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The Industry Insider - July 7, 2009
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Headlines
Top Story
Cities Grow at Suburbs Expense During Recession
Industry News
Apartment Vacancies Turn L.A. Into Residents' Market
Columbus Apartment Market Among Nation's Healthiest
Apartment Buyers Coming Off Sidelines in Orlando
Greenville, S.C., Apartment Vacancy Increases Locally
Mid-America Apartment Communities Establishes Acquisition Fund
Washington State Apartment Vacancies Top 7 Percent
Dallas-Fort Worth Apartment Rents Fall 1.7 Percent
Apartment Demand Takes Positive Turn in Atlanta
Cafritz Secures Fannie Mae Financing for Apartments
Legislative/Legal News
New Energy Efficiency Charge Could Cost Missourians
Virginia's Fairfax County Turning From Housing Buys
Ellwood (Pa.) Rental Laws Unaffected by New Castle Ruling
Recent Police Conference Aimed to Evict Crime From Apartments
Top Story
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Cities Grow at Suburbs Expense During Recession
Digested From "Cities Grow at Suburbs Expense During Recession"
Wall Street Journal (07/01/09) P. A5; by Conor Dougherty
Newly released U.S. Census Bureau data shows that cities that for years lost residents to the suburbs are holding onto their populations with more people trapped in homes they can't sell and others preferring the closeness and amenities of living in urban environments over the single-family homes and McMansions of the far-flung suburbs. According to the analysis, the central-city population in U.S. metro areas with more than one million people (excluding New Orleans) grew at an annual rate of 0.97 percent between July 2007 and July 2008 versus a growth rate of 0.90 percent in 2006-07. William H. Frey, a demographer at the Brookings Institution, comments, "This shows cities were reviving at the end of this decade, and they are also surviving a recession that has been a lot harsher for other parts of our landscape." The Midwest has been an especially interesting region to follow. Chicago's population grew at a 0.73 percent annual rate in the year ended July 2008 from 0.23 percent a year earlier and declines in the previous five years. Population growth also accelerated in such smaller cities as Columbus, Ohio, and Minneapolis. Elsewhere, the Census findings underscored how the real-estate slump and the recession have curbed migration, especially to the various suburbs and exurbs. With the slowdown in construction and service jobs, a bigger share of immigrants are moving to central cities rather than directly to suburban areas as they had during the real estate boom. Consequently, the spread of racial diversity has slowed.
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Industry News
Apartment Vacancies Turn L.A. Into Residents' Market
Digested From "Vacancies Give Renters Room to Negotiate"
Los Angeles Times (07/05/09) by Lauren Beale
Reis Inc. reports that Los Angeles County's apartment vacancy rate rose to 5.3 percent in the first quarter from 3.8 percent in the same period a year earlier. Victor Calanog, director of research for Reis, laments that vacancies in the market had been hovering between 2 percent and 3 percent for the last decade. He remarks, "Households are choosing to double up, triple up." Changes in apartment resident behavior were the subject of a recently released Rent.com white paper. It was found that users of the Web site are increasingly using the search term "roommates" and looking for two-bedroom units instead of one to share the expenses. According to Rent.com President Peggy Abkemeier, users are also spending more time searching online for apartments and are more interested in basic amenities as opposed to luxuries. This year's January-through-March period saw the largest rent decline in a decade for L.A. County. Effective rents -- those that take concessions into account -- slipped 1.7 percent in the first three months of this year from last year's fourth quarter of 2008, while asking rents dipped 1 percent. Potential apartment residents looking to negotiate are advised to spend some time getting to know the owner first. For their part, more and more area owners are adjusting the length of leases to keep units occupied. Calanog reasons, "They'd rather have income for three to six months than nothing."
