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Demand, Tight Supply Strengthen Case for New Apartment Development
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Demand, Tight Supply Strengthen Case for New Apartment Development
Industry News
Apartment Loan Quality Worsens, Chandan Study Finds
U.S. Increasingly Shuns Home Ownership to Rent
Indiana County Rapidly Shifts to Rental Housing
Lubbock Apartment Occupancies Break 90 Percent Mark
UDR Makes Advances in Apartment Market
Chicago Apartment Residents Face Rising Rates
AvalonBay Plans New Stock Offering
Pramerica, Kauri Partner for German Multifamily Housing
Apartment Construction Booming in Austin 
Report Forecasts Rate Increases in Miami Apartment Sector
The Commercial-Building Owner's Perspective on Smart Grid
Legislative/Legal News
New Type of Water Bill for New Jersey Apartment Residents
Texas Association Continues Opposition to Housing
Apartment REITs Stand to Gain From the GSEs' Demise
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Demand, Tight Supply Strengthen Case for New Apartment Development
Digested From "Strong Demand, Tight Supply Strengthen Case for New Apartment Development"
CoStar Group (08/18/11) by Randyl Drummer
CoStar Group data shows that investors continue to prefer U.S. apartment communities over most other commercial properties, as total multifamily housing sales volume climbed almost 80 percent in this year's second quarter over the same three-month period a year ago. While still only a fraction of its mid-2007 peak, the almost $15 billion in sales in the April-through-June period brought total investment for the first six months of the year to $24.5 billion. The average per-unit price of apartment communities topped $88,500 in the second quarter -- the highest since 2008's third quarter. CoStar global strategist Michael Cohen adds that strong resident demand continues to push down apartment vacancy rates and boost rents. With capitalization rates for existing apartments seeing strong compression in various prime markets, larger apartment developers are taking steps to ramp up development activity. Top coastal markets dominated sales volume in the first six months of the year, including the District of Columbia and Los Angeles. Institutional investors ranked as the most active apartment buyers, with net purchases of $1.6 billion on total acquisitions of $3.9 billion. REITs were also big net buyers and net sellers in such markets as Portland, Phoenix, and the San Francisco Bay Area.
Industry News
Apartment Loan Quality Worsens, Chandan Study Finds
Digested From "Apartment Loan Quality Worsens as U.S. Price Gains Outpace Growth in Rents"
Bloomberg (08/19/11) by Hui-yong Yu
A new Chandan Economics study shows that the quality of new loans on U.S. apartment communities dropped in the second quarter, putting multifamily housing at greater risk of price declines should rent growth slow. The ratio of rental income to loan balances on high-rise apartments dipped from 9.7 percent a year ago to 8.7 percent, the research shows. Debt yield for securitized loans on all types of commercial real estate, including apartments, rarely fell to less than 12 percent during the four decades preceding 2006's first quarter, before plunging as the market peaked. Toronto-based debt-rating company DBRS says apartments and central business district office buildings in large coastal cities have led the early stages of a recovery in U.S. commercial real estate. This comes as more and more investors seek out stable, income-generating properties. Chandan Economics founder Sam Chandan comments, "In effect, apartment and office borrowers are encumbered with more debt for every dollar of cash flow their properties produce, heightening downside risks should property values adjust or cash flow decline." Apartment debt yields fell to 7.5 percent during the second quarter in New York, Washington, and San Francisco -- three markets where property prices have rallied the most. Office buildings registered a similar gain in prices and drop in yields.
U.S. Increasingly Shuns Home Ownership to Rent
Digested From "US Increasingly Shuns Home Ownership to Rent"
MSNBC (08/16/11) by Margaret Chadbourn
The U.S. Commerce Department last week confirmed that housing starts slipped 1.5 percent in July to a seasonally adjusted annual rate of 604,000 units. However, multifamily housing starts, often used for rentals, climbed 7.8 percent to 179,000 units. The rise reflects an underlying trend in which rentals are increasing while the national home ownership rate declines. The percentage of people who own a residence fell to 65.9 percent during the second quarter — the lowest since the January-through-March period of 1998 and down from a peak of 69.2 percent reached in the fourth quarter of 2004. The trend seems to be gaining steam. Oliver Chang, head of U.S. housing strategy at Morgan Stanley, states, "Even in cases where it might make more financial sense — or it might actually be cheaper on a monthly basis to own a home rather to rent one, a lot of people are not making that purchase. The trend that we're on is going to continue."
