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The Industry Insider - March 31, 2009
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Headlines
Top Story
Overcoming the National Obsession of Owning a Home
Industry News
AIG Delays Funds to Real-Estate Ventures
Apartment Vacancies Surge in Washington's Puget Sound Area
Manhattan Has Become an Apartment Residents' Market
Post Properties Completes Refinancing of 2009 Scheduled Debt Maturities
Rents Flat, Vacancies Up in Hampton Roads (Va.) Apartments
Equity Residential Takes Hit on Falling Apartment Rents
Portland Apartments Help Residents in Event of Layoff
Chicago Apartment Rents on the Rise
Mid-America Apartment Communities Announces Quarterly Dividend
More Apartments Popping Up in Downtown Eau Claire
ARA Sees Increase in Struggling Apartment Communities
Legislative/Legal News
Business Beats Card Check -- For Now
Specter Pulls Back Support of Card Check Law
Cincinnati to Require Apartments to Prove They Are Lead-Safe
Texas Town Reports Progress on Apartment Program
Calif. Council OKs Stronger Fire Safety Rules for Apartments
Smart Meters Banned in Ontario Apartments
Top Story
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Overcoming the National Obsession of Owning a Home
Digested From "Why Home Ownership Is U.S. Obsession"
National Public Radio (03/26/09) by Kai Ryssdal
Edmund Phelps, director of Columbia University's Center on Capitalism and Society, was recently interviewed on National Public Radio about why so many Americans want to own their own homes. Phelps said the dream of homeownership has largely been fueled by the federal government, as both Democrats and Republicans have been overly eager to make owning a home "almost a national purpose." Phelps also called the nation's banks to task for focusing too much of their lending efforts "on residential mortgages and other soft targets." Phelps extolled the virtues of renting, explaining, "If you rent, that's it. You don't have to pay any interest to anybody, [and] you don't have to pay any maintenance costs to anybody." By contrast, homeowners have a myriad aggravations, from yard upkeep to roofing to plumbing repairs. Phelps remarked, "In strict money terms, there is no reason to think there is a systematic, long-run, sustainable, durable difference between the two." Phelps concluded by urging the Obama administration to push a new American dream of having a rewarding career and succeeding in that job. He states, "That's what we have to get back to, and get away from this mystique that the most important thing in your life that could ever happen to you is to be a homeowner."
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Industry News
AIG Delays Funds to Real-Estate Ventures
Digested From "AIG Delays Funds to Real-Estate Ventures: Report"
CNBC.com (03/30/09)
American International Group (AIG) this week confirms that it has either cut or delayed payments to some of its real-estate ventures, potentially leaving the developers and their bankers holding the proverbial bag. The paper, citing sources close to the matter, said the insurer had specifically halted payments to Alabama-based retail developer Alex Baker, putting at least 15 banks at risk of exposure to soured loans. AIG has offered a settlement, but a source close to the banks said the lenders were not expected to accept. Affiliates of another developer, Mitchell L Morgan Management, sued AIG earlier in the year for missed and delayed payments. Mitchell L Morgan Management operates Morgan Properties, which owns and manages apartment communities in multiple states. AIG and Morgan have since agreed to suspend litigation for 60 days to negotiate a possible settlement. AIG Global Real Estate, an arm of the insurance company, has ownership stakes totaling more than $23 billion across 53 million square feet of real estate.
