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ULI Study High on Apartments, Low on Other Sectors for '09
Industry News
Foreclosures Add to Tight Apartment Market in Silicon Valley
Apartment Residents Try New Tactics in Tight Portland Market
WRIT Posts Mixed Earnings Amid Apartments and Retail
Apartment Rents, Vacancy Up in New Jersey County
Denver Apartment Group Expands Into Retail
Puget Sound's Multifamily Housing Market Stays Strong
Riverstone Residential Group Names Brock President of the Central Division
Moves to Apartments, Condos Push Furniture Industry to Think Small
Legislative/Legal News
Pittsburgh Apartment Owners Leery of Trash Mandate
Iowa Supreme Court Ruling Affects Apartments
Proposed Charlotte Ordinance Cracks Down on Apartment Crime
Pet Owners Grasp for Apartment Keys in California
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ULI Study High on Apartments, Low on Other Sectors for '09
Digested From "Report: Commercial Real Estate Market to Hit Bottom Next Year"
Nashville Business Journal (10/22/08)
According to a newly released report by the Urban Land Institute (ULI) and PricewaterhouseCoopers LLP, financial and real estate markets in the United States will likely hit bottom in 2009 and continue to slump for much of the following year. The report concludes that moderate-income apartments in core urban markets near mass transit offer the best investment opportunities, a consistent trend from the year before. Distribution/warehouse facilities were the next best investment, while downtown office space is expected to outperform suburban markets. Retail development is generally near the bottom and could fall even further. The annual industry outlook includes responses from more than 600 real estate experts, ranging from investors and developers to property company representatives and consultants. The report projects 15 percent to 20 percent losses nationally in commercial real estate values in 2009 from the mid-2007 peak. Respondents say financial institutions will continue to feel pressure moving bad loans off balance sheets, with some even using auctions to accelerate the process. Stephen Blank, senior resident fellow for real estate finance at ULI, notes, "Many property owners are drowning in debt, lenders are not lending, and for many industry professionals, property income flows are declining. There is an unprecedented avoidance of risk. Only when financing gets restructured will pricing reconcile, giving the industry a point from which to start digging out of this hole."
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Foreclosures Add to Tight Apartment Market in Silicon Valley
Digested From "Foreclosures Add to Tight Rental Market"
San Jose Mercury News (CA) (10/20/08) by Sue McAllister
Record numbers of Silicon Valley homeowners have been foreclosed upon in 2008, with most having to seek rental housing. If resident-occupied houses are in foreclosure, those who rent almost always get evicted, pushing them into the rental market again. At the same time, many apartment residents have been hesitant to buy homes in this bleak economy and have remained on the sidelines. The result has been an intensely competitive market for those seeking reasonably priced rental apartments. Average apartment rents increased 5.2 percent in Santa Clara County in the third quarter to $1,708 a month, reports RealFacts. However, it should be noted that rent hikes in the July-through-September period were not as steep as in the second quarter, a sign of the softening economy. RealFacts research further shows that apartment communities were 95.6 percent full in 2008's third quarter, a decrease from 96.7 percent a year ago. One reason apartment occupancy rates are slipping is that more single-family houses are coming onto the market as rentals, confirms Joshua Howard, executive director of the local division of the California Apartment Association. Some of those homes are previous foreclosures that were bought by investors.
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Apartment Residents Try New Tactics in Tight Portland Market
Digested From "In Tight Portland-Area Market, Would-Be Renters Try New Tactics"
Oregonian (10/25/08) by Robin Franzen
Would-be apartment residents are getting squeezed by one of the tightest rental markets in years in the Portland metropolitan area, where it can take months to find an apartment home they feel they can afford. Rents are up more than 5 percent from a year ago, fewer than 4 percent of the Oregon market's apartments are vacant and construction of new apartments has slowed considerably. That has left today's apartment hunters--many of whom are young adults just starting out, lower-income people, laid-off workers, those who have lost their home to foreclosure, and those with spotty credit--at the mercy of apartment owners. Still, there are opportunities. A growing number of financially strapped homeowners looking for additional income are renting out spare rooms. In addition, more existing apartment residents are sharing expenses by doubling and even tripling up. During the last year, the number of "roommate wanted" classified ads on Craigslist's Portland-area Web site has soared nearly 50 percent. The upside is potentially lower rent, fewer deposits and new friendships made. The downside is a lack of personal space and privacy. In September, the Metro Multifamily Housing Association reports that just 3.6 percent of apartments in the Portland metro area were vacant, well below the decade-long average of 5.6 percent. Apartment owners responding to the association's fall 2008 survey anticipated it being only slightly harder to fill vacancies over the next six months. Most, though, lament that they facing higher operating costs and may have to hike rents as a result.