Indiana County Rapidly Shifts to Rental Housing
Digested From "County Rapidly Shifts to Rentals"
Fort Wayne Journal Gazette (IN) (08/21/11) by Dan Stockman
New census figures show that rental housing has increased substantially in Allen County, Ind., over the last 10 years, increasing at more than twice the rate of owner-occupied homes. Local officials expect the trend will continue. Census figures show the number of owner-occupied housing units in Allen rose by 4.8 percent increase from 2000 to 2010. Over that same time span, the number of renter-occupied units climbed 12.7 percent. Beth Wyatt, executive director of the Apartment Association of Fort Wayne, says the job market has had the biggest impact on occupancies. When people followed or chased jobs to other cities, many were unable to sell their homes in and around Fort Wayne. As a result, many decided to rent the houses in order to make the mortgage payments while they lived somewhere else. New apartments that have been built recently have been aimed largely at the lower end of the market. Wyatt states, "The only real new construction we've seen has been affordable units, for low to moderate incomes. [Oak Crossing] is really the first market-rate property developed in the last several years." Oak Crossing will feature apartments as large as 1,400 square feet, renting for up to $1,400 a month. Wyatt and others expect the local apartment market will continue to grow as Baby Boomers move from homes sized to raise a family into something smaller. She concludes, "As the population continues to age, a lot of those people are downsizing. We will need those additional units."
Lubbock Apartment Occupancies Break 90 Percent Mark
Digested From "Local Apartment Occupancies Break 90 Percent Mark"
Lubbock Avalanche-Journal (TX) (08/21/11) by Walt Nett
The Lubbock Apartment Association's semiannual occupancy survey shows that summer apartment occupancies in Lubbock, Texas, broke the 90 percent mark for the first time in nine years. Association officials say that likely means some slight increases in monthly rents and fewer concessions this year. Association President Gary Mitchel notes that the latest results showed 11,771 of 12,909 apartments were occupied as of the end of June, good for a 91.18 percent rate. He adds, "We're pleased with the way things are going. We're seeing new projects coming online, and we do have some construction going on.” Among them is Renaissance, a 210-apartment community that debuted earlier this summer. While the latest research follows the trend of higher winter occupancy rates than summer, one element apartment managers are considering is whether residents are staying put longer or opting to rent rather than purchase a house. Data from the 2010 Census showed nearly 42 percent of Lubbock's housing was listed in the census as rentals versus 36.3 percent statewide and around 35 percent nationally. The latest report shows that Lubbock's southeast quadrant had the highest occupancy rate, at 94.79 percent. It should be pointed out, though, that this year’s results were based on only 658 units, roughly half of the number of units counted in last summer’s survey.
UDR Makes Advances in Apartment Market
Digested From "Denver's UDR Makes Advances in Apartment Market"
Denver Business Journal (08/19/11) by Dennis Huspeni
UDR Inc. continues to make great strides in the apartment sector. The Colorado-based REIT has sold most of its holdings in middle America to focus on apartment opportunities on the two coasts, especially in New York and California. It has charged into Manhattan in a major way this year, spending $1.16 billion on four apartment communities. The Big Apple expansion is the culmination of the company's 10-year strategy to upgrade its apartment portfolio. In the past decade, the value of the company's apartment holdings has mushroomed from $3 billion to $13 billion. According to analysts, the flurry of 2011 acquisitions and development starts positions the company to capitalize on the strengthening U.S. apartment market. UDR President and CEO Tom Toomey states, "Our strategy is very simple. We want to own the best apartments we can in particular marketplaces where there's long-term growth demographics." UDR currently ranks as the country's third-biggest publicly traded REIT, reports the National Association of Real Estate Investment Trusts. Recently, two investment analysts -- ISI Group Inc. and Robert W. Baird & Co. Inc. -- upgraded the company's shares from "hold" to "buy." Toomey concludes, "We're managing fewer apartments, but they're worth four times as much. That speaks to the quality of the investment."