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Columbus Apartment Market Among Nation's Healthiest
Digested From "Apartments Full in This Market"
Columbus Dispatch (OH) (07/05/09) by Jim Weiker
While home sales are languishing across central Ohio, apartment owners are enjoying boom times. Only around 7 percent of central Ohio apartments are currently vacant, which is among the lowest levels in seven years reports the Danter Co. and VWB Research. By contrast, at the peak of the housing boom in 2005, more than 12 percent of central Ohio apartments were vacant. Those seeking new two-bedroom units either in downtown Columbus or along the northern arc of I-270 are finding the choices especially limited. In those two areas, Danter and VWB reports that fewer than 5 percent of apartments are empty. During the housing boom of 2002 to 2005, apartment owners had a difficult time retaining residents. Now people are staying in their apartments longer, notes John Wymer, president of Oakwood Management, which oversees approximately 9,000 apartments across central Ohio. He adds, "We were losing the higher-grade renters to single-family homes. That has dried up. Now occupancy is stronger, especially in upscale properties and nice communities, where people in the past might have been able to buy homes." Apartment owners are also benefiting from a dramatic drop in apartment construction due to the inability of developers to obtain loans. The U.S. Census Bureau confirms that the number of building permits issued for apartments in Columbus last year was the lowest in 26 years. This year is on pace to be even slower. Brett Kaufman, this year's president of the Columbus Apartment Association, remarks, "There's certainly a need for apartment living where some are having a hard time buying homes. But I think other people have decided that apartment living is really a viable choice, that homeownership is nice, but it's not a necessity."
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Apartment Buyers Coming Off Sidelines in Orlando
Digested From "Apartment Buyers Coming Off Sidelines"
GlobeSt.com (07/02/09) by Carl Cronan
Apartment investors are starting to ease back into the Orlando market. More and more brokers who have fielded calls about local rental housing say they are now seeing these calls backed up with cash. Shelton Granade, first vice president with CB Richard Ellis in Orlando, states, "There has been increased activity and interest over the past 60 to 90 days." Indeed, CBRE's Central Florida Multi-Housing Group last month closed four local apartment communities containing around 700 units for a total of $67.4 million. The acquisitions involved three separate buyers. Granade states that each area apartment community being marketed by CBRE is receiving as many as 20 offers, with three others currently under contract. Private equity buyers are currently among the most active apartment buyers in and around Orlando. The current median price of $55,000 per unit marks a 25 percent decrease from the 2007 peak, but is off by just 8 percent over the past year. Marcus & Millichap reports that the Orlando area's apartment vacancy has risen to almost 10 percent locally, while the number of new units being built this year has slowed to 900. Monthly asking rents this year are on pace to decline 2.5 percent this year to $868, while effected rents are expected to decline 3.3 percent to $798 per month. Dan Colachicco, Marcus & Millichap's regional manager, notes, "The long-term prospects for Orlando are still intact and will sustain investors' interest."
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Greenville, S.C., Apartment Vacancy Increases Locally
Digested From "Apartment Vacancy Increases Locally"
Greenville News (SC) (07/03/09) by Angelia Davis
A new Real Data study shows that the apartment vacancy rate in South Carolina's Greenville-Spartanburg-Anderson areas has risen to 12.5 percent. The report cites the economic downturn and rampant job losses as the two main reasons for weakened apartment demand in the region. Additionally, steady growth in supply over the past several years has put downward pressure on occupancy. There are currently more than 500 apartments in various stages of development in the Greenville metro area and another 1,700 or so units in the planning stages. Since the first of the year, there have been 28 building permits issued for multifamily housing structures in Spartanburg County, 17 in Greenville County and five in Pickens County, confirms HUD's State of the Cities Data System. There have been none permitted in Anderson County. Jenny Shelden Pauswinski, Real Data's apartment market analyst, states that apartments rely on job growth to get more residents. The Greenville-Spartanburg-Anderson area has lost more than 14,700 jobs over the past 12 months, confirms the Bureau of Labor Statistics. At the same time, more and more people have been unable to sell their houses and are instead renting them out. Pauswinski states, "This means that many available renters who might normally get apartments choose to rent houses instead. A house is sometimes more appealing for families or people with dogs, so they skip the amenities that apartments offer like pools and better management."
