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Defaults on Apartment-Building Loans Set Record for U.S. Banks
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Defaults on Apartment-Building Loans Set Record for U.S. Banks
Industry News
Rental Apartments in U.S. May Lead Property Recovery
AvalonBay to Boost New Development by 32 Percent
Walkable Neighborhoods Linked by Transit Are the Future
Home Building Gained in April, as Permits for Multifamily Fell
University of Northern Iowa Benefits From New Apartments
Apartments a Hot Commodity in Washington State's Tri-Cities Region
Moody's, Real Capital Analytics Report on Declining Commercial Property Values
Legislative/Legal News
Los Angeles City Council Backs Away From Rent Freeze
Raw Video Shows Rent Control Advocates and Police Clashing at L.A.'s City Hall 
California Bill Takes on Debarking Dogs
Santa Monica Apartment Residents Face 2 Percent Rent Hike
New York City Cracks Down On Residential Balcony Risks
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Defaults on Apartment-Building Loans Set Record for U.S. Banks
Digested From "Defaults on Apartment-Building Loans Set Record for U.S. Banks"
Business Week (05/24/10) by Hui-Yong Yu
Real Capital Analytics Inc. reports that defaults on apartment-building mortgages held by U.S. banks climbed to a record 4.6 percent in the first three months of this year, nearly double the year-ago level. This occurred as more borrowers failed to repay debt approved near the market's peak. Defaults on so-called multifamily mortgages rose from 4.4 percent in 2009's October-through-December period and from 2.4 percent during the first quarter a year earlier. Sam Chandan, global chief economist at Real Capital, states, "Apartment defaults are leading other commercial real estate. Banks tended to make more aggressively underwritten apartment loans earlier during this last cycle. Credit and pricing reached their peaks for office properties and other commercial assets later." Defaults on apartment-building mortgages exceeded the previous record set 17 years ago for the last three straight quarters. It was the U.S. savings-and-loan crisis that drove apartment defaults to 3.4 percent in 1993. Defaults on other types of commercial property debt peaked at 4.6 percent in 1992.
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Rental Apartments in U.S. May Lead Property Recovery
Digested From "Rental Apartments in U.S. May Lead Property Recovery "
Bloomberg (05/19/10) by Hui-Yong Yu
Reis Inc. forecasts that U.S. apartments may lead a rebound in commercial real estate. According to Reis economist Ryan Severino, apartment vacancies will probably peak at 8.2 percent in 2010 -- the highest level since Reis began tracking such data in 1980. That number should start to decline in 2011, Severino remarks, especially as more jobs are created. He adds, "The transaction market for apartments is far healthier than that of office. Not only did the price per unit increase nationally, it also increased in four out of the five regions."
AvalonBay to Boost New Development by 32 Percent
Digested From "AvalonBay's Blair Says REIT Boosting New Projects 32 Percent"
Bloomberg (05/20/10) by Oshrat Carmiel
AvalonBay Communities Inc. has announced plans to begin construction on $500 million of new apartments this year. According to CEO Bryce Blair, that is a 32 percent increase from the REIT's projections back in January. The nation's second-biggest publicly traded apartment owner is building as much as it can now because construction costs remain low. It typically takes AvalonBay 18 months to two years to bring a new apartment community to market. Blair states, "It's possible we will increase it higher than that. Development is something that has always been a core competency of the company and it is a real competitive advantage, particularly at this point in the cycle." Blair went on to estimate that new apartment acquisitions offer an investment yield of 5 percent, while developing a new property can return as much as 7 percent. To this end, AvalonBay is set to start building two communities in the Boston metro area, another in New York’s Westchester County, and another at one of the four Northern New Jersey locations where the REIT owns development rights. He declined to identify which New Jersey site will be first. Additional apartment communities are in various stages of planning and development on New York's Long Island and in the Washington, D.C., market.
