Top Apartment Sector Challenges for 2014
Digested From "CRE Industry Faces Dramatic Changes in Multifamily Supply, Financing Environment"
CoStar Group (02/05/14) Heschmeyer, Mark
The U.S. apartment sector continued to see robust growth last year. However, investors are concerned about looming changes going into 2014, most notably the impact from rising supply; rising interest rates; and the prospects of restructuring Fannie Mae and Freddie Mac, the country's two largest government-sponsored enterprises. For the nation's top 54 metro areas, CoStar Group forecasts over 240,000 new multifamily housing units will be added this year, followed by a combined nearly 350,000 apartments in 2015 and 2016. Those projections are on top of the more than 200,000 new apartments developers added between 2012 and last year. Luis Mejia, CoStar's director of U.S. research, multifamily, notes that the supply wave is already affecting some market indicators, including gradual reductions in rental growth and increases in vacancy. As apartment owners adjusted concessions to entice residents, annual effective rent growth dipped from 4.9 percent in the first quarter of 2013 to 2.7 percent in October-through-December period. A number of major U.S. markets will see a significant infusion of new rental apartments. The building permit data from the U.S. Census Bureau show that Dallas, Houston, Austin, Raleigh, Charlotte, and Seattle together account for more than 50,000 units authorized year-to-date as of this past November. Meija concludes, "In other markets with typically higher development barriers like New York, Los Angeles, and San Francisco, supply pipelines are quickly filling. In New York alone, permits for more than 23,000 units were issued year-to date as of November 2013, a more than 45% increase over the permits issued in the same period in 2012."
Market Trend Insights
The Big D Keeps Its Eye on the Other Big D ... Development
Digested From "Nervous Apartment Developers Keep Close Watch on Demand While They Continue to Build"
Dallas Morning News (TX) (02/06/14) Brown, Steve
Apartment building has surpassed single-family home construction in Dallas-Fort Worth and many other major markets in the last year. Developers and economists alike, though, caution that multifamily starts are not likely to rise as fast in 2014. That is because builders are struggling with rising production costs and are concerned about continued growth in resident demand. David Crowe, chief economist for the National Association of Home Builders, expects nationwide apartment starts to rise by only about 9 percent this year. "Last year," he noted, "it was a 24 percent increase over the previous year. The acceleration rate is beginning to taper." Crowe further forecasts that U.S. apartment starts will hit 333,000 this year -- more than triple what was started in 2009. But that is still below longer-term averages. In North Texas, nearly 25,000 apartments are now under construction, which was about the same as in the peak production year before the recession. The lion's share of the developments are expensive and urban-style, targeted at young professionals. Apartment developer Guy Hays, executive managing director of Legacy Partners, said that he is not backing away from any apartment developments his firm has planned in Dallas. He concludes, "As you look through the Texas markets, while there is a fair amount of production, there still is a fair amount of job growth. Not to be flip, the development side of the business tends to follow the path of build, build until we get to the one that might be too much and we all pull back."
Two Ways Minn. Apartment Developers Are Appealing to Dog Lovers
Digested From "Twin Cities Apartment Developers Offer Amenities for Fido"
Minneapolis Star Tribue (Minnesota) (02/07/14) Buchta, Jim; Moore, Janet
Looking to maintain high occupancy levels, more and more apartment owners in Minnesota's Twin Cities are courting residents with dogs. One way developers are attracting dog-owning residents is by rolling out a wide array of Rover-friendly amenities, everything from indoor potty spots with "canine turf" to spa-style dog washes with easy-access walk-up ramps. Other amenities include grooming stations, heated runs, and pet-minded concierge services. Another way apartment owners and managers are appealing to these residents is by offering more activities such as doggy yoga and canine Olympics. Such features were practically unheard of just a few years ago. Few apartment communities in Minneapolis and St. Paul permitted dogs. If they did, pet owners were often relegated to a far section of a building. In addition, a pet deposit and monthly surcharge were standard, in addition to breed and weight restrictions. That appears to be changing in a big way locally. As the country's most-favored pet, over 33 percent of U.S. households have a dog. At the same time, demand for rental housing has been on the upswing among young professionals and Baby Boomers -- two dog-loving demographics. Demand for dog-friendly buildings has also been fueled by an increase in the number of people who lost their home to foreclosure, but are accustomed to owning pets. Consequently, dog-friendly perks are a way owners and managers can set their communities apart in an increasingly competitive market.