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Apartment Vacancies Surge in Washington's Puget Sound Area
Digested From "Apartment Vacancies Surge on Job Losses, New Inventory"
Seattle Post-Intelligencer (WA) (03/26/09) by Aubrey Cohen
In Washington state, the Puget Sound area's apartment sector has been reflecting the poor U.S. economy in recent months, with vacancies rising from 4.8 percent last fall to around 6.6 percent currently. A study by Dupre + Scott Apartment Advisors cites job losses and an increasing supply of apartments among the main reasons for the increase. Developers added approximately 2,500 new rental units in 2008 and are on pace to open another 6,000 apartments this year. Meanwhile, a "shadow market" of condo owners renting out units they either cannot sell or afford is also having an effect. Patty Dupre of Dupre + Scott remarks, "We're looking at thousands of condominium units that either opened in the past year or are scheduled to open by the end of next year. The way things are right now, it's a good bet they won't all be filled by homeowners." Average apartment rent in the Puget Sound is currently $988, a less than 1 percent decline from this past fall. In Seattle, the vacancy rate is just over 5.5 percent compared to 3.2 percent last fall. The average apartment rent is $1,122, a $7 decrease from the fall. Almost 50 percent of area apartment communities are now offering incentives to entice new residents. In Seattle alone, 41 percent of units now have concessions, a huge jump from just 6.2 percent in the fall.
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Manhattan Has Become an Apartment Residents' Market
Digested From "Why Are These Renters Smiling?"
New York Times (03/27/09) by Elizabeth A. Harris
According to the latest Manhattan Rental Market Report produced by the Real Estate Group, apartment rents in Manhattan have fallen "across the board." The biggest decline was in studio apartments in doorman buildings, which have decreased 8.33 percent from the same time a year ago. Those who signed leases during the bubble years are currently paying a lot more in monthly rent than what their apartments would go for today. As a result, a number of New Yorkers are trading up for better deals once their leases expire. Georgia Kaporis, an associate broker at Citi Habitats, observes, "No one's willing to pay more now, because there's always another deal next door or down the block. They're just upgrading for less." Though Manhattan apartments are becoming more affordable as rents decline, prices in the Big Apple might still seem shocking to those unfamiliar with the marketplace. In February, the average monthly rent for a one-bedroom apartment in a nondoorman building was $2,632, reports the Real Estate Group, and $3,395 for a one-bedroom unit in a doorman building.
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Post Properties Completes Refinancing of 2009 Scheduled Debt Maturities
Digested From "Post Properties Completes the Refinancing of Its 2009 Scheduled Debt Maturities"
Business Wire (03/27/09)
Post Properties Inc. has announced the closing of a mortgage loan with PNC ARCS, LLC, pursuant to the Freddie Mac loan program. The mortgage loan, which has a principal amount of $34.8 million, was secured by a mortgage on its Post Luminaria apartment community in New York City. It requires fixed interest-only payments for the first two years and then principal and interest payments for the remaining term of the loan. The loan matures on April 1, 2019. Separately, the Atlanta-based apartment REIT redeemed in full its approximately $92.3 million of weekly remarketed variable rate taxable mortgage bonds. In addition, it settled a related interest rate swap agreement earlier in March. Post Properties CFO Christopher Papa states, "Through the transactions announced today, we have completed the refinancing of all our scheduled 2009 debt maturities, taking advantage of attractively priced agency debt capital." Post Properties owns 21,189 rental units in 58 apartment communities.
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Rents Flat, Vacancies Up in Hampton Roads (Va.) Apartments
Digested From "Vacancies Up, Rents Flat in Hampton Roads Apartments"
Hampton Roads Daily Press (VA) (03/28/09) by Veronica Chufo
In Virginia, the Hampton Roads apartment sector is currently dealing with its highest vacancy rate in nearly a decade. Indeed, the region's vacancy rate was 6.9 percent as of late last year--the highest the region has seen since at least 2000. At the same time, the average apartment rent rose only 1 percent between 2007 and 2008--a vast change from the yearly growth of between 4.6 percent and 7.5 percent this market has seen since 2000. On the bright side, Hampton Roads' apartment occupancy rate continues to outperform other Southeastern cities. Vacancies are lowest in Chesapeake (5.2 percent) and Norfolk (5.3 percent), confirms the latest Real Data study. Looking ahead, nearly 3,700 more apartments are proposed or under construction, the majority of which will be built in Chesapeake, Norfolk and Hampton. Meanwhile, the majority of the job growth that is projected to occur is in Newport News, which means that this market is the next likely candidate for future apartment development. Dan W. Johnson, senior vice president of CB Richard Ellis in Norfolk, declares, "It is a good time to rent. . . . The [residents] have been hit with sharp, sharp rent increases every year for several years. Now there's pretty much a good opportunity to hold your rent where it is and kind of know where you're going to be for while."
