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The Industry Insider - August 26, 2008
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Headlines
Top Story
Apartment Communities Lose Their Immunity to Housing's Chill
Industry News
Moody's Index Spotlights Apartments
More Foreclosed Properties in Bay Area Are Becoming Rentals
Apartment Investment in Denver Rises
Greeley, Colo., Apartment Vacancy Rate Drops in Second Quarter
Will Property Loans Be the Next Stage in the Downturn?
LoopNet Report Favors Apartments
Even More Apartment Vacancies, Higher Rents in Colorado Springs
AIMCO Sells Indy Apartment Portfolio to Ardizzone
Legislative/Legal News
U.S. Says Many Apartments Violate Law on Disabled
New Barbecue Law May Rile California Apartment Residents
Columbia, S.C., Might Mandate Security at Apartments
L.A. Could Lose Thousands of Affordable Apartments in the Coming Years
Top Story
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Apartment Communities Lose Their Immunity to Housing's Chill
Digested From "Apartment Buildings Lose Their Immunity to Housing's Chill"
Wall Street Journal (08/20/08) P. C10; by Nick Timiraos
Job losses are now starting to have a negative impact on the nation's apartment sector, as more would-be residents are either moving in with friends and family or doubling up in apartments, resulting in declining rents and occupancy rates in some cities. Another problem for apartment owners has been the "shadow market" of unsold houses that owners have put on the rental market. Concerns about falling rents and rising vacancy have resulted in declining prices for apartment communities. Real Capital Analytics reports that the capitalization rate dropped one-quarter of 1 percent from last year's second quarter to the same period this year. The current cycle is affecting several of the apartment sector's biggest players. Nationally, Camden Property Trust expects to post rental growth of 2.5 percent this year, compared with 4.1 percent growth last year and 7.4 percent in 2006. Mid-America Apartment Communities Inc. recently reduced its 2008 revenue forecast by 1 percent after witnessing year-over-year revenue growth for the second quarter fall to 2.6 percent from 3.8 percent a year ago. Post Properties Inc., meanwhile, has canceled a planned 300-unit apartment community in Charlotte and delayed a trio of Florida projects. Fannie Mae announced in July that it would increase its commitment to purchase loans on multifamily housing of up to $5 million in order to provide additional liquidity for rental housing after having invested $20 billion in multifamily housing during the first and second quarters of this year.
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Moody's Index Spotlights Apartments
Digested From "Moody's: Commercial Real Estate Prices Dip in June"
Associated Press (08/20/08)
Moody's/REAL Commercial Property Price Indices (CPPI) fell 3.3 percent from the previous month and was down 9.6 percent from June 2007. The CPPI is based on repeat sales of the same properties across the United States at different points in time. All four property types measured by the index went negative during this year's April-through-June period, Moody's researchers confirmed. Among them was the national apartment market, which saw prices fall 7.1 percent. Through the first six months of 2008, overall transaction volume fell more than 25 percent compared to the first half a year ago.
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More Foreclosed Properties in Bay Area Are Becoming Rentals
Digested From "Foreclosed Properties Become Rentals"
Contra Costa Times (CA) (08/18/08) by Eve Mitchell
With the mortgage meltdown forcing more homes into foreclosure throughout the San Francisco Bay Area, some of these residences are being snapped up by investors who are returning them to the market as rentals. In particular, a growing number of for-sale condominium properties in downtown Oakland are being rented out as apartments because developers are having such a difficult time securing buyers in today's tough housing market. As investors buy foreclosed homes and rent them out, the number of available rental properties is expected to increase and will almost certainly result in lower rents. Eric Weigers, deputy director of the California Apartment Association. "We are starting to see a trend. Investors are picking up the homes and turning them into the rental market right away. . . . We have not seen the foreclosures drive up rents anywhere right now." Steve Edrington, executive director of the state Apartment Association's northern Alameda County chapter, confirms, "We are seeing a lot more rentals coming back into the market--single-family homes and condos. We are seeing this in Alameda and Contra Costa [counties] and seeing it out in the Central Valley."
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Apartment Investment in Denver Rises
Digested From "Investment in Commercial Real Estate Falls"
Denver Business Journal (08/19/08)
LoopNet Inc. reports that investment in Denver-area commercial properties was down in all categories except apartment communities for the 12 months through the second quarter. According to the San Francisco-based firm's research, apartment investment rose to $1.59 billion from $1.46 billion a year earlier. Meanwhile, average price per apartment fell to $95,008 from $96,713. The majority of buyers--59 percent--were private. In the biggest purchase category--office properties--investors acquired $2.5 billion in space, a decrease from $4.54 billion for the same period a year earlier. The average selling price for office space also fell from $174 per square foot to $146.