Walkable Neighborhoods Linked by Transit Are the Future
Digested From "Here Comes the Neighborhood"
The Atlantic (06/10) by Christopher B. Leinberger
Walkable neighborhoods are being positioned as the communities of the future, with their connections by train and biking trails. The recent housing decline serves to demonstrate this point, according to Zillow Chief Economist Stan Humphries, who indicates that the outlying areas experienced sharper declines in house values than urban centers. For example, in Washington, D.C., suburban fringe neighborhoods saw house value declines of nearly 50 percent since the peak, compared to a 20 percent in walkable, urban neighborhoods like Arlington, Va. As demand shifts away from suburban, single-family houses to urban, multifamily houysing, experts say that a surplus of 22 million large-lot single-family houses will be on the market by 2025 as Americans move from the suburbs to walkable communities where transportation costs are lower. Young people and Baby Boomers are looking for communities in urban areas with a variety of transportation options, and experts suggest that projects in sprawl areas will increase. To ensure these new neighborhoods have the desirable amenities Americans are seeking, developers need to come together with partners and fund rail and other transportation infrastructure, particularly now given that many state budgets are strapped for cash. Another option is for communities to fund transportation projects by imposing a onetime assessment or a higher property-tax in their "special" district for a certain number of years. Experts also indicate that revisions to federal transportation laws could speed up the funding allocation process for projects, which would lower costs and speed up development.
Home Building Gained in April, as Permits for Multifamily Fell
Digested From "Home Building Gained in April, Strengthened by the Tax Credit for Buyers"
New York Times (05/19/10) P. B3; by Christine Hauser
The Commerce Department confirms that crews broke ground on 672,000 homes last month -- a 5.8 percent gain from March, a 40.9 percent jump from April 2009, and the highest number since October 2008. Although the increase shows that some builders were preparing for a busy spring, a decline in the number of permits issued indicates that some did not follow through. Permits for multifamily housing fell 11.5 percent to 606,000, while permits for single-family homes declined by 10.7 percent to 484,000.
University of Northern Iowa Benefits From New Apartments
Digested From "College Hill Apartment Plan Gets Zoning Panel OK"
WCF Courier (05/20/2010) by Jon Ericson
The College Hill neighborhood near the University of Northern Iowa is continuing to evolve thanks to developers like Mike Geisler, who is planning to build two new apartment communities locally. They are the latest of several projects that Geisler has worked on in the neighborhood, and each time he has responded to concerns by the Planning and Zoning Commission by adding more attractive external architectural features. Planning and Zoning commissioner Jim Moody believes that higher density units make sense so close to the University. Geisler is planning another, bigger development at the corner of Walnut and West 26th streets where he will raze five houses to make way for 22 apartments. That project will go before the commission some time next month.
Apartments a Hot Commodity in Washington State's Tri-Cities Region
Digested From "Apartments a Hot Commodity in Tri-Cities"
Tri-City Herald (WA) (05/16/10) by Pratik Joshi
Apartment occupancy in the Tri-Cities area of Washington state has reached its highest rates since 2000 -- 99 percent in Kennewick and Richland and 98 percent in Pasco. Average monthly rates for apartments ranged from $580 to approximately $900 for one- to three-bedroom units in the area, which is in the southeast part of the state. Statewide, rents fell 3.4 percent even as the vacancy rate fell from 6.3 percent to 6.1 percent over the course of a year. Glenn Crellin, director of the WSU Center for Real Estate Research, suspects that the number of available jobs in the Tri-Cities area is what set it apart from the state trend. There are currently 12,000 apartments in the area with many more expected to be built.
Moody's, Real Capital Analytics Report on Declining Commercial Property Values
Digested From "Commercial Property Values Drop as Rebound Stalls"
Business Week (05/19/10) by Brian Louis
Moody's Investors Service reports that U.S. commercial real estate values fell during the month of March, pushed lower by a quarterly drop in retail and office space in the nation's largest metro areas. The Moody's/REAL Commercial Property Price Index slipped 0.5 percent from the month before -- the second consecutive monthly decline. Prices were down 25 percent from March 2009 and have fallen 42 percent from their October 2007 peak. Christopher Cornell, an economist at Moody's Economy.com, comments, "This is continued bad news for property owners. The trend is basically flat prices." According to Real Capital Analytics' data, commercial property sales climbed 50 percent in the first three months of this year from the first quarter of 2009 to $15.4 billion. Meanwhile, apartment values gained 3.3 percent from January through March compared to the first three months of last year.
