction on the project was halted at 25 stories three years ago. The developer at the time, a group spearheaded by Ivan Dvorak, was planning a 90-story, mixed-used project to be called Waterview Tower. Related plans to now turn it into a luxury rental building of about 500 apartments, rising over 50 stories. The New York-based firm is reportedly using money from a $1 billion distressed real-estate fund it is raising to finance the project. This latest deal shows how a growing number of developers are turning to messy projects eschewed by traditional investors. Traditional investors and private-equity funds are lining up to acquire hotels and office towers in such markets as New York and Washington, D.C., bringing up prices faster than rents. In turn, they are pushing down yields to near-historic lows. However, there is less competition for higher-risk projects such as unfinished condominium towers. Furthermore, returns on such transactions can be far higher than such "safer" bets as office buildings with low vacancy rates. The risk is if the economy sours or the developer runs into construction problems. Related, for instance, must still arrange new construction financing for the Chicago project.
AvalonBay FFO Rises 8.7 Percent Amid U.S. Apartment Demand
Digested From "AvalonBay FFO Rises 8.7 Percent as U.S. Apartment Demand Spurs Rent Increases"
Bloomberg (07/27/11) by Oshrat Carmiel
AvalonBay Communities Inc.'s funds from operations rose 8.7 percent in the second quarter as rising demand enabled the apartment owner to hike rents. The Virginia-based REIT's quarterly FFO climbed to $99.9 million from $87.8 million. Demand for apartments has soared nationwide as foreclosures forced people out of their houses and prospective buyers found it more difficult to obtain mortgages. Supply remains tight, though, with a surge of new apartment construction not expected to be complete for at least a couple of years. Paula Poskon, a REIT analyst at Robert W. Baird & Co., states, "It's going to be a while before that new supply rears its ugly head in a way that really meaningfully diminishes the apartment REITs' pricing power. So I think they've got a good run here through 2013." Reis Inc. recently reported that U.S. apartment vacancies fell in the second quarter to 6 percent, the lowest in more than three years. Effective rents increased in 80 of the 82 metro areas Reis tracks to an average $997 a month.
Aimco Prices Stock Offering
Digested From "Aimco Prices Stock Offering"
Denver Business Journal (07/26/11)
Apartment Investment and Management Co. (Aimco) on July 26 priced an underwritten public offering of preferred stock at $24.25 per share. The offering is of 800,000 shares of 7 percent Class Z Cumulative Preferred Stock. The pricing comes out to a yield of 7.2 percent, for gross proceeds to Aimco of around $19.4 million, according to an announcement. The Denver-based company plans to pocket about $18.5 million from the sale and said that money "will be used by Aimco for general corporate purposes, which may include the redemption of other preferred securities."
Apartment Owner Morgan Properties Seeks $800 Million in IPO
Digested From "Apartment Owner Morgan Properties Seeks $800 Million in IPO"
Bloomberg (07/27/11) by David M. Levitt; Lee Spears
Morgan Properties Trust confirms that it is seeking $800 million in an initial public offering. Morgan Properties announced its initial public offering on July 27 in a filing with the SEC. The Pennsylvania-based REIT, though, did not disclose how many shares it will offer or at what price. Led by Chairman and CEO Mitchell Morgan, the company owns 94 apartment communities in middle-income suburbs of Philadelphia, New York, Baltimore, and the District of Columbia. Total revenue jumped by nearly 50 percent to $130.8 million in 2010. Ben Thypin, director of market analysis for Real Capital Analytics Inc., comments, "These properties give them a big portfolio that's generating a lot of income that will be attractive to public market investors. Prior to this, they didn't have the scale to justify being a public firm." Leading the offering are Bank of America Corp., Goldman Sachs Group Inc., JPMorgan Chase & Co., and Morgan Stanley are leading the offering. Morgan Properties expects to use the proceeds to pay down company debt. Morgan Properties is perhaps best known for partnering with American International Group Inc. in 2007 to purchase thousands of U.S. apartments. The venture acquired 86 apartment communities in all, mostly in New Jersey and Pennsylvania, for $1.9 billion. Kushner Cos. was the seller.
Legislative/Legal News
Fed Finds That Foreclosure Effects Not So Bad
Digested From "Foreclosure Effects Found Not So Bad"
American Banker (07/26/11) P. 12; by Kate Berry
A working paper by Federal Reserve economists indicates that foreclosures generally do not force people to live in less desirable neighborhoods, lower-quality homes, or more crowded conditions. Raven Molloy and Hui Shan conclude that "foreclosure does not impose an economic burden large enough to severely reduce housing consumption." About 75 percent of borrowers who endured a foreclosure between 2006 and 2008 continued to live in single-family dwellings, with about 22 percent moving to multifamily housing.
Detroit Companies Launch Live Downtown Program
Digested From "16,000 at 5 Detroit Companies Eligible for $4M From Live Downtown Program"
Detroit News (07/25/11) by Melissa Burden
Five Detroit companies -- Quicken Loans Inc., Compuware Corp., Blue Cross Blue Shield of Michigan, Strategic Staffing Solutions, and DTE Energy Co. -- have established the Live Downtown program that will provide financial incentives for employees to live in downtown Detroit and surrounding neighborhoods. The companies will give financial incentives to their collective 16,000 full- and part-time workers to buy homes and rent apartments in the downtown, Corktown, Eastern Market, Lafayette Park, Midtown, and Woodbridge neighborhoods. The incentives are almost identical to what is being offered as part of Live Midtown, a financial incentive program that is now available to employees of the Detroit Medical Center, Henry Ford Health System, and Wayne State University.
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