What $2,000 or More a Month Gets You in Downtown Chicago
Digested From "Chicago Luxury Apartments Battle for Renters"
Chicago Tribune (02/09/14) Podmolik, Mary Ellen
Luxury apartment developers are vying to outdo one another in downtown Chicago. One apartment tower boasts an in-building dog spa. Others feature dedicated gathering areas that can be reserved that feature everything from big-screen TVs to plush furniture to gourmet kitchens. For those looking to appeal to fitness-conscious residents, it is not uncommon for downtown apartment towers to feature everything from golf simulators to sauna and steam rooms. Despite rents that generally start in the $2,000-a-month range for a studio, the resort-style amenities and well-appointed apartments are attracting residents. However, there remain concerns that the current building boom will soon result in a market imbalance that will push down rents. "Demand is not keeping up with supply that is already being delivered," laments Ron DeVries, a vice president at Appraisal Research Counselors. "Our occupancy in the market has moved down, and now we're going to be adding another 2,300 units this year plus over 4,000 units next year. . . . There's a lot of market tension for a developer to be able to sell what makes their project unique." Both economic and demographic trends are fueling new apartment construction. More and more companies are moving downtown, and young adults are waiting until later in life to have children. At the same time, downtown Chicago's renaissance of restaurant and entertainment options is creating more options for after-work activities. Local property professionals further note that the floor plans of most buildings now coming to market or in development would allow for the apartments to be turned into condominiums in coming years by razing walls and combining units. Inside these units, many of the kitchens and bathrooms feature high-end fixtures and upscale cabinetry.
What City's Downtown Is Enjoying an Apt. Renaissance?
Digested From "Data Points to Downtown Apartment Renaissance"
Memphis Business Journal (02/07/14) Bolton, Jason
A recent survey showed that nine out of the ten most exclusive apartment communities in Memphis are located in the city's downtown corridor. Multiple housing options, including condominiums built during the condo boom and the redevelopment of existing buildings into upscale apartments, is driving this part of town's multifamily stock. Downtown's residential population has increased 18 percent since 2000, while the number of housing units is up 12 percent during that time span.
Deals and Transactions
Will 2014 Commercial/Multifamily Originations Really Hit $300 Billion?
Digested From "MBA Projecting 2014 Commercial/Multifamily Originations to Hit $300 Billion Mark"
National Mortgage Professional Magazine (02/05/14)
The Mortgage Bankers Association (MBA) has forecast that originations of commercial and multifamily mortgages will rise 7 percent to $300 billion this year from 2013 volumes. Originations of multifamily mortgages are projected to total $116 billion in 2014. Jamie Woodwell, MBA's vice president of commercial real estate research, remarks, "This year will once again see fewer loans coming up against their maturities. But with still low interest rates, improving property fundamentals, a rebound in property prices, and higher loan maturity volumes on the horizon, we anticipate mortgage originations will continue to increase in 2014." According to MBA's projections, commercial/multifamily mortgage debt outstanding is expected to end 2014 at nearly $2.6 trillion -- up more than 3 percent higher from the end of December. By the end of 2016, mortgage debt outstanding could approach $2.7 trillion.
Inland Diversified Merging With Kite Realty
Digested From "Inland Diversified Merging With Indianapolis Firm"
Crain's Chicago Business (02/10/14) Gallun, Alby
Inland Diversified Real Estate Trust Inc. on Monday announced that it is merging with Kite Realty Group Trust. The roughly $2 billion deal will enable most Inland Diversified investors to cash out for a small gain. Inland Diversified is a leading owner of apartment communities, office buildings, and retail space. Both firms are public REITs. However, Inland Diversified's shares are not traded on a stock exchange, making it difficult for investors to sell them. The deal with Kite essentially fixes that problem. Inland Diversified President and COO Barry Lazarus comments, "This transaction achieves our goal of maximizing value and provides an opportunity for our stockholders to either remain part of the well capitalized combined company or liquidate their investment." Under terms of the deal, each Inland Diversified share will be converted into the right to receive between 1.707 and 1.65 Kite shares.
Where in the World is Landmark Apartment Trust's New HQ?