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Greeley, Colo., Apartment Vacancy Rate Drops in Second Quarter
Digested From "Greeley Vacancy Rate Drops in Second Quarter"
Greeley Tribune (Colo.) (08/22/08) by Bill Jackson
In Greeley, Colo., the apartment vacancy rate took a significant drop in the second quarter, falling from 7.3 percent in the first quarter of this year to 6.1 percent. Conducted by the Colorado Division of Housing, the latest Colorado Multi-Family Housing Vacancy and Rental Survey also shows that the vacancy rate in nearby Fort Collins went from 4.8 percent to 9.5 percent during that same time span, while Loveland's apartment vacancy rate remained about the same at 5.7 percent. Bruce Disselkoen of the Weld County Apartment Association says he cannot explain the downward trend in Greeley, which is located approximately 50 miles north of Denver. Disselkoen states, "I would hope it's the start of a significant trend, but I'm not jumping up and down for joy just yet. I think we'd better see a couple more quarterly reports. I'm certainly not going to go out and ask contractors to start building new units." According to the survey, the average monthly rent in Greeley rose from $596 in this year's first quarter to $630 in the second quarter. Analysts say that is a statewide trend as more apartment owners deal with higher costs of staples needed to maintain their apartment communities.
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Will Property Loans Be the Next Stage in the Downturn?
Digested From "Some Fear Commercial Property Loans Will Be Next Stage in Downturn"
New York Times (08/22/08) by Louise Story
The stability of commercial real estate loans is garnering more questions following a warning last week by a New York developer that he might not be able to make his next mortgage payment for a large apartment building in New York City. Wall Street banks are now trying to unload risky bridge equity and floating-rate loans that were often made to hotels, office developers, and retail strips. The holders of about $100 billion of commercial mortgage-backed securities fear that problems in the commercial property market could lead to more write-downs. "The fear is the next shoe to drop may be commercial real estate," says Jeffrey Harte, a banking analyst at Sandler O'Neil.
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LoopNet Report Favors Apartments
Digested From "Commercial Property Sales Drop Dramatically in Past Year"
Atlanta Journal-Constitution (08/20/08) by Kevin Duffy
A new LoopNet report shows that sales of Atlanta-area retail and office properties fell sharply during the 12 months ended June 30. The volume of office transactions plunged 57.5 percent versus the previous 12-month period, while retail space was off a whopping 71.3 percent. The lone bright spot was apartment sales, which rose 4.2 percent in the Atlanta market year over year. New York-based Real Capital Analytics helped LoopNet compile the data.
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Even More Apartment Vacancies, Higher Rents in Colorado Springs
Digested From "Even More Vacancies, Higher Rents"
Colorado Springs Gazette (08/20/08) by Rich Laden
University of Denver business professor Gordon Von Stroh conducts a quarterly apartment vacancy and rent survey for the Colorado Division of Housing, the Apartment Association of Southern Colorado and several other sponsors. Von Stroh's latest report shows the Colorado Springs area's apartment vacancy rate rose to 10.2 percent in the second quarter from 9 percent in the first quarter and 9.6 percent in the second quarter of 2007. The increase continued an up-and-down trend of recent quarters that caught industry professionals by surprise. Von Stroh observes that back-and-forth troop deployments from Fort Carson to Iraq are contributing to what he calls "the yo-yo effect." The lowest apartment vacancy rates were found in newer areas of Colorado Springs--7.4 percent in the far northeast, 8 percent in the northwest and 8.8 percent in the northeast. The highest vacancy rates continued to be recorded in areas near Fort Carson--23.3 percent in Fountain and 17.9 percent in southeast Colorado Springs. Monthly apartment rents averaged $706.51 in the April-through-June period, up from $689.65 in the first quarter and $683.06 in the second quarter of 2007. Von Stroh notes that the highest average monthly rent in the second quarter ($823.76) was found in far northeast Colorado Springs. The lowest ($537.59), meanwhile, was on the city's southeast side. Ken Greene of Apartment Realty Advisors adds that area job growth remains slow and many foreclosed homes and other resales are available for rent, creating even more competition for apartments. Housing Division Director Kathi Williams is among those who are concerned about an oversupply of single-family housing in Colorado Springs. She believes many people might have no choice but to rent because it has become so difficult to obtain loans in today's tighter credit market.
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AIMCO Sells Indy Apartment Portfolio to Ardizzone
Digested From "Ardizzone Takes Indy Apt. Portfolio for $81M"
CoStar Group (08/18/08)
AIMCO has sold five of its apartment communities in Indianapolis to Ardizzone Enterprises, an apartment renovation services firm. The total sales price was $80.75 million, or around $42,840 per apartment. The portfolio consists of 1,885 apartments with occupancy rates ranging from 85 percent to 95 percent. AIMCO is a Denver-based apartment REIT.