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Equity Residential Takes Hit on Falling Apartment Rents
Digested From "Big Landlord Takes Hit on Falling Apt. Rents"
Crain's New York Business (03/24/09) by Amanda Fung
Declining Manhattan apartment rents are taking a toll on Equity Residential, a Chicago-based REIT that owns 47 apartment communities throughout the New York metro area. Most of Equity Residential's assets in Manhattan are high-end luxury rentals that draw many of their residents from Wall Street, where firms are cutting payroll left and right. Since February alone, Macquarie analyst Michael Levy reports that Equity Residential has reduced its Manhattan asking rents by an average of 13 percent--a reduction that followed a 15 percent cut over the previous year. Apartment communities in the New York area accounted for 10 percent of the REIT's net operating income in 2008, according to Macquarie. Roughly 50 percent of the company's apartments in the region are in Manhattan. Peter Von Der Ahe, vice president of investments at Marcus & Millichap, adds, "In New York, building expenses are also up. For REITs, less income and higher expenses mean less cash flow." Also vulnerable is AvalonBay Communities, a Virginia-based apartment REIT that also has communities in New York and other metropolitan areas with a higher concentration of financial-industry pros as residents than its rivals.
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Portland Apartments Help Residents in Event of Layoff
Digested From "Apartments Help Renters In Event Of Layoff"
Fox 12 Oregon (KPTV) (03/25/09)
In Oregon, several Portland-area apartment communities have started giving residents additional protection in the event of a sudden job layoff. At Stoneridge at Cornell, for instance, residents who sign new leases or renew their existing agreements may avoid early lease termination fees if the resident is laid off from a job. Property manager Joshua Beauchamp comments, "In the case that they lose their job during the time that they're with us, they are given the opportunity to provide us with a 30-day notice. There's absolutely no fee to sign up for this protection." The community's only requirement is that residents provide paperwork that proves they lost their job involuntarily. Area residents say they appreciate apartment owners providing such options during these recessionary times. Portland resident Elizabeth Woodruff laments, "You can be homeless in two weeks for all you know."
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Chicago Apartment Rents on the Rise
Digested From "Rent Going up Too -- But Not by Much"
Chicago Sun-Times (03/26/09) by David Roeder
The poor economy continues to hit Chicago-area apartment owners hard. As a result, local apartment residents will likely face only slight increases in lease rates this spring, projects a new survey by the Chicagoland Apartment Association. The association expects rents in the Windy City and its suburbs to increase 2 percent to 4 percent this year. Many owners and managers are expected to hold rents flat and/or offer any number of concessions to lure newcomers. Maurice Ortiz of the Apartment People remarks, "More and more [apartment residents] are choosing to live at home with their parents and commute, or doubling up with roommates." Judith Roettig, executive director of the Chicagoland Apartment Association, said some of the best apartment deals are in newer downtown high-rises on Chicago's South Side and in the outer suburbs. The association said typical monthly rents for a one-bedroom unit range from $900 in Lincoln Square on up to $1,545 in Lincoln Park. In 2008, rents rose nearly 4 percent to 6 percent citywide. Since 2006 when Chicago's popular lakefront neighborhoods saw rent hikes of 10 percent or more, market conditions have dramatically changed.
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Mid-America Apartment Communities Announces Quarterly Dividend
Digested From "Mid-America Apartment Communities, Inc. Announces Quarterly Common Dividend"
PRNewswire (03/24/09)
Mid-America Apartment Communities Inc.'s (MAA's) board of directors has approved a quarterly common dividend of $0.615 per share, which will be payable April 30 to shareholders of record as of April 15. The Memphis-based apartment REIT has declared its quarterly payout in advance of its earnings' announcement, which will likely be made on May 7. MAA has ownership stakes in 42,252 apartment units across the nation's Sunbelt region.
