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The Boom In Apartment REITs
Industry News
U.S. Home Starts Drop More Than Forecast on Multifamily Slump
Job Weakness Not Slowing Growth In Apartment REITs
Boston Apartment Market's Resilience Fuels Prices
Developers Start Erecting New Apartments in Seattle
Strong Apartment Sales Bright Spot in Triangle
Archstone CEO: Going Public a Possibility
Learning Centers at Low-Income Apartment Communities Help Texas Students 
Center for American Progress Reports More Than 100 Million Americans Now Rent
JLL: Private Sector (and Multifamily) Expected to Drive 2011's Commercial Markets
Wisconsin Housing Fair Shows Students Apartment Options
CB Richard Ellis Negotiates Sale of Two Indianapolis Apartment Communities
Legislative/Legal News
Homeownership Gets Tougher as Lenders Restrict FHA Mortgages
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The Boom In Apartment REITs
Digested From "The Boom In Apartment REITs"
Forbes (11/22/10) by Stephanie Fitch
A housing boom has been going on in apartment REITs for at least a year now. With little new construction in the sector under way, Axiometrics calculates that apartment rents have risen 5 percent nationally in the last year. Among the dozen U.S. apartment REITs he follows, analyst Andrew McCulloch of Green Street Advisors expects the gains to flow through as a 12.5 percent annual average earnings increase over the next couple of years. The average apartment stock, meanwhile, has generated a total return of more than 40 percent this year. According to McCulloch, apartment REIT shares are now at an average 12 percent premium to their underlying equity values. Even so, he rates only three of a dozen U.S. apartment stocks as "sell." He went on to predict that, with the children of baby boomers now in their early 20s and looking to live on their own, the number of people seeking rental housing will grow by 13 percent, or around 4.5 million, by 2015.
Industry News
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U.S. Home Starts Drop More Than Forecast on Multifamily Slump
Digested From "U.S. Home Starts Drop More Than Forecast on Multifamily Slump"
Bloomberg (11/17/10) by Courtney Schlisserman
New Commerce Department data shows that builders in the U.S. began work on fewer homes than forecast during the month of October as the industry remained mired near the depths reached during the recession. New agency data shows that housing starts fell to a 519,000 annual rate, the fewest since a record low reached in April 2009 and down 12 percent from a revised 588,000 in September that was less than previously estimated. Work on multifamily housing units, which is often volatile, plummeted 44 percent compared to just a 1.1 percent drop in single-family homes. Chris Low, chief economist at FTN Financial, observes, "Starts are a reminder of just how miserable the situation is in housing. Sales have been so weak for so long that we continue to see starts bouncing along the bottom."
Job Weakness Not Slowing Growth In Apartment REITs
Digested From "Job Weakness Not Slowing Growth In Apartment REITs"
Barron's (11/15/10) by Murray Coleman
Apartment REIT managers are hopeful the real-estate sector is gearing up for a positive 2011 due mainly to low rates. Recently, apartment REIT owner AvalonBay issued debt with a term over 10 years at a rate of 3.97 percent. Ken Statz, co-manager at the J.P. Morgan U.S. Real Estate Fund, marveled, "That's unheard of in the multifamily market." While growth in commercial real estate is limited today, Statz believes lower rates in stronger sectors can translate into solid yields for investors. This is proving to be especially true with regards to apartment REITs. Statz reasons, "Even though the economy still has little to no employment growth, apartment rental rates and income are still growing today. That's the real high point of commercial real estate." As of Sept. 30, some 18.8 percent of the fund was devoted to apartments, including Equity Residential and Essex Property Trust. Statz further observes that construction rates on new apartment communities and condo conversion projects remain at historically low levels. He concludes, "There's virtually no new building taking place yet and as long as the economy doesn't slip into a double-dip recession, we expect to see rents continuing to go up over the next three years."
Boston Apartment Market's Resilience Fuels Prices
Digested From "Apartment Market's Resilience Fuels Prices"
Boston Business Journal (11/19/10) by Craig M. Douglas
Greater Boston recorded nearly $220 million in apartment-property transactions through the first nine months of this year. While down significantly from the $2 billion in deals booked at the market's height in 2007, Reis Inc. reports that this year's January-through-September activity is expected to top 2009's total of $283 million in apartment deals. With a median price of $234,000 per unit as of the end of the third quarter, this year's sales are on pace to shatter Greater Boston's 2007 median deal price of $190,000 per unit. Analysts note that the pricing trend has been further fueled by a recent uptick in monthly rents and the widespread elimination of owner/manager concessions -- rate discounts, free utilities, and so forth -- to new and existing residents. Reis chief economist Victor Calanog adds, "But it mainly tells you that these transactions are involving high-quality properties." As of Nov. 15, 53 apartment communities with more than 4,100 rental units in Greater Boston were flagged for concerns by their loan servicers. Bloomberg data shows that many of the so-called “watchlist” communities have been hit hard by cash-flow issues or falling occupancy rates. It remains uncertain whether opportunistic investors will pounce and take advantage.