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Legislative/Legal News
U.S. Says Many Apartments Violate Law on Disabled
Digested From "U.S. Says Many Apartments Violate Law on Disabled"
New York Times (08/18/08) by Charles V. Bagli
Faced with potential lawsuits by the federal government, apartment developers and owners throughout New York City may need to spend millions of dollars to renovate more than 100,000 apartments built since 1991 to comply with federal housing laws barring discrimination against residents who use wheelchairs. For two decades, developers have complied with a city law requiring them to ensure that all the apartments they erect are accessible to disabled residents. Enacted in 1988, developers and New York officials contend that the city law essentially meets the federal requirements of the Fair Housing Act. However, the U.S. attorney's office in Manhattan has sent letters to about a dozen of New York's biggest apartment owners and their architects saying that some of their buildings are "not accessible to persons with disabilities." Among the recipients are Related Companies, the Durst Organization and Silverstein Properties. According to the letters, some doors were not wide enough, while a number of kitchens and bathrooms were not big enough to allow someone in a wheelchair to maneuver. The federal prosecutor's office has asked owners for meetings, building inspections and all the records of the design and layout of the apartments in certain structures. Last week, the U.S. attorney's office filed suit against AvalonBay Communities and its architects, charging them with discrimination against disabled people by failing to provide sufficient access at its Avalon Chrystie Place community on New York's Lower East Side. Now, virtually every developer and apartment owner who has built an apartment house in the Big Apple since 1991 are afraid they may be next.
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New Barbecue Law May Rile California Apartment Residents
Digested From "Home Front: Barbecue Rules May Rile Apartment Dwellers"
Sacramento Bee (CA) (08/22/08) by Jim Wasserman
In California, new state fire codes prohibit open-flame grilling within 10 feet of a combustible surface. That means most apartment balconies and many apartment patios. The new rules are part of updated codes produced by state fire marshals. In the case of apartment residents, they are now allowed to barbecue only if: one, the building has balconies or decks that are protected by automatic sprinkler systems; and, two, the propane tank for the resident's grill is no bigger than those typically used for camping stoves. Cory Koehler, deputy director of the Rental Housing Association of the Sacramento Valley, remarks, "Unfortunately, there are examples of serious fires starting, and in apartment [communities] you have a lot of families living close together." The association--an apartment industry trade group covering eight California counties--has been petitioning apartment managers to notify residents. Statewide, the California Apartment Association is following suit. Some apartment communities are even rewriting leases to include the provision, the two groups report.
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Columbia, S.C., Might Mandate Security at Apartments
Digested From "City Might Mandate Security at Apartments"
Columbia Free Times (SC) (08/20/08) by Eric K. Ward
In South Carolina, the Columbia City Council is considering a plan to require apartment owners--especially those in high-crime areas--to implement security plans after a recent spate of shooting deaths at local communities. Such a security plan would involve the hiring of security guards, the installation of a surveillance system and/or other measures. Apartment Association of Greater Columbia President Christy Chinn says her organization is opposed to such a mandate, arguing that the cost would almost certainly be passed down to residents. Columbia Mayor Bob Coble says he plans to ask council members to appoint a task force of local apartment industry representatives to review the ordinance and any other potential strategies to reduce crime at problematic apartment communities. Councilman Sam Davis, whose district has experienced much of the violence at apartments, attribute the problem largely to the owners of the various communities. He points out that many of them are based out of state and are either unaware of the problems or have opted not to address them. He adds, "The local managers can only do so much."
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L.A. Could Lose Thousands of Affordable Apartments in the Coming Years
Digested From "Facing a Tide of Rents on the Rise"
Daily Breeze (08/17/08) by Kerry Cavanaugh
Los Angeles stands to lose thousands of affordable apartments over the next five years, as contracts that require owners to rent to low-income tenants expire on more than 14,000 units. It is impossible to predict how many apartments will ultimately be converted to higher rents or how many poor residents could be displaced. Much will depend on the housing market, the availability of public dollars for preservation and property owners' individual choices. Housing Department General Manager Mercedes Marquez is among those who believe the city needs to act now to ensure there is not a dire loss of affordable housing in Los Angeles. The race to preserve affordable apartments comes as a formerly hot property market spurred the demolition and conversion to condominiums of more than 12,000 rent-stabilized apartments. Long-term residents in those apartments paid low rent and were thrown into a market where the average rent is $1,580 a month. At the same time, the waiting lists for low-income and senior units are quite long. In Los Angeles, almost 80 percent of the rent-restricted apartments that are expiring in the next five years were financed by HUD. When owners of those buildings convert to market rent, low-income residents can usually stay in their apartments with a Section 8 voucher in which the United States pays a portion of the rent. Once those residents leave, however, the apartments are no longer bound by the affordable restrictions. Arnie Corlin with the Apartment Association of Greater Los Angeles asserts that building owners who fulfill their covenant obligations should be able to convert to market rent. He reasons, "A deal's a deal. If they want to come back to me to negotiate a fair means to make a living and a profit, then I'll stay in. They just have to be more business-friendly."
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