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U.S. Apartment REITs to Strengthen
Industry News
June Housing Starts up 14.6 Percent to 629,000
Denver Apartment Vacancies Drop to Lowest Level in a Decade
Americans Curb Homebuying as Gen Y, Boomers Stay Put
Mortgage Bonds Meet a Pushback
Grubb Properties Adds Second Apartment Fund
Owning Vs. Renting Takes Center Stage in Sacramento
Harbor Group Pays $190M for Baltimore County Apartment Portfolio
Apartments Continue to Fare Well in Johnson County, Mo.
TransGlobe Apartment REIT to Buy 57 Communities From Affiliate
Home Properties Buys Two Apartment Communities
Legislative/Legal News
Austin-Area Apartments Could Go Tobacco-Free 
Tax Uncertainty May Hinder Downtown Des Moines' Apartment Sector
Limiting High-Rises in Houston May Prove Tall Order
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U.S. Apartment REITs to Strengthen
Digested From "U.S. Multifamily Housing REITs to Strengthen"
MarketWatch (07/21/11) by Joan E. Solsman
Apartment REITs are expected to report strengthened profitability in the second quarter. Reis Inc. reports the national average effective rent rose 2.4 percent during the three-month period ended June 30 compared with a year ago, and the vacancy rate was at its lowest level since 2008. Analysts report that "vigorous" standards on mortgage lending have supported apartment demand. Still, monthly rents have only so far they can go amid a sluggish economic recovery. Looking at individual REITs, Equity Residential reported continued improvement in fundamentals in the first three months of the year as earnings more than doubled. The company ranks as the country's biggest apartment developer and manager. AvalonBay, meanwhile, raised its profitability outlook for the quarter and the full year. Company officials say such factors as job growth among renting-inclined younger people, still declining homeownership rates, and low levels of new residential supply were stoking stronger-than-anticipated portfolio trends. Finally, UDR has boosted its target for funds from operations this year as it announced $687 million in property purchases in big cities. UDR was once a low-key REIT that owned apartments in states such as Arkansas and New Mexico. Lately, it has been expanding in major markets, acquiring apartment communities in such cities as Boston and New York.
Industry News
June Housing Starts up 14.6 Percent to 629,000
Digested From "June Housing Starts up 14.6 Percent to 629,000"
MarketWatch (07/19/11) by Greg Robb
Newly released Commerce Department data shows that new construction of U.S. houses increased 14.6 percent in June to a seasonally adjusted 629,000 annualized units -- the highest level of starts since January. Starts of new single-family homes climbed 9.4 percent to 453,000 last month, while starts of large apartment units soared 31.8 percent to 170,000.
Denver Apartment Vacancies Drop to Lowest Level in a Decade
Digested From "Metro Denver Apartment Vacancies Drop to Lowest Level in a Decade"
Denver Post (CO) (07/25/11) by Howard Pankratz
The Apartment Association of Metro Denver and the Colorado Division of Housing report that apartment vacancies in the Denver metro area fell to a 10-year low of 4.8 percent in the second quarter. The vacancy rate is down 21 percent from last year's second-quarter rate of 6.1 percent. Gordon Von Stroh, a business professor at the University of Denver and the report's author, remarks, "A vacancy rate below five percent is generally regarded as a sign that the market is tight. The vacancy numbers haven't been lower than this since before the dot-com bust in Colorado, and that was a period marked by a scarcity of rental housing in many areas." Not surprisingly, there has been a corresponding increase in Denver-area median rents with vacancy rates on the decline. During this year's April-through-June period, the median rent in metro Denver rose 2.5 percent from a year earlier to $863.37 a month. Division of Housing spokesman Ryan McMaken adds, "However, in the year-over-year comparison for the second quarter, rents haven't really kept up with inflation. The Consumer Price Index is up about three percent the past year, but the metro Denver median rent increased 2.5 percent."
Americans Curb Homebuying as Gen Y, Boomers Stay Put
Digested From "Americans Curb Homebuying as Gen Y, Boomers Stay Put"
Investor's Business Daily (07/22/11) P. A10; by Vance Cariaga
Experts say the stagnant job market means more young adults -- the Millennial generation -- continue to live with their parents; while college graduates with higher incomes put off home buying out of concern over financial stability, student loan debt, and whether buying a house makes sense right now. A number of baby boomers are staying put as well, many having lost a significant amount of their retirement savings due to the financial crisis and watched their homes decline in value. National Association of Realtors demographics adviser Peter Francese says, "The attraction of homeownership has not diminished in any way, and there are some incredible bargains out there. But the economy makes it hard for a lot of people who would normally be in the market to buy." Francese notes that some boomers have the money to move, but they prefer to keep their larger homes rather than downsize. He believes the second-home market will pick up steam as these boomers purchase properties in vacation hot spots or close to their families.