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WRIT Posts Mixed Earnings Amid Apartments and Retail
Digested From "Washington Real Estate Investment Trust Reports Mixed Earnings"
Washington Business Journal (10/24/08) by Melissa Castro
Washington Real Estate Investment Trust (WRIT) recorded third-quarter funds from operations (FFO) of $27.4 million compared to $27.7 million in the same period a year ago. As of Sept. 30, WRIT owned 92 properties across all sectors, including apartments, offices and retail. Its properties in core locations are 94 percent leased, while its entire portfolio is 91 percent leased. Rents on commercial lease roll-overs rose 20.9 percent in this year's third quarter, while residential rental rates climbed only 1.2 percent from the year-ago period. Among WRIT's commercial holdings, retail properties witnessed the greatest rent growth, with those tenants signing leases for 32 percent higher rents versus 2007's July-through-September period. The Maryland-based REIT states that it will not be affected by the current credit crunch anytime soon. In fact, the next mortgage to come due is a $50 million note on an apartment community, due in October 2009. In September, WRIT paid $58.3 million for The Kenmore, a 374-unit apartment community in Washington, D.C. The total was less than half the property's replacement cost to take it off Smith Property Holdings' books.
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Apartment Rents, Vacancy Up in New Jersey County
Digested From "Apartment Rents, Vacancy Up"
Bergen Record (NJ) (10/22/08) by Andrew Tangel
A new Marcus & Millichap report shows that apartment rents in New Jersey's Bergen County rose 5.8 percent to $1,532 in the past year as of Sept. 30. Higher rents were achieved even though Bergen's apartment vacancy rate increased 50 basis points to 3.5 percent since the end of 2007's third quarter, according to the study. In North Jersey overall, the apartment vacancy rate of 3.8 percent was 40 basis points higher than in the third quarter of a year ago. Marcus & Millichap researchers write: "Vacancy is expected to stay less than 4 percent this year, but the extent that the rate will increase over the next few quarters is uncertain." Job losses in the financial sector will be one of the most critical factors, as New Jersey lost approximately 1,900 such jobs during September alone.
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Denver Apartment Group Expands Into Retail
Digested From "Pinnacle Real Estate Starts Retail Group"
Denver Business Journal (10/22/08)
Pinnacle Real Estate Advisors LLC has launched a retail group that will work with buyers and sellers of retail properties. Founded in 2006, Pinnacle is a Denver-based firm that is involved in all aspects of commercial brokerage--from office and industrial property sales to selling car washes--but is best-known for apartment sales. Pinnacle co-founders Matt Ritter, who also used to be with Marcus & Millichap's local operation, comments, "We believe that a retail presence is a natural complement to our apartment business. Our apartment owner clients frequently look to trade into retail because of the relative ease of management, long-term triple-net leases and credit tenants."
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Puget Sound's Multifamily Housing Market Stays Strong
Digested From "Multi-Unit Housing Market Remains Good, Study Suggests"
Tacoma Business Examiner (10/20/08)
Grubb & Ellis Co. reports that the Puget Sound area's multifamily housing market recorded increases in both rents and vacancy during 2008's third quarter, yet still generated $436 million in sales for the three-month period. The firm cited two main reasons for the rising vacancy rate: job layoffs and rent increases. Layoffs in the construction industry, in particular, will likely top 6,200 workers during the fourth quarter. With the recent failure of Washington Mutual Savings Bank, more will likely ensue. Apartment rents, meanwhile, have steadily increased over the last five years. During the past 12 months alone, rents rose 7 percent. In the next six months, local apartment owners forecast rent hikes of 2.7 percent. Grubb & Ellis senior vice president Greg Laycock states, "The credit crunch has certainly taken its toll on the sales volume of local [multifamily housing] product. However, both buyers and sellers are poised to see the return of stability in the capital markets and the availability of financing."
