NAA Industry Insider: Coast-to-Coast Condo Boom Follows Apartment Surge

 

June 17, 2014
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TimeWarnerCableApril14
Coast-to-Coast Condo Boom Follows Apartment Surge
Digested From "Condo Towers Rise From Boston to Los Angeles"
Bloomberg (06/11/14)

For the first time since the U.S. housing market collapsed, new condominium high-rises are being built in downtown Boston, Los Angeles, and Seattle as developers wager on a resurgence of the riskiest type of residential property. Construction work crews are also busy in Houston, Miami, New York, San Francisco, and the District of Columbia as financing gradually returns to a sector that lenders have shunned in recent years. Condos are making a comeback following a surge in rental demand that pushed the country's apartment-vacancy rate to the lowest level in at least 10 years. This, in turn, has caused urban rents to skyrocket. Sam Khater, deputy chief economist for CoreLogic, remarks, "Now you're seeing rental booming, but today's renters are going to be tomorrow’s condo buyers." Builders broke ground on 22,000 for-sale multifamily homes in 2013 -- a 4.8 percent increase from the year before and a 47 percent jump from 2010, reports the U.S. Census Bureau. In the first three months of this year, 8.5 percent of the 71,000 multifamily housing units that started construction were built as for-sale units. However, that share is still far from what it was during the housing boom that peaked eight years ago. In 2006, for-sale units made up 45 percent of multifamily home starts. Meanwhile, National Association of Realtors data shows that the median U.S. resale condo price rose 8.3 percent in April from a year ago to $205,500 versus a 4.7 percent gain for single-family homes to $201,100. "There's a lot of pent-up demand from first-time homebuyers and condos are a good first stop," notes National Association of Home Builders chief economist David Crowe.

Market Trend Insights


RealPage-June14
Why Are San Diego Apartment Vacancies at Their Lowest in 12 Years?
Digested From "Vacancy Rate for Rentals in San Diego at Lowest Level Since 2002"
Scoop San Diego (06/10/14)

According to a newly issued San Diego County Apartment Association (SDCAA) report, the vacancy rate for rental apartments countywide is at its lowest level in 12 years -- 2.8 percent versus 4.5 percent a year earlier. Researchers noted only minor variances in different areas of the region. SDCAA Executive Director Alan Pentico states, "This is an unbelievably low vacancy rate for our region. The last time we saw numbers this low was in 2002, when the overall vacancy rate was 2.5 percent. The demand for rental housing just keeps getting stronger." Also according to the SDCAA, rental costs fell 5 percent -- from $1,330 last spring to $1,260 this year -- despite demand being up. The spring 2014 cost survey determined that the weighted average rent was $901 for studio apartments, $1,092 for one-bedroom units, $1,347 for two-bedrooms, and $1,716 for apartments with three or more bedrooms. SDCAA researchers were not able to pinpoint the cause of the cost decline due to price differences among different zip codes throughout the county.

What Major NE City Is Seeing Apartment Vulnerability?
Digested From "Forecast: Office Demand Strong, Apartment Vacancies Headed Up"
Banker & Tradesman (06/12/14) Adams, Steve

In Greater Boston, one property sector that is showing potential vulnerability is the apartment market, where more than 1,200 rental units are in various stages of construction this year and nearly 8,000 more in the pipeline for next year and 2016. Hans Nordby, a managing director for CoStar Group, expects Boston's current 3.8 percent apartment vacancy rate will peak at 6.1 percent in 2016. He remarks, "We're starting to see a slowdown in new projects, as some of the projects do not meet their pro formas. We're starting to see more concessions." Chris Sower, a partner at Boston Realty Advisors, adds that a total of four apartment communities have been acquired in Boston's Back Bay neighborhood this year to be converted into condominiums. He adds that around 2,100 condo units are in the development pipeline for the next two years. Sower concludes, "The big question is where we'll be in 2015 and 2016. We'll see demand drivers on the employment side, but the condo conversion and development market will be a very active conversation."

Where in Colorado Did Average Rents Spike 17 Percent?
Digested From "Average Rents Spike 17 Percent in Fort Collins, Boulder"
Boulder County Business Report (06/11/14) Armbrister, Molly

According to a new study released by the Colorado Division of Housing, average rents in both Fort Collins and the Boulder-Broomfield area soared 17 percent during the first three months of this year. In Fort Collins, the average rent rose from $1,037 a month a year earlier to $1,216 as of March 31. At the same time, the vacancy rate dipped to 1.6 percent versus 5.5 percent year over year. In Boulder and Broomfield, meanwhile, the apartment vacancy rate climbed from 3.2 percent in the first quarter of 2013 to 6.7 percent. Monthly rents, though, also increased from $1,072 to $1,262 over that same time span. In the city of Boulder, excluding the area surrounding Colorado University, the vacancy rate was 22 percent as a result of new apartments becoming available. Excluding those new rental units, researchers note, the vacancy rate would have been 7.5 percent. They add that most of the tightness in the Boulder market is focused on the university where vacancies are 1.8 percent.

