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Equity Residential and AvalonBay Raise Rents
Industry News
Homeownership Rates Continue to Decline in First Quarter
Metro Denver Apartment Vacancies Fall to a 10-year Low
Equity Residential Posts Higher FFO in 1Q
Starwood and Bainbridge Acquire Apts in MD and VA
Shares of Leading Apartment REITs Near 52-Week Highs
Deal Will Fix NYC Apartments Ailing in Foreclosure
Harvard Study Finds Affordable Rental Housing Scarce
Housing Bust Bolsters Bakersfield, Calif., Apartments
Legislative/Legal News
Fannie and Freddie Are Crucial to the Rental Housing Market
NAA Rolls Out Off-Campus Student Housing Lease
Apartment Battle Still Unresolved in N.M.
NYC Targets Apartment Cheats After Fatal Fire
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Equity Residential and AvalonBay Raise Rents
Digested From "Two Big U.S. Apartment Owners Raise the Rent"
Reuters (04/27/11) by Ilaina Jonas
Real estate investment trusts Equity Residential and AvalonBay Communities Inc. posted higher year-over-year revenue as stronger demand allowed them to raise rents. Many Americans have soured on home ownership because tighter lending standards have made owning a home more difficult. That has pushed down the U.S. apartment vacancy rate to 6.2 percent in the first quarter, a level unseen since 2008, according to real estate research firm Reis Inc. "Job growth, particularly among younger workers is driving higher rental demand, while new supply remains muted," AvalonBay Chief Executive Officer Bryce Blair said in a statement. Apartment building owners, such as Equity Residential and AvalonBay have been able to fill their buildings and push rents higher, boosting their own bottom lines. "The operating results were solid and reflective of an improving rental market," Luis Sanchez, vice president of Adelante Capital Management, said. For properties owned at least a year, rental revenues increased 3.6 percent to $1,400 and occupancy rose 95 percent from 94.6 percent a year earlier. Revenue increased 4 percent. Equity Residential sold or is selling about $500 million of non-core properties, taking advantage of the rising prices for apartment buildings. Average rent for properties AvalonBay has operated for a year or more increased 3.7 percent as did average monthly rates, to $1,879. Occupancy was flat at 95 percent.
Industry News
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Homeownership Rates Continue to Decline in First Quarter
Digested From "Homeownership Rates Continue to Decline in First Quarter"
LoanRateUpdate.com (05/02/11) by Brian Michael
The U.S. homeownership rate fell to 66.4 percent in the first quarter, down from 67.1 percent a year ago, reports the Census Bureau. The current rate is the lowest since the end of 1998 and is also off from a pace of 69.2 percent during the housing boom. The rate was highest in the Midwest at 70.4 percent, followed by the South at 68.5 percent, the Northeast at 63.9 percent, and the West at 60.9 percent. People aged 65 and up had the highest homeownership rate at 81 percent, while those younger than 35 had the lowest rate at 37.9 percent.
Metro Denver Apartment Vacancies Fall to a 10-year Low
Digested From "Metro Denver Apartment Vacancies Fall to a 10-year Low"
Denver Post (CO) (04/29/11) by Howard Pankratz
The Apartment Association of Metro Denver and the Colorado Division of Housing report that the apartment vacancy rate in the Denver metropolitan area for the first quarter of 2011 was 5.5 percent, the lowest first quarter vacancy rate in a decade. As vacancies have become more scarce, the area's median rent has increased, according to the report. Median rent rose to $858 during the first quarter of 2011, increasing 2.6 percent from 2010's first quarter median rent of $836. "The growth isn't nearly what it was before the 2010 recession in Colorado, but we're looking at some of the strongest rent growth we've seen in metro Denver in the past decade," says Ryan McMaken, Division of Housing spokesman. McMaken adds that the year-over-year growth in median rents outpaced inflation during much 2010, and the "first quarter's median rent is the highest yet recorded." Gordon Von Stroh, a professor of business at the University of Denver, and the author of the report, says that although the vacancy rate is near the lowest it's been in the last decade, it has essentially been "flat" the last three quarters.
Equity Residential Posts Higher FFO in 1Q
Digested From "Equity Residential Posts Higher FFO in 1Q"
Business Week (04/28/11)
Equity Residential recently posted improved first-quarter results as rental income rose. The apartment REIT recorded funds from operations (FFO) of $173.5 million for the three months ended March 31 versus quarterly FFO of $145.6 million for the same period a year earlier. In addition, Equity Residential tallied net income of $123.9 million, an increase from $51.9 million for 2010's first quarter. Company officials credited the improvement mainly to higher gains from apartment community sales this year. Total revenue rose to $520.6 million from $465 million, nearly meeting analysts' forecast of $519.4 million. Finally, same-store revenue -- or revenue at apartments open at least one year -- increased 4 percent. Equity Residential concludes that business conditions, including occupancy, improved across all of the company's markets from January through March.