Legislative/Legal News
Los Angeles City Council Backs Away From Rent Freeze
Digested From "City Council Backs Away From Rent Freeze in LA"
Los Angeles Daily News (05/21/10) by Rick Orlov
Late last week, the Los Angeles City Council backed away from a freeze on rents in rent-controlled apartrments, triggering an angry demonstration by apartment residents from all over the city shouting "rent freeze now." The action to send the four-month rent freeze proposal on nearly 50 percent of the 636,000 rent-controlled units in the city back for further study surprised most of the freeze's supporters. Councilman Richard Alarcon lamented, "I thought I had the votes to put this in place. But they weren't there in the end." As a result of the council's action, rent hikes of 3 percent will go into effect on July 1 for the full year. Council President Eric Garcertti called for the delay, noting his past support of rent control. He stated, "I think we need to have a comprehensive plan in place before we make any changes to the rent control measure at this time."
Raw Video Shows Rent Control Advocates and Police Clashing at L.A.'s City Hall
Digested From "Rent Control Advocates and LAPD Clash at City Hall, Raw Video"
KTLA-TV (Los Angeles) (05/21/10)
Below is a link to raw video footage of LAPD officers drawing what appears to be their service weapons on rent control protesters inside Los Angeles City Hall. This was the scene on Friday, May 21, as several scuffles broke out soon after it was learned that City Council backed off on a plan to block rent increases July 1, sending the matter back to a committee.
California Bill Takes on Debarking Dogs
Digested From "California Bill Takes on Debarking Dogs"
DogChannel.com (05/19/10)
A bill that would prohibit apartment owners from requiring residents or potential residents to declaw or devocalize their pets as a condition of occupancy passed in the California Assembly on May 13 and now moves to the state Senate. AB 2743 claims that such procedures have irreversible effects on animals and states that such actions may have unintended consequences related to public safety and health. The California Veterinary Medical Association agrees with the bill's concept, but will not offer official support due to the bill's language. The California Apartment Association (CAA) also supports the bill, as it decided years ago that declawing and debarking requirements would not be included in its industry forms. The CAA believes apartment owners should require pet deposits to cover any damage. Violators of the bill would be charged between $1,000 and $2,500, depending on the violation's severity.
Santa Monica Apartment Residents Face 2 Percent Rent Hike
Digested From "Tenants Facing 2 Percent Rent Increase"
Santa Monica Daily Press (CA) (05/19/10) by Nick Taborek
In Santa Monica, Calif., city officials have recommended a 2 percent increase on rents charged by owners of rent-controlled apartment communities, and the Rent Control Agency's five-member board is expected to discuss and adopt the increase at its June 1 meeting. The 2 percent increase will move the average rent-controlled unit cost to $804 per month. Rent Control Administrator Tracy Conden said the increase was more moderate than it could have been, especially given the difficult economic times. This marks the first time in eight years that the recommended increase included an adjustment to the formula's property tax component. Separately, the Action Apartment Association filed a lawsuit against the Rent Control Agency, alleging that the formula has failed to fairly compensate owners for property tax expenses.
New York City Cracks Down On Residential Balcony Risks
Digested From "City Cracks Down On Balcony Risks"
Wall Street Journal (05/18/10) P. A23; by Sumathi Reddy
New York City's Department of Buildings has issued 16 partial vacate orders of balconies at residential buildings citywide. This means thousands of New Yorkers are temporarily unable to use their balconies until city engineers deem them safe again. The buildings include 330 East 39th Street in Manhattan, where a 24-year-old man fell to his death from his 24th-floor balcony earlier this year after part of the railing gave way. Tony Sclafani, a spokesman for the Department of Buildings, comments, "Since the tragic accident in March, the department has intensified its focus on facade safety across the city and as a result we have issued these partial vacate orders. This is ongoing." Sclafani adds that the department's inspectors have visited more than 530 apartment buildings since the accident occurred, focusing on those properties similar to the one where the accident took place. At the 16 affected buildings, engineers examined the balconies and found that they indeed pose a risk to residents living there. The owners have subsequently been ordered to hire licensed professionals to examine each balcony to ensure that they are safe for all residents.
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