Mortgage Bonds Meet a Pushback
Digested From "Mortgage Bonds Meet a Pushback"
Wall Street Journal (07/25/11) P. C2; by Al Yoon
Investors last week won major concessions on commercial mortgage-backed securities from Wall Street dealers, which could be a sign of problems to come for a market whose rebound is considered essential to a U.S. real estate recovery. Dealers were forced to increase yields multiple times in order to win investor demand to sell a pair of $1.5 billion issues. In total, issues encountered some of the highest investor resistance since the market for bonds backed by apartment, office, and retail properties began its recovery two years ago.
Grubb Properties Adds Second Apartment Fund
Digested From "Grubb Properties Adds Second Apartment Fund"
Charlotte Business Journal (07/22/11) by Will Boye
Grubb Properties Inc. is readying for more apartment acquisitions. The Charlotte-based property development and management company confirms that it has completed raising capital for its second apartment fund, dubbed Grubb Southeast Residential Fund II. Through the fund, Grubb will form joint ventures with institutional investors and other private investment partners, with an eye toward purchasing Class-B and Class-C apartment communities across the Southeast. The firm has altered course as the market has changed and is getting back to its roots in apartment communities, a sector that was big for Grubb during the 1990s.
Owning Vs. Renting Takes Center Stage in Sacramento
Digested From "Home Ownership in Sacramento Area Often a Bargain Vs. Renting"
Sacramento Bee (07/23/11) by Rick Daysog
Apartment owners and managers in the Sacramento metro area need to recognize that it does not cost much more to own a house than to rent an apartment locally. In fact, in several neighborhoods, it often costs less. Jeff Werolin, manager of Lyon Real Estate's Folsom office, notes that the price gap between renting and owning in the Sacramento region is the narrowest it has been in a decade. Those most likely to make the leap from renting to owning typically have steady employment and money for a down payment. John Arvanitis, president of Sunrise Vista Mortgage Corp. in suburban Citrus Heights, states, "In anything priced under $250,000, a buyer is going to pay less in mortgage payments than renting. I've never seen a market like this." DataQuick calculates that the median price for a single-family residence in the city of Sacramento was $132,000 at the end of the second quarter, a 13 percent decrease from a year ago. For a home at that price, a typical buyer will pay around $949 a month for a 30-year FHA loan with a fixed interest rate of 4.5 percent. By comparison, the average monthly apartment rent in Sacramento was $885 in the city, a 0.8 percent year-over-year increase. Local housing professionals note that once the tax write-off for mortgage interest is factored in, the price of owning the median-priced house in Sacramento is often lower than the price of renting the average apartment each month.
Harbor Group Pays $190M for Baltimore County Apartment Portfolio
Digested From "Harbor Group Pays $190M for Baltimore County Apartment Portfolio"
Baltimore Business Journal (07/22/11) by Daniel J. Sernovitz
Harbor Group International LLC confirms that it has paid $190 million for a half-dozen Baltimore-area apartment communities, with plans to invest another $8 million on building upgrades. The Virginia-based company acquired the communities, all of which are located in Baltimore County's Windsor Mill neighborhood, from Sawyer Realty Holdings With these sex purchases, Harbor Group now owns 3,300 rental apartments in the area. The firm has also been expanding its reach into a number of markets nationwide, including recent apartment purchases in Tampa-St. Petersburg, Fla.; Raleigh, N.C.; and Hampton Roads, Va. Analysts say this most recent transaction is part of a growing trend in the Baltimore metro area, as the sluggish housing market and growing demand for rental housing has resulted in the construction and sale of several apartment communities throughout the region. Such developers as the Bozzuto Group, Somerset Construction Co., Questar Properties, and Obrecht Commercial Real Estate are each planning new apartment communities locally to meet that demand.
Apartments Continue to Fare Well in Johnson County, Mo.
Digested From "Apartment Market Continues to Fare Well Despite Tough Economy"
Johnson County News (07/19/11) by Loren Stanton
In Johnson County, Mo., most apartment owners and managers have managed to maintain strong occupancy rates without having to reduce rents. Ken Jaggers, managing director of Integra Realty Resources, confirms, "By and large, the apartment market has held up quite well in the past three years since the recession was announced. Occupancy has trended right in step with 2003 through 2007." Across the county, Class A apartment communities are charging and getting around $900 a month and up. Meanwhile, the Class A apartment vacancy rate ended 2010 at 5.1 percent. Only once in the past decade has a better year-end percentage been posted. Not all areas of the Kansas City metro area are equal, though. Jaggers remarks, "The rate is 2 percentage points better [in Johnson County] than the metropolitan area in total, which speaks highly of the Johnson County market. Johnson County outperforms the entire [metropolitan] market in virtually every metric." Case in point, Class A apartments in southern Johnson County lease in the range of 90 cents per square foot to $1.35 per square foot. The countywide average is about 5 to 15 cents per square foot less.