Starwood and Bainbridge Acquire Apts in MD and VA
Digested From "Starwood Capital Group and Bainbridge Companies Acquire Seven Apartment Communities in Maryland and Virginia"
PRNewswire (04/28/11)
Starwood Capital Group Global, a leading private investment firm, Bainbridge Companies, LLC, a fully integrated family of real estate companies, report that a joint venture between affiliates of both companies and a major institutional investor have acquired seven apartment communities in the Washington, D.C. metropolitan area. Terms of the transaction were not disclosed. The acquisition includes a total of 1,626 apartment units in Virginia and Maryland. The units involved in the acquisition, which closed on April 26, 2011, average approximately 950 square feet each. The properties were completed in between 1987 and 2002. The joint venture has secured seven-year financing for the properties from Freddie Mac. The joint venture will begin shortly on an extensive remodeling and upgrade program at the communities, which involves updating amenities, interiors, exteriors, landscaping and signs. Total capitalization including the remodeling and upgrades will be approximately $300 million. Bainbridge Management will manage the properties.
Shares of Leading Apartment REITs Near 52-Week Highs
Digested From "Nation of Renters and Hoarders"
CNN Money (04/27/11) by Paul LaMonica
Shares of leading apartment REITs Equity Residential, Apartment Investment & Management, Public Storage, Sovran Self Storage, U-Store-It Trust and UDR are near 52-week highs. The numbers are a clear sign that more people are renting instead of buying, a trend that is not likely to end soon. David Harris, a REIT analyst with Gleacher & Co. in New York, says, "Some people refer to it as a propensity to rent but in reality, it's an aversion to buy." For some, the decision to rent instead of buy is predicated on the belief that housing prices haven't yet hit bottom, while others find that it is simply harder to save for a down payment and get a mortgage. According to the most recent figures released by the U.S. Census Department Wednesday, rental vacancies fell to 9.7 percent in the first quarter of this year from 10.6 percent a year ago. Meanwhile, the home vacancy rate was unchanged, and homeownership declined from a year ago. This could be good news for the economy, as well as apartment and storage companies, which typically offer leases on a month-by-month basis and can quickly raise rates. Even as the rates go up, demand continues to rise.
Deal Will Fix NYC Apartments Ailing in Foreclosure
Digested From "New York City: Deal Will Fix Buildings Ailing in Foreclosure"
Associated Press (04/27/11)
New York City officials have announced that ten Bronx buildings — where residents have lived with more than 4,800 housing violations for problems ranging from collapsing ceilings to mold-covered walls and waterfall-sized leaks — have been purchased by a local investor who has vowed to correct both the decay and the underlying structural issues that worsened in the buildings during the years in foreclosure. In September, a court ruled that the special servicer representing investors, LNR Partners, must pay for fixes — a ruling that may have helped spur the sale announced on April 26. The buildings — once managed by Milbank Real Estate — were among thousands of properties around the country that fell into default in the housing collapse, leaving tenants unsure where to turn when landlords walked away from investments that had turned sour. In New York City alone, more than 25,000 rent-stabilized apartments had deteriorated visibly by the beginning of 2010, housing officials said. At that time, apartment owners nationwide owning more than 300,000 apartment units had fallen behind on payments or gone into foreclosure. Steve Finkelstein, the principal behind Finkelstein Timberger Real Estate, which purchased the Milbank portfolio, says he expects to spend $7 million or more fixing the buildings over the next three to four months. The company, which is spending $27.75 million to purchase the buildings, has signed agreements with the city to make the repairs and limit rent increases on previous tenants to no more than $30 per month for each unit. Finkelstein has also agreed to forgive what he estimates is roughly $3 million in back rent owed by residents, many of whom stopped paying because of conditions in their apartments. Of the 535 units, about one-third are vacant. Rents for those apartments will go up more significantly to reflect the cost of renovations, he says.
Harvard Study Finds Affordable Rental Housing Scarce
Digested From "Study: Affordable Rental Housing Scarce"
Washington Post (04/26/11) by Dina ElBoghdady
A new Harvard University study concludes that the share of apartment residents who spend more than half their income on housing is at its highest level in half a century. Approximately 26 percent of those who rent -- about 10.1 million people -- spent more than half their pre-tax household income on rent and utilities in 2009, as incomes declined dramatically from their peak at the start of the decade even as rents kept rising. The supply of rental housing, especially for the working poor, has not kept up with demand in part because of a shortage of apartments, a key source of new rentals. Developers cut back on such projects when the economy deteriorated in 2009, which drove down vacancies and boosted rents. Analysts say they expect rents to keep climbing as developers try to ramp up new projects and catch up with demand. The demand is driven up in many areas by families who lost their homes to foreclosure during the housing bust and ended up searching for rental housing. Meanwhile, as the job market recovers, more newly employed young adults appear to be seeking their own apartments instead of living with their parents, putting even more upward pressure on rental rates. By 2009, 7.5 percent of moderate-income renters spent more than half their income on rent, twice as many as in 2001, according to the study. "It's a real squeeze for the lower-income and moderate-income families, and we're even starting to see it affecting middle-income families, too," says Erick Belsky, managing director of Harvard's Joint Center for Housing Studies. "The prospects for improvement any time soon are dim." The Harvard study analyzed 6 million units that apartment owners were renting in 1999 for less than $400 a month. It found that nearly 12 percent of them were demolished by 2009, and a larger number were no longer available because of other factors, such as disrepair or conversion to non-residential use.