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Riverstone Residential Group Names Brock President of the Central Division
Digested From "Riverstone Residential Group Names Brock President of the Central Division"
PRNewswire (10/20/08)
Stephanie Brock has been promoted to president of Riverstone Residential Group's Central Division. In her new role, Brock will provide operational oversight for a portfolio of apartment communities that contain more than 55,000 rental units. The communities are spread throughout in five states--Arizona, Colorado, Louisiana, Nevada and Texas. Brock has more than two decades of experience in the multifamily housing industry, having served in various capacities at Dallas-based Riverstone since its founding. Prior to that, she was with Trammell Crow Residential Service, where she played a key role in re-establishing market presence in such cities as Denver, Houston and Phoenix. The University of Texas, Austin graduate is active in several industry organizations, including the Institute of Real Estate Management, and has served on the board of directors for the Colorado Apartment Association and the Apartment Association of Metro Denver. Riverstone Residential Group ranks as the biggest privately owned residential management firm in the country. It manages a portfolio of high-rise, mid-rise and garden-style apartment communities valued at more than $25 billion for leading institutions, pension funds, developers and other major owners.
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Moves to Apartments, Condos Push Furniture Industry to Think Small
Digested From "Moves to Apartments, Condos Push Furniture Industry to Think Small"
Detroit Free Press (MI) (10/26/08) by Emery P. Dalesio
With more and more people avoiding big home purchases and instead buying condominiums or renting apartments, furniture manufacturers and retailers are reducing the scale of tables, night stands, and the like. Not only are they compressing home offices into a single fold-out cabinet, many are cutting back on the length of sofas and entertainment centers that sprawled across the length of McMansion walls. Don Essenberg, chief marketing officer at Magnussen Home Furnishings, states, "It's scaled down to the kind of residences that are selling today." In response to consumer research, Magnussen began downscaling nearly three years ago. In that time span, the company's sales have shifted from 70 percent overscaled to 70 percent smaller scale, confirms Essenberg. According to a recent report by IBISWorld Inc., a Los Angeles-based industry intelligence firm, "Increasingly, people are choosing to live by themselves, with apartments and flats becoming a more popular choice of residence in metropolitan areas. These smaller households therefore also drive large demand for smaller furniture items."
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Legislative/Legal News
Pittsburgh Apartment Owners Leery of Trash Mandate
Digested From "Pittsburgh Landlords Leery of Trash Mandate"
Pittsburgh Tribune-Review (10/23/08) by Jeremy Boren
Under an ordinance that received tentative approval from the City Council on Oct. 22, Pittsburgh apartment owners and their residents must sign and submit a form to the city stating they understand how to get rid of their trash. Councilman Bruce Kraus drafted the legislation in order to combat trash-strewn apartment communities that add blight to portions of South Side and South Oakland--two Pittsburgh neighborhoods with large concentrations of college students. Kraus, who represents both areas, remarks, "This legislation is not about making enemies. It really is an educational tool. . . . It simply asks the [apartment owner] to review certain regulations with the [resident]." Opposing the legislation is Jim Eichenlaub, government affairs director for the Apartment Association of Metropolitan Pittsburgh. He argues that it creates "a lot of paperwork" and does not account for those apartment owners who use private trash haulers. The association represents owners of the city's estimated 80,000 rental apartments. Eichenlaub remarks, "This may not be the right approach. I understand in certain neighborhoods this may make sense, but this is a universal approach to something where not everyone fits into the same category." Eichenlaub hopes to convince council members to modify the legislation to make exceptions for owners of large apartment communities, who are already required to store trash in dumpsters and have them emptied by private haulers. The council is currently scheduled to take a final vote on Oct. 28.