Developers Start Erecting New Apartments in Seattle
Digested From "Developers Start Erecting New Apartments in Seattle"
Seattle Post-Intelligencer (WA) (11/19/10) by Aubrey Cohen
Apartment construction activity is beginning to pick up in the Seattle metro area. Continued low construction costs coupled with declining interest rates and rising rents has begun to make such projects feasible again. Puget Sound developers will open 2,500 apartments in 2011, which down from 6,000 a year in 1999 and 2000, reports Mike Scott, of Dupre + Scott Apartment Advisors. Still, it is progress. Looking just at King County, the market vacancy rate dipped to 4.8 percent this fall from almost 6 percent in the spring and 6.7 percent a year earlier. Still, the rate remains above the recent low of 3.8 percent three years ago, notes Dupre + Scott. Meanwhile, the average apartment rent is $1,033, an increase from $1,017 in the spring. Fewer area apartment owners are giving move-in concessions. Those concessions that are still available are shrinking. Dupre + Scott wrote in their October apartment report: "The vacancy rate has fallen faster than we expected because renters are not buying homes or condos. Never underestimate the power of bad news to instill fear in consumers. They are afraid prices will fall more after they buy. They are afraid they will lose their jobs. They are afraid they may need to use money they have saved to live on, so they don't want to put it into a down payment." Apartment owners should continue to see improving market conditions in and around Seattle, as 2011's low level of production will push vacancies lower and rents higher in 2012 and beyond.
Strong Apartment Sales Bright Spot in Triangle
Digested From "Strong Apartment Sales Bright Spot in Triangle"
News Observer (NC) (11/18/10) by David Bracken
Apartment sales in the Triangle region of North Carolina may top $500 million this year as investors continue to scoop up communities. The area is just about the only region where commercial real estate has been changing hands at a regular clip this year. Investors are flocking to apartments for the steady source of income and because the market is expected to bounce back more quickly than many others, especially in light of high unemployment rates. The apartment vacancy rate in the Triangle was 6.7 percent in September, compared with 9.5 percent a year earlier. Average rents were $821 a month, up $23 from the average reported a year ago. A total of $488 million in Triangle apartments have sold this year, 74 percent more than last year.
Archstone CEO: Going Public a Possibility
Digested From "Archstone CEO: Going Public a Possibility"
Wall Street Journal (11/15/10) by Dawn Wotapka
Archstone CEO R. Scot Sellers says his company, one of the biggest REITs to be privatized, could go public again. Sellers states, "We've told [the owners] for a while that we felt, management felt, this is a very logical way to monetize their investment. That's a really logical exit." Still, there is no timeline for such a move, even though such a move could also allow Archstone easier access to development capital. Investors have grown quite bullish on the apartment sector, which is seeing strong occupancy and even increased rents in some markets. In 2007, Archstone-Smith Trust agreed to be acquired by Tishman Speyer Properties and Lehman Brothers Holdings Inc. for $22.2 billion. Real-estate values have dropped significantly since then, and Archstone has not been able to generate sufficient cash from apartment community sales and operations to pay back some secured loans.
Learning Centers at Low-Income Apartment Communities Help Texas Students
Digested From "Learning Centers at Low-Income Apartment Complexes Helping Students"
KVUE.com (11/18/2010) by Jim Bergamo
In Texas, Foundation Communities is helping families in need open learning centers at low-income apartment communities. The nonprofit's most recent acquisition is Sierra Vista in south Austin, which boasts a newly established learning center that was crafted after a seldom-used pool clubhouse covered in graffiti. "Our first step was to create affordable housing that was high quality and people were proud of where they lived," said Walter Moreau, executive director of Foundation Communities. Foundation Communities' learning centers typically have a 10-1 student-to-teacher ratio. Moreau boasts, "We have about 600 kids now in learning centers, and they got a 3.42 GPA in the last grade report period." Residents provide four-fifths of the Foundation Communities' operating budget. The other 20 percent comes from city, state, and private donations.