Digested From "Landmark Apartment Trust of America Relocates Corporate Headquarters"
Business Wire (02/04/14)
Landmark Apartment Trust of America Inc. relocated its corporate headquarters from Richmond, Va., to Tampa, Fla., late last month. The REIT plans to maintain a satellite office in Richmond, along with a second such office in Jupiter, Fla. Landmark Apartment Trust has been actively acquiring apartment communities across the Sunbelt. It has continued to successfully execute its growth strategy, hence the need to add staff and expand its office footprint. In addition, company management believes that having corporate offices closer to the majority of the firm's assets will better facilitate operations. Indeed, many of Landmark's apartment communities are located in Tampa and other major Florida markets. The REIT currently owns and manages approximately 25,000 apartments and provides management services for another 8,000 rental units owned by affiliates throughout the Southern United States.
BRE Properties Beats Q4 FFO Estimates
Digested From "BRE Properties Beats Q4 FFO Estimates - Analyst Blog"
BRE Properties Inc. recorded fourth-quarter funds from operations of 67 cents per share, which exceeded the Zacks Consensus Estimate by 2 cents and the year-earlier quarter by 6 cents. The apartment REIT, which is set to merge with Essex Property Trust Inc. by the end of next month, notes that its quarterly results were helped by an increase in same-store community-level operating results on a year-over-year basis, along with net operating income (NOI) from two newly completed apartment communities in the past year. However, this was partially offset by three factors -- one, a decrease in NOI from operating assets sold in 2013 and the previous year; two, a decrease in interest expense due to elevated capitalized interest last year; and, three, a decline in partnership and management fee income from joint venture interests offloaded in 2012 and 2013. The upcoming merger with Essex Property is a cash-and-stock deal that will create a major public owner of multifamily housing in the West Coast markets.
New WiFi Technology Alerts Managers When to Change Filter
Digested From "CleanAlert's WiFi Filterscan Aims to Simplify HVAC Maintenance"
Filtration Separation (02/05/14)
The new WiFi-enabled Filterscan Air Filter Monitor from Clean Alert digitally notifies building operators, contractors, and homeowners when a filter needs servicing by measuring differential pressure changes in a HVAC system. According to the company, the monitor is ideal for apartment communities, national and regional contractors, and HVAC contractors servicing multiple residential buildings. The Filterscan WiFi seeks to optimize filter life while helping building owners, facility managers, and HVAC contractors to avoid higher energy bills, compromised air quality, and costly repairs. "We know that a clogged air filter is the primary cause of HVAC equipment failure and that eight of every 10 filters are not changed at the appropriate time," observes Terry L. Reavis, vice president sales and marketing for CleanAlert. "The question of when to service an air filter has vexed contractors, homeowners, and building managers for years, and many users have resorted to servicing their filters according to a schedule. Unfortunately, this approach can lead to lost revenue and unnecessary material costs when filters are serviced too often."
MAA to Scale Back Apartment Development
Digested From "MAA to Scale Back Apartment Development"
Memphis Business Journal (02/07/14) Poe, Ryan
MAA, formerly known as Mid-America Apartment Communities Inc., expects its development of new apartment communities to "moderate" over the next couple of years. Eric Bolton, chairman and CEO of the Memphis-based REIT, said the company will continue to look at new development. Moving forward, though, it will place much greater emphasis on "opportunistic" acquisitions of new communities. Bolton remarks, "I'm hopeful that one of the outcomes from the increase in new development activity in a number of markets is more opportunities to opportunistically add new properties to our portfolio later this year and into 2015." MAA has targeted $250 million in new acquisitions in 2014, including $60 million associated with the buyout of partners' stakes in a joint venture dubbed Mid-America Fund II. This move could signal a fundamental shift in the apartment sector, which has been the favored type of real estate since the recession. The housing boom that went bust coupled with a sea change in people's ideas about the benefits of homeownership sent many into the rental housing market. This, in turn, created demand for new apartment communities in under-built areas. However, as the market improves and those new rental units come online, acquisitions are becoming more frequent. Last year alone, MAA acquired $129.2 million of communities.
How to Flip to Hipsters
Digested From "How to Flip to Hipsters"
Forbes (02/06/14) Blomquist, Daren
RealtyTrac conducted an extensive analysis of hipster-heavy zip codes nationwide to determine which ones are the most profitable for home flippers. Hipsters -- along with all Millennials -- represent a segment of the home buying market that has been largely inactive over the past five years, with homeownership rates below the long-term average of 46 percent. As they age, earn higher incomes, and become more confident in the economy, hipsters are expected to become more interested in owning as opposed to renting -- especially in markets where homes remain affordable. To tap into this demographic, realty investors are advised to identify the hot hipster markets with good returns on flips and to find foreclosed homes and other bargain buys. The top hipster markets as measured by RealtyTrac include Fairfax and Alexandria, Va.; Seattle; Rockville, Md.; and Jersey City, N.J.