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Mid-America Apartment Communities Establishes Acquisition Fund
Digested From "Mid-America Apartment Communities Establishes $250 MM Acquisition Fund"
PRNewswire (06/29/09)
Mid-America Apartment Communities Inc. (MAA) has established Mid-America Multifamily Fund II LLC, a joint venture between MAA and institutional capital. Targeted investment opportunities will be within the Tennessee-based apartment REIT's existing Sunbelt markets and operating region. Mid-America will own a one-third interest in Fund II, with plans to acquire as much as $250 million worth of apartment communities over the next year and a half. More specifically, Fund II will look to acquire apartment communities with significant redevelopment upside, offering value creation via capital improvements and operating enhancements. MAA Chief Executive Eric Bolton states, "We've had excellent success with past investment funds, and we're excited about the opportunity to leverage Mid-America's experienced and strong re-development and operating skills. We think this new initiative provides an excellent opportunity to create value for Mid-America's shareholders." The REIT expects to target apartment communities that are at least seven years old for Fund II. At the same time, it will continue to acquire newer sites for its own portfolio. MAA currently has ownership stakes in 42,390 apartments.
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Washington State Apartment Vacancies Top 7 Percent
Digested From "Vacancies in Apartment Complexes Top 7 Percent"
Seattle Times (07/02/09)
Apartment Insights reports that the vacancy rate in established apartment communities with 50 or more units in Washington state's King and Snohomish counties topped 7.2 percent in the second quarter. That is an increase from 6.6 percent in the first three months of this year and 4.4 percent from the second quarter a year ago. When new communities now leasing were factored in, the vacancy rate was 9.3 percent. The research firm adds that average monthly apartment rents dipped $22 from the first quarter to $1,037.
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Dallas-Fort Worth Apartment Rents Fall 1.7 Percent
Digested From "Dallas-Fort Worth Apartment Rents Fall 1.7 Percent"
Dallas Morning News (TX) (06/30/09) by Steve Brown
Dallas-Fort Worth (D-FW) area apartment residents are getting a price break, thanks to the weak economy and a growing supply of rental units. MPF Research reports that apartment rents in the area are on the decline, with the biggest drops in Uptown and downtown Dallas. Greg Willett, MPF's vice president of research, states, "The leasing environment has gotten extremely competitive. For a while now, we've had substantial job loss precluding any demand. At the same time, new supply has continued to pour onstream." This has resulted in an 8 percent decrease in effective rents -- what residents actually pay -- in central Dallas neighborhoods at the end of the second quarter from a year ago. Throughout D-FW, effective rents have declined nearly 1.7 percent from a year earlier. According to MPF Research, overall apartment rents will be down another 4 percent during the next 12 months. As the overall demand for rental units in North Texas has turned negative, apartment owners have responded by cutting monthly rates. Since the first of the year, North Texas residents have moved out of more than 6,900 apartments than were rented. As the area vacancy rate rises to 10 percent, an additional 21,331 D-FW apartments are in the development pipeline. Willett concludes, "Deliveries will continue for a while because so many communities got started when market fundamentals were in better shape. We'll hit the peak in deliveries during the last half of 2009."
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Apartment Demand Takes Positive Turn in Atlanta
Digested From "Apartment Demand Takes Positive Turn"
GlobeSt.com (07/01/09) by Carl Cronan
After being one of the country's most downtrodden apartment markets for several quarters, the Atlanta metro area absorbed approximately 3,000 units during this year's April-through-June period. MPF Research reports that this is the first positive absorption recorded in the market since the fourth quarter of 2007. While Atlanta is suffering the same types of job losses as many other large markets nationwide, the demand for rental units is seen as coming from a shadow market of people who either owned condominiums or rented single-family residences. As more of those homes have gone into foreclosure, the displaced residents have turned back to apartment communities and the services they provide. Greg Willett, MPF's vice president of research, remarks, "They have returned to the more stable and customer-focused environment found in most apartments. The sizable rent cuts seen recently also helped to make apartments a more attractive option." Asking monthly rents for Atlanta-area apartments are expected to decline almost 4 percent in 2009 to $828. Meanwhile, effective rents are projected to retreat at least 2 percent to $750 a month, projects Marcus & Millichap. MPF researchers forecast that apartment rents will dip another 6 percent over the next 12 months. Willett laments, "Operators still will feel lots of pain from declining rents."
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Cafritz Secures Fannie Mae Financing for Apartments
Digested From "Cafritz Secures Fannie Mae Financing for Apartments"
Washington Business Journal (06/29/09) by Melissa Castro
The Cafritz Cos. this past week secured Fannie Mae financing for five Washington, D.C.-area apartment communities. The various loans -- totaling $79.2 million of permanent, non-recourse, fixed-rate financing -- came from M&T Realty Capital Corp. via Fannie Mae's multifamily housing lending program. The portfolio consists of 1,184 apartments spread across Maryland, Virginia and the nation's capital.