Center for American Progress Reports More Than 100 Million Americans Now Rent
Digested From "Renter Nation: More Than 100 Million and Growing"
LA Daily News (11/12/10) by David Abromowitz
Nearly 100 million Americans, about one third, rent their homes. Furthermore, the country's two largest generations -- the baby boomers breaking past age 65, and the echo boomers between the ages of 16 and 28 -- will fuel a growing demand for rental housing in the coming decade. Keeping up with that demand requires ensuring that the apartment sector have continued access to capital in all market conditions. To this end, the Center for American Progress has released a report outlining its suggestions for a post-GSE rental housing finance market. The report recommends that a new sort of financial institution issue multifamily mortgage-backed securities. These securities would enjoy an explicit government guarantee to attract more long-term private capital into the market. The guarantee would be paid for by these new financial institutions -- which they call chartered mortgage-backed securities issuers, or CMIs -- and would only guarantee the securities, not the debt or equity of the CMIs themselves. In exchange for this federal guarantee, CMIs would need to serve the full range of the rental housing market.
JLL: Private Sector (and Multifamily) Expected to Drive 2011's Commercial Markets
Digested From "JLL: Private Sector Expected to Drive 2011's Commercial Markets"
Citybizlist New York (11/17/10)
Jones Lang LaSalle's (JLL's) 2011 National Commercial Real Estate Outlook does not expect the private sector to lead a 2011 commercial comeback or drive growth in the markets. Ben Breslau, JLL Americas research managing director, notes that gross domestic product growth in the third quarter was just 1.6 percent, which is "well below a typical public-sector recovery." His team is forecasting that investment transaction volume will spike 36 percent in 2011 to $125 billion. According to Lauren Picariello, JLL's director of occupier research, the "hot" pick for investment in the new year remains multifamily housing.
Wisconsin Housing Fair Shows Students Apartment Options
Digested From "ASM Housing Fair Shows Students Apartment Options"
Badger Herald (11/16/10) by Emily Coban
The University of Wisconsin recently held its first annual Student Housing Fair to help students decide where they are going to live next year. The event was hosted by the Associated Students of Madison (ASM) and the Apartment Association of South Central Wisconsin. Attendance was high and students came with specific questions for property managers, including inquiries about utilities and parking. Property companies and managers were each assigned a booth, representing over 1,000 campus-area apartments. They were able to set up showings, as well as dialogue with students face-to-face to give them a better idea of what their apartment communities had to offer. ASM is planning to make the housing fair an annual event, and they are hoping to get an even bigger space so more area apartment communities can be showcased.
CB Richard Ellis Negotiates Sale of Two Indianapolis Apartment Communities
Digested From "CB Richard Ellis Negotiates Sale of Two Indianapolis Apartment Communities"
REJournals.com (11/15/2010)
The Indianapolis-Cincinnati multi-housing group of CB Richard Ellis recently negotiated the sale of two Indianapolis apartment communities, representing the purchasers' first acquisitions in the Indianapolis market. One apartment community, Grande Reserve at Geist, is the first A-grade apartment community taken to market since the collapse of the capital markets in 2007. The other community, known as Scandia, is a 44-unit community sitting on 53 acres along the White River. The Indianapolis-Cincinnati Multi-Housing Group has completed the sale of $86 million worth of multifamily housing since the first of the year.
Legislative/Legal News
Homeownership Gets Tougher as Lenders Restrict FHA Mortgages
Digested From "Home Ownership Gets Tougher as Lenders Restrict FHA Mortgages"
Bloomberg (11/17/10) by Jody Shenn; John Gittelsohn
As lenders toughen their standards for Federal Housing Administration-insured loans beyond what the agency requires, owning a home may be falling out of reach for more Americans. Some big mortgage lenders have raised the minimum credit score on FHA-insured loans that they will buy from 620 to 640, which adds challenges for a housing market already struggling with record-low sales and surging foreclosures. National Association of Realtors President Ron Phipps explained, "To have a healthy real estate market, you need activity. You need transactions." About 3.8 percent of U.S. consumers with credit information available have credit scores between 620 and 640, which could mean that as many as 15 percent of FHA borrowers could be excluded. One reason that banks have begun to impose their own higher standards on the loans is because lenders bear a greater share of the expenses when an FHA-backed loan defaults than when the mortgage is backed by Fannie Mae or Freddie Mac. Quicken Loans Inc. chief economist Bob Walters added, "When the big companies change their standards and rules, it has a huge effect on the market."
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