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More Apartments Popping Up in Downtown Eau Claire
Digested From "More Apartments Popping Up in Downtown Eau Claire"
WQOW TV-18 (WI) (03/23/09)
Plans to add more apartment communities in downtown Eau Claire, Wis., are becoming popular with residents. The downtown corridor currently has a 0 percent vacancy in finished rental units. The two communities now in development are already filling up fast, with monthly rents from $950 to $1,200. Now, Downtown Eau Claire Inc. is looking to expand current living options even more via their Loft Apartment Project Committee. The goal of the panel is to help owners of vacant two-story buildings convert their space into rentable apartments.
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ARA Sees Increase in Struggling Apartment Communities
Digested From "ARA Sees Increase in Struggling Rental Communities"
Boston Business Journal (03/20/09) by Michelle Hillman
Richard Robinson and Terry Scott are in charge of the Distressed Assets Solutions Group for Apartment Realty Advisors' (ARA's) Northeast division. Launched in the fall of 2008, the group works with apartment owners and lenders to sell off either their communities or loans in order to avoid foreclosure. In better times, ARA primarily sells apartment communities on behalf of owners who are looking to turn a profit. In times like these, ARA gets more business selling communities on behalf of troubled owners or lenders in need of clearing such properties from their books. With regards to the Boston metro area, Scott notes that there has lately been a "significant increase" in the number of smaller apartment communities--between five and 20 rental units--where owners have had trouble making payments.
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Legislative/Legal News
Business Beats Card Check -- For Now
Digested From "Business Beats Card Check -- For Now"
Wall Street Journal (03/27/09) by Kimberly A. Strassel
Kimberley Strassel, a member of the Wall Street Journal's editorial board, writes that the business community is "dancing a victory jig" over Sen. Arlen Specter's (R-Pa.) recent announcement that he has decided to vote against the so-called "card check" bill. Strassel, though, believes the real test of corporate America is still to come. Big Labor spent big bucks to elect Barack Obama and other Democrats and get card check. It will not give up on the issue easily, Strassel assets, adding, "The unions know the corporate world has a history of fracturing. All of which explains why, in the past weeks, the new talking point is 'compromise.'" The unions are currently in need of business community leaders to provide political cover to Senate supporters. Democrats made their first attempt at this earlier in March, when news broke that the CEOs of three companies--Costco, Starbucks and Whole Foods--were breaking with the rest of the business world to support some sort of compromise. The anti-card-check forces, though, effectively came together to "publicly scream 'no compromise.'"
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Specter Pulls Back Support of Card Check Law
Digested From "Specter Pulls Back Support of Card Check Law"
Los Angeles Times (03/25/09) by Josh Drobnyk
Sen. Arlen Specter (R-Pa.) recently announced his opposition to the Employee Free Choice Act, which aims to make it easier for workers to unionize. Specter stated that the poor economy makes it "a particularly bad time" to enact such the so-called card check law, but added that he might reconsider "when the economy returns to normalcy." His decision was a reversal from 2007, when he was the lone GOP Senator who voted in favor of the measure. Reintroduced in early March, the measure would force companies to recognize unions if a majority of employees sign cards to join. Specter's decision leaves the measure without a crucial Republican swing vote. Indeed, with Senate Democrats a couple of votes short of a supermajority, they need to attract Republican support for the bill to pass.