Housing Bust Bolsters Bakersfield, Calif., Apartments
Digested From "Housing Bust Strengthens Rental Market"
Bakersfield Californian (04/25/11) by John Cox
Real estate investors are pouring into Bakersfield, Calif.'s rental market, drawn by sharply devalued apartment buildings and occupancy rates that have increased steadily as individuals who lose their homes are forced to sign leases elsewhere. Such is the demand for multifamily housing that out-of-towners and locals with ample access to capital are purchasing distressed properties the moment they become available and flipping them for a profit, sometimes in just a few days, Bakersfield market watchers report. In 2010, the city's four-plex and apartment market topped its 2009 performance in nearly every category -- number of transactions, total dollar value of sales, citywide occupancy rate, and price per unit -- according to a report by Grubb & Ellis - ASU & Associates. Unlike in recent years, investor interest is no longer concentrated in the relatively wealthy southwest, said Marc A. Thurston, senior vice president within Grubb & Ellis' multifamily investment group.
Legislative/Legal News
Fannie and Freddie Are Crucial to the Rental Housing Market
Digested From "Fannie and Freddie Are Crucial to the Rental Market, Too"
Baltimore Sun (05/02/11) by Raymond A. Skinner
Raymond Skinner, secretary of the Maryland Department of Housing and Community Development, supports preserving the role of Fannie Mae and Freddie Mac in promoting "affordable rental housing for moderate and low-income households across the country." The firms' multifamily rental loan portfolios both have performed well, he notes, providing clear proof that smart underwriting drove multifamily rental lending decisions even during the housing crisis. Additionally, their ability to offer long-term fixed-rate financing helps multifamily rental property owners keep debt costs -- and, thus, rents -- low, which is critical for working- and middle-class families.
NAA Rolls Out Off-Campus Student Housing Lease
Digested From "NAA Rolls Out Off-Campus Student Housing Lease"
Citybizlist Baltimore (04/28/11)
The National Apartment Association (NAA) has taken the wraps off a student housing lease for off-campus housing in Florida and is paving the way to do the same in three other states -- California, Georgia, and North Carolina. Dubbed the National Lease Program, it will add states based on demand and legal review. The lease addresses a wide range of issues, including utilities, security devices, damages and reimbursement, rent increases, repairs, and default by resident. NAA's customers include some of the nation's biggest REITs and privately held property firms.
Apartment Battle Still Unresolved in N.M.
Digested From "Apartment Battle Still Unresolved"
Farmington Daily Times (NM) (04/27/11) by Kurt Madar
In Farmington, N.M., a case of mistaken zoning that goes back to 2001 has no clear resolution in sight, pitting a developer who wants to build 96 apartments on 5.6 acres against the residents of the high-end neighborhood directly next door. They met at a city council meeting on Tuesday, expecting some resolution on the city-sponsored petition to rezone the 5.6 acres from multifamily to single-family. Instead, following the recommendation of city legal staff, the council decided to withdraw its petition for rezoning because it was not specific enough. In 1996, Craig Stoabs of Socuno Ltd. wanted to break ground on two projects, a single-family zoned residential neighborhood and an apartment community. He received the zoning he wanted for both projects, but a caveat arose concerning building on the area zoned multifamily. The council at the time required that Stoabs must commence construction on the apartments within five years or it would revert to single-family residential, and the city contends that Stoabs never broke ground, which means that the 5.6 acres should have reverted to single-family in 2001. Now, 10 years later, the city realized its mistake and started the current effort to change the property to single-family. The question as to whether Stoabs began construction is one the city must answer before seeking to rezone the 5.6 acres.
NYC Targets Apartment Cheats After Fatal Fire
Digested From "New York City Targets Landlord Cheats After Fatal Fire"
USA Today (04/27/11) P. 3A; by John Bacon
New York City Mayor Michael Bloomberg is asking fire and buildings officials to look for new ways to combat apartment owners who illegally subdivide their properties, after three people died in a fire in illegal housing on April 25. Bloomberg says the building where a child and his parents died had been illegally converted, cutting them off from fire escapes. The city is able to gain entry only to half of the properties that are the subjects of complaints, says Bloomberg, because of legal standards required to obtain warrants. City Council Speaker Christine Quinn, who says the council will hold hearings on the issue, says courts deny two-thirds of access requests.
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