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Legislative/Legal News
New Energy Efficiency Charge Could Cost Missourians
Digested From "With New Charge, Saving Electricity Could End up Costing Missourians"
Kansas City Star (07/05/09) by David A. Lieb
Some Missouri residents could soon be charged a fee for using less energy on their electric bill. This proposed energy efficiency charge has the support of utilities, most state legislators, environmentalists and even Governor Jay Nixon. It covers the cost of utilities' efforts to promote energy efficiency and cut power use. The general thinking is that charging consumers for those initiatives will ultimately cost less than charging them to build the new power plants that will be needed if electricity use is not curtailed. If Nixon signs the bill, the new law would go into effect Aug. 28. When lawmakers adjourned two months ago, the governor described the energy legislation as one of his proudest accomplishments, stating, "To save power is the equivalent of making power, and it's a pretty seismic shift" in the state's overall energy plan.
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Virginia's Fairfax County Turning From Housing Buys
Digested From "In Marked Shift, Fairfax County Turning From Housing Buys"
Washington Examiner (07/05/09) by William C. Flook
In Virginia, Fairfax County is looking into how to spend the little money it has left for affordable housing without directly buying up apartment communities. In so doing, the county is looking to distance itself from a controversial program that began with Northern Virginia's building boom. Under the costly plan, Fairfax supervisors have taken more than 2,000 rental units out of the private market over the past four years. The $20 million fund that funds the program was gutted in the most recent budget negotiations, with Fairfax's Board of Supervisors voting to halve the fund. The initial plan to purchase area apartments resulted from concerns that too much low-cost housing would be converted to condos in the region's sizzling market of recent years. With the property boom going bust, the justification for increasing Fairfax's housing stock has vanished. Braddock District Supervisor John Cook states, "Now the economy is different, and we're not seeing condo conversion. In fact, with the recession, what we're seeing is a human service need for the very poor, the homeless, the people who are disabled and unable to find housing." The remainder of the program's money may be spent on housing subsidies for extremely poor or disabled residents.
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Ellwood (Pa.) Rental Laws Unaffected by New Castle Ruling
Digested From "Ellwood Rental Laws Unaffected by New Castle Ruling"
Ellwood City (Pa.) Ledger (06/29/09)
In Pennsylvania, a lawsuit contesting New Castle's rental property registry ordinance is not expected to affect a similar regulation in Ellwood City. The Apartment Association of Lawrence County recently filed a lawsuit in county court against the City of New Castle, contending that its ordinance poses an unfair burden on local apartment owners. Court documents filed by the association claim that a provision in the New Castle ordinance, which was passed in 1998, is too broad. The provision requires a permit, with a fee, even for rental housing that is not occupied. The association further opposes the fee charged by the city, which varies depending on the number of apartments and type of rental property. Association executives say it is the equivalent of an illegal tax because only the state government can levy taxes or delegate that authority to local governments. The lawsuit maintains that the Pennsylvania Constitution allows local and county governments to collect fees equal to the costs of carrying out the service in question. Ellwood City's rental registry ordinance, which was established 12 years ago, has no fee-collecting provision. The registry is intended solely to establish a database of apartment owners, enabling borough officials to collect outstanding electric and sewer bills and to charge absentee owners for cleanup or destruction of dilapidated communities.
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Recent Police Conference Aimed to Evict Crime From Apartments
Digested From "Cop Conference Looks To Evict Crime From Apartment Complexes"
Fox 4 KC (WDAF) (06/29/09)
Law enforcement from all over the United States and Canada descended on Kansas City in late June for a crime-free apartment conference. The general consensus among attendees was that apartment owners are willing to take a temporary hit in occupancy if it means ridding their communities of criminal threats. With such problem residents gone, more of the good ones are likely to stay. Still, all concerned concede that real change does not happen overnight. The three-day conference was key in getting law enforcement and apartment owners and managers in the same room to brainstorm. It was also a chance for police to advise owners on how to screen new residents and how to look for signs of criminal activity. Other topics covered include identifying marijuana and meth lab operations and recognizing and dealing with domestic violence issues.
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