TransGlobe Apartment REIT to Buy 57 Communities From Affiliate
Digested From "TransGlobe Apartment REIT to Buy 57 Properties From Affiliate, Raise Capital"
Winnipeg Free Press (Canada) (07/21/11)
TransGlobe Apartment Real Estate Investment Trust has agreed to pay C$740 million to acquire a portfolio of 57 apartment communities in four provinces. The seller was TransGlobe Investment Management, also known as TGIM, an affiliated private company. The publicly traded REIT also plans to sell C$225 million worth of securities to partially fund the transaction. TGIM owns 16 percent of the apartment REIT's equity and has performed management functions for the trust. The 57 apartment communities are spread throughout Alberta, Ontario, Quebec, and Nova Scotia. Most are located in urban areas where the REIT has a presence. TransGlobe Apartment REIT will have a total of 151 apartment communities containing 20,262 units after the deal closes.
Home Properties Buys Two Apartment Communities
Digested From "Home Properties Buys 2 Apartment Communities"
Business Week (07/21/11)
Home Properties Inc. has purchased an apartment community in Massachusetts and another one in Pennsylvania for a combined sum of $65.1 million. The multifamily REIT funded the transaction with an equity offering in the second quarter that generated $90.4 million in net proceeds. Since the first of this year, Home Properties has acquired nearly $72 million in assets. The two latest apartment community acquisitions -- one in Shrewsbury, Mass., and the other in suburban West Chester, Pa. -- will immediately contribute to the REIT's earnings.
Legislative/Legal News
Austin-Area Apartments Could Go Tobacco-Free
Digested From "Area Apartments Could Go Tobacco-Free"
YNN-TV (Austin) (07/21/11) by John A. Salazar
In Austin, Texas, smoking may soon be prohibited at some local apartment communities. At a recent Living Tobacco Free Austin Conference, attendees weighed the pluses and negatives of having an entire apartment community comply with a no-smoking policy. Sierra Vista Property Manager Lila Mantia was among those in attendance who spoke up. She stated, "You'll have other residents who'll live right next to the person who smokes and then they complain about the smoke coming in. And it's just a little more challenging to deal with." Sierra Vista Property and the M Station are owned by Foundation Communities, a property management firm hoping to make both apartment developments smoke-free. Foundation Communities Property Management Director Sandra Lumley states, "There is tremendous savings on when you get ready to turn a unit to the next tenant, also the health issues are a large part of that." Indeed, with a no-smoking ban in and immediately around apartment communities, liability goes down, increasing resident safety.
Tax Uncertainty May Hinder Downtown Des Moines' Apartment Sector
Digested From "Elbert: Uncertainty About Taxes May Trip up Downtown Housing"
Des Moines Register (IA) (07/23/11) by David Elbert
Just as multifamily housing developers appear to have figured out what works in Des Moines, the rules are about to change. Almost 300 new downtown apartments have been completed over the last year or so by several developers. Most of the rental units filled up almost immediately, and more than 300 additional units are now in various stages of planning and development. Now, though, developers are concerned that the cash-strapped Iowa city may no longer be able to afford to provide the types of incentives that helped drive the recent growth in downtown housing, as well as new office buildings. It's not as much of an issue for office properties, because the last round of construction that resulted in new headquarters for insurers Wellmark and Aviva has left the downtown with a glut of empty offices. However, it is expected to be a substantial change for residential developers and the future of downtown Des Moines, in general, because most city officials maintain that the best way to use vacant office space is to repurpose it for apartments. Local officials say the current uncertainty is created by two situations. The first is that Des Moines officials remain undecided about whether to extend 10-year tax abatements for downtown projects beyond Dec. 31, when they are due to expire. The tax abatement, which were initiated in the 1990s, has been a primary driver in almost every downtown residential or commercial since then. Des Moines leaders have hinted they may extend 10-year abatements for projects that convert office space to housing units in order to help get rid of the current glut. That is only a proposal, though, and City Council members have yet to vote on it.
Limiting High-Rises in Houston May Prove Tall Order
Digested From "Limiting High-Rises May Prove Tall Order"
Your Houston News (07/21/11) by Michael Reed
There appears to be a growing movement sweeping Houston to make high-rise construction even tougher to get off the ground. A new proposal would, in many instances, require new buildings at least 75 feet tall to have 50-foot buffer areas from all residential property lines. Some developers say the amount of unused land required would preclude construction in many of the city's prime areas because of limited lot sizes. Nevertheless, there has been some cautious support for the proposal, which is currently moving through the Planning Commission en route to the City Council. Andy Teas, vice president of public affairs for the Houston Apartment Association, states, "Looking at the early version, our opinion is it obviously needs some modifications, but we don't disagree with the premise." Teas adds that the association's biggest fear is that some new projects might be pushed out of the incorporated area of Houston by some of the criteria, thereby damaging the city's tax base.
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