Legal/Legislative Did You Know
What New Mortgage Lending Rules Mean for Property Investors
Digested From "Real-Estate Investing Amid New Mortgage Rules"
MarketWatch (02/06/14) Schofield, George
New mortgage lending rules that went into effect on New Year's Day will have a direct impact on many of real estate investors' plans in the months to come. Credit requirements have tightened, in some cases dramatically. In addition, more lenders are now looking at the number of leveraged properties an investor owns prior to lending any more cash for any purpose. The new mortgage rules were devised by the Consumer Financial Protection Bureau. Borrowers who own several properties and want to use the equity in them to purchase another property or refinance an existing one may be rejected -- even if those who have stellar credit scores and a low debt-to-income ratio. This is due to the fact that lenders are setting arbitrary thresholds for the number of mortgages a person can hold. To be a credit-smart property investor, it is important to make investment decisions with the expectation of a long-term hold. Another key to build one's financial model around liquidity. Finally, the article's author advises: "Grow your real-estate investment portfolio by buying those properties you think will give you the greatest return from asset appreciation. Why? Because counting on rental income alone can be tricky."
Fannie Mae, Lenders Financed $28.8B in Multifamily Loans in 2013
Digested From "Fannie Mae, Lenders Financed $28.8B in Multifamily Loans Last Year"
Fannie Mae pumped nearly $30 billion into the multifamily housing sector last year, confirmed the company, which cooperated with lenders to finance 507,000 units of housing within the niche. About $2.3 billion of the total went to affordable multifamily housing, with an estimated $1.6 billion allocated for seniors housing and $454 million funneled into student housing projects. Roughly $1 billion was earmarked for manufactured housing communities, a gain from an investment of $912 million in 2012.
What Happens in Vegas Shouldn’t Stay in Vegas
The top-level education, insight into the student housing business and the great takeaways you will receive at the 2014 NAA Student Housing Conference & Exposition, March 3-5 at the ARIA resort in Las Vegas are designed to accompany you back to the office. Tweet, post, and forward them to your co-workers and boss.
The next generation of students brings with it new ways of communicating, new technology, new needs and is coming soon to a campus near you. Are you prepared with the right amenities? Can you speak their language? Do you know how to find them and are they able to find you? Are you up to date on the latest trends to take your NOI to the next level?
Take advantage of thought-provoking breakout sessions on important student housing issues (a complete list is available here) and learn from dynamic business leaders and speakers during the general sessions (speakers and session descriptions here).
Awaiting you is actionable intelligence and turnkey solutions perfect for helping you achieve your personal and professional goals. Register today and keep checking www.naahq.org/shc for schedule, housing and the latest announcements. And remember to use the official hashtag #NAAStudentConf to engage, discuss and follow the conference.
Will We See You at Lobby Day?
Learn how to invest in your political capital and advocate to Congress with free registration to the 2014 NAA Capitol Conference. As a bonus, first-time attendees will be eligible to win two free nights of accommodations at the 2015 NAA Capitol Conference.
As an added incentive, you can save time and money on travel and lodging with this year’s customizable schedule: Attend only the Capitol Conference on March 11 and Lobby Day on March 12, or also attend the spring Board of Directors and committee meetings on March 9 and 10.
But hurry! Registration is free only until Feb. 14. Feb. 14 is also the cut-off date to book a hotel room at the $264 conference rate. After that date, hotel rooms are subject to availability with no guarantee.
Prep Your Pitches Folks—It’s Time To Swim With The Sharks
In a first-of-its-kind NAA event, ABC hit reality TV show “Shark Tank” co-hosts Barbara Corcoran and Daymond John will judge live pitches from three innovative NAA attendees during the 2014 NAA Education Conference & Exposition, June 18-21 in Denver.
The Sharks will be headlining the Friday General Session from 9:45 a.m. to 11:15 a.m. on June 19. Corcoran, who started her real estate business with a $1,000 loan and then built a $5 billion real estate empire in New York City, will share her personal advice, insights and anecdotes on creating a powerful brand. John, regarded as one of the most sought-after branding experts and keynote speakers in fashion and business today, will share his knowledge and business genius with NAA Conference attendees. Learn more about Corcoran and John.