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Cincinnati to Require Apartments to Prove They Are Lead-Safe
Digested From "Health Chief Touts Fix"
Cincinnati Enquirer (03/28/09) by Sharon Coolidge
Cincinnati Health Commissioner Noble Maseru has outlined a plan to require apartment owners, home sellers and day-care providers to provide evidence that their digs are lead-safe. Maseru is pushing the city council to follow the leads of Chicago and Washington, D.C., in enacting a law that says anyone renting an apartment or selling a home to a pregnant woman or to people with young kids provide written proof that the dwelling is lead-safe. In addition, Maseru has vowed to post warning signs on more properties with lead hazards and pledged to clean up those communities and individual properties with old clean-up orders. Charles Tassell, director of government affairs for the Greater Cincinnati and Northern Kentucky Apartment Association, is unsure about the value of certification. He has been pushing for a full-time Hamilton County Housing Court, reasoning, "That court could then address these problem properties, rather than just a certification across all rental property." Tassell further states that such a law would be a clear violation of the Fair Housing Act, because it discriminates against women and children.
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Texas Town Reports Progress on Apartment Program
Digested From "CS Landlord Program Called Work in Progress"
Bryan-College Station Eagle (03/26/2009) by Cassie Smith
In Texas, College Station officials this past week defended the city's apartment owner registration program, calling it a work in progress. Local elected officials, employees from Bryan and College Station and representatives from the Bryan-College Station Apartment Association recently came together to discuss the registry and other topics relating to area apartment communities, code enforcement and crime. Several members of the apartment association objected to the rental registry's $15 annual fee. Mayor Ben White answered that the fee was needed to keep taxpayers from footing the bill for the program. Still, he assured that the city was open to making adjustments as needed, adding, "We're going to look at this very carefully for one year and tweak it if it needs to be tweaked."
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Calif. Council OKs Stronger Fire Safety Rules for Apartments
Digested From "Council OKs Stronger Fire Safety Rules"
Long Beach Press-Telegram (03/24/09) by James Rasmussen
In Long Beach, Calif., the City Council has unanimously approved new fire safety rules for high-rise and multi-unit apartment communities. Long Beach Fire Department (LBFD) officials report that the new rule, which also applies to hotels and motels with 50 or more units under one roof, requires owners to install fire sprinklers or take alternative measures. Councilwoman Rae Gabelich states, "This is a result of close to two years of work to improve the security of our high-rises and multifamily buildings." The council decided to strengthen Long Beach's fire safety requirements soon after a Dec. 8, 2006, fire at the Paradise Gardens apartments in North Long Beach. The blaze killed two people and displaced more than 250 residents. LBFD officials have since worked closely with The Apartment Association, Southern California Cities to keep the alternative to the fire sprinkler retrofits less expensive. This alternative requires apartment owners to submit a compliance report to the LBFD that includes both a fire safety plan and a fire evacuation plan. In addition, the option requires that high-rise apartments have an annual fire evacuation training and review, a floor warden program, a fire drill witnessed by LBFD officials every three years and a cache of life-saving evacuation rescue equipment for firefighters to use.
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Smart Meters Banned in Ontario Apartments
Digested From "Smart Meters Banned in Apartments"
Toronto Star (Canada) (03/25/09) by Noor Javed
In Canada, the Ontario Energy Board (OEB) recently issued a bulletin that bans the use of so-called "smart meters" in apartment communities, sending a clear message to owners who are increasingly off-loading the cost of electricity to their residents. The bulletin was in response to mounting complaints on the part of residents who have had no choice but to switch to metered individual billing. Previously, the cost of electricity was bundled into their monthly rent. Under current legislation, apartment communities are not permitted to install or use sub-meters. Brian Hewson, the OEB's chief compliance officer, states, "[It is] only when properties have been authorized that sub-metering systems are allowed to be installed." The announcement still came as a surprise to both owners and sub-meter distributors, many of whom have been using the devices for years to encourage residents to conserve energy. Part of the confusion has been due to a "lack of clarity" concerning the regulation. Mary Todorow, a policy analyst for the Advocacy Centre for Tenants Ontario, notes, "It was allowed for condos, but not quite multi-residential. It was voluntary, but it could happen under consent . . . and some felt they could be doing it without consent." The OEB's bulletin will likely spur the government to create new legislation on the issue.
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