Chicago Apartment Residents Face Rising Rates
Digested From "Chicago Renters Face Rising Rates"
NBC Chicago (08/18/2011) by Katie Karpowicz
A new market study by the Chicago Sun-Times shows that a two-year trend of apartment rent hikes in the Windy City and its suburbs will continue at least through this fall and possibly into next year. Potential homeowners discouraged by everything from foreclosures to falling home values to tighter lending standards have been migrating to the rental housing market. In the Chicago area, the lack of vacancies caused by this influx coupled with the lack of new apartment communities being built each year has caused a high demand for apartments. This, in turn, has resulted in climbing monthly rents. Such popular rental neighborhoods as Lincoln Park and Gold Coast can expect rent increases as high as 3.4 percent in 2011, a significant improvement from last year's 2.5 percent increase. Andrew Porter, COO at Chicago apartment rental service domu, remarks, "We can certainly confirm [the high demand for apartment rentals] because we're on the front lines dealing with landlords every day. Apartments are leasing much faster and much earlier in the season than ever before." Average monthly rents are expected to climb 2.9 percent in the Chicago area this year -- up from 2.2 percent in 2010 -- Marcus & Millichap notes. Apartment residents are being encouraged to renegotiate rent hikes. In the end, though, the decision to raise rents lies solely with the apartment owner.
AvalonBay Plans New Stock Offering
Digested From "AvalonBay Plans New Stock Offering"
Washington Business Journal (08/17/2011) by Jeff Clabaugh
AvalonBay Communities Inc. has announced plans to sell 4.75 million shares of new common stock and use proceeds for more investment activity, including new development and acquisition opportunities. The secondary offering would raise as much as $634 million, based on The Virginia-based apartment REIT's Aug. 17 closing price. AvalonBay has yet to set a specific price or date for the offering, which will be managed by Morgan Stanley. Bloomberg data shows that this will be the company's first secondary stock offering since January 2007. AvalonBay reports that its second-quarter revenue increased 10.8 percent to $244 million, while average rental rates at its 195 apartment communities climbed 4.8 percent.
Pramerica, Kauri Partner for German Multifamily Housing
Digested From "Pramerica, Kauri Form JV for $173M Multifamily"
GlobeSt.com (08/18/11) by Robert Carr
Pramerica Real Estate Investors has partnered with Kauri CAB Management to acquire $173 million worth of multifamily housing in Berlin. The venture has already committed $34.7 million to acquire 13 apartment communities with 325 rental units. London-based Merchant Banking Group structured the investment on behalf of the Preco IV Fund. Pramerica has been investing in German real estate for the past decade. According to a company statement, the new joint venture will acquire and refurbish apartments in the German city to take advantage of strong rental growth and a large number of available properties.
Apartment Construction Booming in Austin
Digested From "Apartment-Building Booming in Austin"
KXAN36 News (Austin, TX) (08/18/11) by Reagan Hackleman
Austin, Texas, is currently seeing an apartment construction boom. There are currently a half-dozen communities in various stages of development. Another 10 will break ground soon and at least 29 other apartment communities are in the planning stages locally. Austin Apartment Association President Brooke Mahoney declares, "We are the place to live. We are the place to work." Austin currently boasts a citywide apartment occupancy rate of nearly 96 percent. This has led some to wonder whether Austin will have sufficient supply to meet the expected growing demand. Mahoney notes that most of the apartment communities in planning and development are spread throughout the city, which will help keep monthly rents in check. Still, she worries, "I would say the only place that we would be lacking now is probably affordability." The good news is five of the 16 developments under construction or about to start will have some affordable apartments as defined by the city. Austin Investor Interests calculates the average monthly apartment rent is $876.
Report Forecasts Rate Increases in Miami Apartment Sector
Digested From "Report Forecasts Rate Increases in Apartment Sector"
Miami Herald (08/16/11) by Toluse Olorunnipa
In Florida, Marcus & Millichap expects Miami-Dade County's apartment sector to see vacancies decline and monthly rents to climb throughout the remainder of the year. The study forecasts that the vacancy rate will decline from 5.7 percent to a post-recession low of 4.7 percent this year. Average rental rates, meanwhile, are expected to increase 3 percent to $1,039 a month. Vacancy rates are currently around 5 percent in Miami-Dade's small Class A sector and the large Class B/C segment. Rents will likely rise as the supply of available apartments tightens. Currently, there are only around 150 new communities on track for completion by the end of the year. About 2,600 rental apartments are set to come on line within the next few years, mainly in the Miami and Miami Beach markets.