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Iowa Supreme Court Ruling Affects Apartments
Digested From "High Court Sides With State in Condo Tax Dispute"
Des Moines Register (IA) (10/24/08)
The Iowa Supreme Court recently ruled that apartments statewide should continue to be taxed as commercial property even though condominium owners enjoy a significantly lower residential tax rate. The decision follows a legal dispute between the Iowa Department of Revenue and a regional property firm, which contended that the current tax structure is a violation of the state constitution's "equal protection" clause that bans discrimination. The Iowa Supreme Court rejected this argument, partly because condo owners have greater rights and responsibilities with their property. Justice David Baker wrote: "We determine that any similarities between apartments and condominiums are insufficient to consider them 'similarly situated' for equal protection analysis. Although condominiums may be marketed and leased like apartments and are similar in structural design and in the rules applied to residents, unlike apartments, each condominium unit is treated as a separate real estate parcel and could be marketed as a single-family unit."
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Proposed Charlotte Ordinance Cracks Down on Apartment Crime
Digested From "Proposed Ordinance Cracks Down on Apartment Crime"
WCNC (NBC North Carolina) (10/22/08) by Tony Burbeck
According to a proposed new ordinance, Charlotte apartment communities that do not take steps to curb crime could be permanently shuttered. It stems from repeated crimes like robberies, break-ins, shootings, assaults and police calls to the same troubled spots, which the city considers detriments to public safety and welfare. The proposed ordinance sets minimum safety standards and gives city government the authority to close problem apartment communities down, reports Ken Szymanski with the Charlotte Apartment Association. If approved, the crackdown would require all apartments to register with the city and provide current and immediate owner contact information. Police say in some cases owners live out of state and are hard to reach or never respond to their calls. Referring to options apartments might have to consider, Szymanski states, "You need to install security gates. You need to trim your hedges. You need to add lighting." Such improvements, though, can be costly. Szymanski notes, "Those properties have the lowest income consumers and probably the thinnest margin of profitability." Indeed, some of the city's most crime ridden apartments are subsidized. Consequently, with this new and tougher ordinance, the city could be cracking down on itself.
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Pet Owners Grasp for Apartment Keys in California
Digested From "A Doggone Difficult Time for People With Dogs to Rent"
Orange County Register (CA) (10/19/08) by Mary Ann Milborun
In Orange County, Calif., renting has been an ongoing struggle for apartment residents with pets, particularly dogs. While at least more large Orange County apartments seem amenable to pets, residents are finding it comes at a price--typically a separate deposit for each animal and often a monthly "pet rent," also. For many apartment owners, not allowing dogs or other pets is just a way to avoid one more potential and perhaps costly problem. Michael Chow, an Apartment Association of Orange County board member, says his primary concern renting to dog owners is the wear and tear at the apartment communities he manages. He explains, "They tend to be hard on a unit. I don't care how nice an animal is, it's an animal." He adds that there are the liability concerns of a dog injuring someone else on community property, as well as annoyance factors like loud barking and residents who neglect to clean up after their animals. The one exception he makes is for residents with certified assistance animals. They are protected by law. Nevertheless, there is a huge demand for dog-friendly apartments, and many owners are more than willing to allow pets. At Western National Property Management, the pet policy has evolved over the last decade at the 20,000 units it manages in Orange and Ventura counties and throughout Northern California. Laura Khouri, senior vice president, notes that the pet policy was adopted in response to demand from residents who wanted to have dogs. The company permits two pets per unit. Certain dog breeds considered aggressive, like pit bulls, are outlawed. Residents must pay a $250 to $400 refundable deposit for each pet plus $25 to $35 a month for "pet rent." Khouri states the pet rent is a way to cover costs outside the unit, such as reseeding of grass and landscape where residents walk their dogs. The initial pet deposit just covers damage to the unit itself. Residents are also required to have rental insurance that includes liability coverage and a photo of the pet or pets in case they get lost.
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