But wait, there’s more: After Barbara and Daymond energize your entrepreneurial spirit, three lucky NAA attendees will come up on stage and pitch their idea or business concept to the Sharks—and compete to win $5,000—live during the General Session.
Called “Sink or Swim: The NAA Innovation Tank” contest, attendees wishing to enter are asked to shoot a five-minute (or less) video showing us your best idea for a product or a business, which of course is not limited to the world of multifamily housing. We won’t share your idea with anyone until you do on stage! Submissions must be received by 11:59pm EST on Friday May 2, 2014.
The Sharks will do what they do best: Critique and evaluate the pitches and then, along with the audience's help, will pick the lucky winner. For more information on how you can make your pitch to The Sharks, visit: http://educonf.naahq.org/sink-swim-naa-innovation-tank. Need inspiration? Have a look at NAA’s business idea.
Invest in your company and your career today. Register now and remember that the largest discounts go to those who sign-up early. Have four friends? Register as a group to take advantage of even more savings!
And, make sure to book your housing as soon as you register—rooms will go fast and you will be unable to book without first registering. Visit the Education Conference website for information and reservations for all official NAA Education Conference hotels.
NAA Featured on Lifetime Show
Coming to a television near you, Feb. 20th’s episode of Designing Spaces™ airing on Lifetime Television will feature NAA President and CEO Doug Culkin, CAE, touring Hills Properties’ Palmera Apartments—NAA’s 2013 PARAGON Community of the Year—and discussing the rise in rental housing.
Culkin will be joined by Jordanna Paciorek, CPM, Asset Manager for Edward Rose & Sons, who will offer insight into the luxury amenities that many residents enjoy at high-end communities such as Mason, Ohio’s Palmera Apartments. The segment will also feature a property tour led by Tessa Braun, Property Manager for Palmera Apartments, showcasing Palmera’s most desired amenities and floor plans.
This episode of Designing Spaces will air at 7:30 a.m. EST/PST on Feb. 20 and re-air on March 7 at the same time. Program your DVRs now!
2013 NAA Survey of Income & Expenses Data Now Available
The 2013 NAA Survey of Income & Expenses is now available. The survey provides some of the most valuable trend industry information.
The survey includes an executive summary, detailed market and national economic analysis, reports and charts about rental communities, as well as national economic analysis. A total of 4,500 properties containing over 1 million units from 45 U.S. states are represented in this year’s report. Data was reported from more than 4,100 market rent properties and 400 subsidized properties. To order, please visit the NAA Store, click on the link for Income & Expense Surveys.
NAAEI Offers Two New Leadership Programs in April
NAAEI will be offering two new Leadership programs in April, 2014. The NAAEI Leadership Experience: Powered by Dale Carnegie targets regional professionals and corporate department heads who are interested in learning how to lead effectively across generations, delegate tasks to develop and train others and most importantly, find time to work on future business growth. This course will be offered in Dallas, April 1-2. Learn more and register for this course.
The NAAEI Leadership NOW program: Powered by Gallup Consulting targets high-potential corporate executives. Participants will learn how to solve current business challenges by driving employee engagement. The NAAEI Leadership NOW program focuses on tactics for building engagement in a fast-paced work environment and is designed to introduce concepts, strategies, and tools that assist Leaders in building their leadership brand, maximizing strengths and unleashing the human potential within their workplace. This course will be offered in Washington, D.C., April 8-10, 2014. Learn more and register for this course.
For more information on, please contact Kimberly McCrossen at 703-797-0610.
NAAEI Designation Courses Offered Near You!
Apartment Association of Greater Omaha & Lincoln
March – April, 2014
Connecticut Apartment Association
Apartment Association of Greater Omaha & Lincoln
March – April, 2014
Austin Apartment Association
February – March, 2014
Rental Housing Association of Boston
April – May, 2014
Chicagoland Apartment Association
May – June, 2014
Apartment Association of Southeast Texas
May – June, 2014
Chicagoland Apartment Association
Apartment and Office Building Association of Metropolitan Washington
Find more courses in your area on the NAA website.
For more information about any of the classes listed, please contact Kimberly McCrossen at 703/518-6141 ext. 121.
Abstract News © Copyright 2014 INFORMATION, INC.