The Commercial-Building Owner's Perspective on Smart Grid
Digested From "The Commercial-Building Owner's Perspective on Smart Grid"
Smart Energy Portal (08/09/11) by Nikki Chandler
Michael Weil, the editorial director of HPAC Engineering magazine, views the smart grid from the perspective of a commercial building owner. Retrofitting a building to make it adhere to smart grid criteria may not be easy or inexpensive. However, the matter of who owns the information gathered by smart devices is something that everyone is wondering about, Weil writes. He refers to a study commissioned by Danfoss and completed by the Ivanovich Group that asked 30 commercial-building owners, engineers, and manufacturers for their view on the smart grid. The study revealed three key findings that are noted in the article. The most significant perceived barrier was insufficient knowledge about the smart grid itself, suggesting an organizational shortcoming. Weil asserts that unfamiliarity with what "the grid is and what it means " is an educational issue that must be dealt with.
Legislative/Legal News
New Type of Water Bill for New Jersey Apartment Residents
Digested From "On Tap: New Type of Water Bill for Apartment-Dwellers"
Newark Star-Ledger (NJ) (08/21/11) by Eliot Caroom
Throughout New Jersey, residents at new apartments could see surprisingly higher -- or lower -- water bills in the next few years after the state's Board of Public Utilities approved "sub-metering," which will allow owners of new communities to individually bill apartments for water consumption. In addition, the order authorized sub-metering for existing apartment communities that install new piping and water equipment. The measure was proposed by the New Jersey Apartment Association after its members had been considering it since 2005. Nicholas Kikis, the association's director of regulatory affairs and research, notes that the state’s Division of Rate Counsel opposed sub-metering. The reasoning was that it could lead to billing problems for some residents, which would then need to be resolved in the courts. BPU Commissioner Joseph Fiordaliso is firmly on board, though, and he hopes that billing residents for the amount of water they use -- rather than the average for the overall apartment community -- will result in less waste. He concludes, "We're talking about a concerted effort to conserve a very precious resource."
Texas Association Continues Opposition to Housing
Digested From "Association Continues Opposition to Housing"
Galveston County Daily News (08/18/11)
In Texas, the Galveston County Apartment Association is considering its options for opposing the Galveston Housing Authority's plans to develop mixed-income housing on the island. Don Mafrige, the association's treasurer, states, "We have a lot of vacancies in existing facilities. Where are the people coming from to fill up all these new units?" According to Mafrige, no legal challenge could be mounted until the housing authority has a specific plan for the mixed-income projects. He adds, "We don't understand how the council could approve the money without a plan." A week ago, the apartment association presented a resolution urging the Galveston City Council not to release any money to build additional tax credit or mixed-income apartments on Galveston Island. In a split vote, council members released $25 million in federal recovery funds to the housing authority, which is proceeding with its plans to rebuild 569 public housing units destroyed by Hurricane Ike three years ago.
Apartment REITs Stand to Gain From the GSEs' Demise
Digested From "REITs Stand to Gain From the GSEs' Demise"
Affordable Housing Finance (08/11) by Jerry Ascierto
Many apartment owners were glad to have Fannie Mae and Freddie Mac around during the economic downturn as the availability of well-priced debt has traditionally had a direct effect on apartment values. Now, some analysts say the biggest apartment REITs would actually stand to gain should the two government-sponsored enterprises (GSEs) disappear. Unlike smaller players, the REITs have multiple financing avenues available to them due to their size and public-company status. In the event of Fannie and Freddie's demise, many small owners might have no choice but to sell with large owners waiting to swoop in with capital in hand. Camden Property Trust CFO Dennis Steen remarks, "We're probably less concerned about the GSEs going away than maybe some of the smaller individual players. It would make the ability to access the capital markets much more of a competitive advantage. If they did go away, long term, it's probably better for someone like us." Still, apartment REITs do have some lingering need for the GSEs. Camden and others leaned heavily on the two agencies during the recession, when so many private-sector lenders shut down. UDR, meanwhile, remains in a joint venture with Fannie Mae struck in early 2008. Like Camden, the apartment REIT closed several sizable credit facilities via the GSE during the downturn, so much so that 80 percent of its permanent secured debt is from Fannie or Freddie.
Abstract News © Copyright 2011 INFORMATION, INC.
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