Manhattan Apartment Rents Rose to Five-Year High in May
Digested From "Manhattan Apartment Rents Rose to Five-Year High in May"
Bloomberg (06/12/14) Perlberg, Heather

Rents in Manhattan's apartment market have hit a five-year high, shifting the advantage back to owners after a brief respite for residents. According to a newly issued report by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate, the median monthly rent increased 3.1 percent last month from a year ago to $3,300 -- the highest since February 2009. The vacancy rate, meanwhile, dipped from 1.60 percent to 1.58 percent. Rents are rebounding after a six-month decrease that started at the end of last year's third quarter, when a surge in home sales helped push up apartment vacancy rates. Rigid mortgage standards and higher prices are sending more and more would-be buyers into the rental market. At the same time, employment growth is increasing the pool of potential apartment residents in New York and elsewhere. Jonathan Miller, president of Manhattan-based Miller Samuel, states, "Weakness in the rental market was short lived. This pent-up demand from purchasers has been worked off and more people are getting hired. Rents tend to react more to rising employment than purchases." At Equity Residential's 30 New York properties, for instance, rents have climbed 4 percent from last year and apartments are nearly 97 percent occupied.

Deals and Transactions


Lowes-14April
Center City's Curtis Center to Find Its Core in Offices to Apartments
Digested From "Curtis Center Sells for $125M"
Philadelphia Business Journal (06/09/14) Kostelni, Natalie

Keystone Property Group has teamed up with Mack-Cali Realty Corp. to purchase the landmark Curtis Center in Philadelphia for $125 million. The joint venture, which bought the property in an all-cash transaction, plans to transform it into a mixed-use complex that will include taking 90,000 square feet of the office space and transforming it into 90 high-end apartments. Future plans include adding even more apartments as office leases expire and space becomes available. As part of the building's repositioning, the new owners will install a restaurant that will have outdoor seating looking over Washington Square Park and Independence National Historical Park. The property was put on the selling block back in January after a couple of its main tenants renewed their leases. The 13-story building last traded for $94 million eight years ago. It had been put up for sale at least twice over the past five years with a deal never being struck. This time around, though, the investment market has grown more stable. This is the second major acquisition in Philadelphia's Center City for Keystone Property and Mack-Cali. The two earlier partnered on the purchase of the nearby Dow building.

Industry Buzz


BehrJune14
Three REITs That Should Profit From Current Housing Trends
Digested From "3 REITs To Profit From Housing Trends"
ETF Daily News (06/13/14) Taylor, Jay

ETF Daily News columnist Jay Taylor lists three REITs he believes will profit from current housing trends. All three focus on apartments and multifamily housing and look to be well positioned to reward investors as this section of the housing market continues to show strength. The first he singled out is Associated Estates Realty Corp., which owned 13,676 rental units in 53 different apartment communities as of Dec. 31. Stacked up against other housing REITs, its price-to-equity (PE) ratio of 21.6 makes the stock seem cheap. Additionally, it offers an attractive 4.27 percent dividend, which it has regularly paid for 20 years on a quarterly basis. Second, Camden Property Trust looks to have a bright future in the months to come with a market capitalization of $5.96 billion. Its PE is around 38, with a dividend yield of 3.79 percent and a portfolio that contains more than 62,000 apartments either directly or indirectly controlled by Camden. Finally, Home Properties Inc. offers the highest dividend yield of the three stocks mentioned -- 4.77 percent -- but Taylor writes that he would "prefer to be buying shares of this company at a lower valuation than its current PE of 37.5." The REIT owns and manages more than 42,000 apartments in such strong multifamily housing markets as Baltimore, Chicago, the District of Columbia, New York, Philadelphia, and Ft. Lauderdale. Its overall strategy of buying rundown apartment communities and rehabilitating them in order to boost value has made it a winner in many investors' eyes.

Who Are the 'Invisibles' and Why Are They So Important?
Digested From "Managing the "Invisibles""
Harvard Business Review (05/14) Zweig, David

Some very talented professionals prefer to do their work out of the limelight even in this age of relentless self-promotion. These so-called "Invisibles" work in every field. However, they do have three common traits. One, they are ambivalent about recognition. Two, they are meticulous about their craft. And, three, they savor responsibility. But because Invisibles often don't "toot their own horns" -- yet quietly make all the difference to their organizations' success -- it falls on managers to figure out who they are and what motivates them. After recognizing your Invisible employees, the next step is to reward them fairly. But above all, managers need to make sure their work is intrinsically interesting. "The payoff will go beyond retaining them," the article's author concludes. "Your organization's culture will be infused with their ethics and excellence."

Downtown Indy Apt. Surge Has Residents Howling for Dog Parks
Digested From "Downtown Apartment Surge Has Residents Howling for Dog Parks"
Indianapolis Star (06/12/14) Tuohy, John

In Indianapolis, developers are racing to build more than 5,000 apartments and attract young professionals and retirees to the city's downtown corridor. At the same time, they and their staffers are bracing for a long list of services that residents will expect not the least of which are dog parks. City planners are quickly discovering that lots of the upscale apartment residents they covet have only four-legged roommates and insist that their trusty companions have a place to roam, run, and "do their business. Bob Schultz, vice president of marketing for Indianapolis Downtown Inc. (IDI), remarks, "This is an important element people who will be renting these units say they want, someplace they can take their dogs. I think you'll be seeing more and more of it." At least 21 apartment communities are now in various stages of planning and development downtown, including one high-rise at the site of the old Market Square Arena.

In IDI's long-range planning sessions, residents consistently described dogs parks as "important." As a result, city officials are urging developers to carve out spaces for dogs off-leash because there isn't a lot of dedicated space for them downtown. In a first, the City County recently required the developer of a multimillion dollar apartment community to include a dog park as a "public amenity," adding more than $200,000 to the overall development costs. The park will be a thin strip of artificial "canine turf" on the 300 block of North Delaware Street, measuring 80 feet long by 14 feet wide. This dog run will be divided into a couple of sections -- one for large dogs and the other for small pups -- and include a bench, washing stations, garbage can, and dog bag dispenser.

Two Reasons Why Essex Property Trust Is Poised for Growth
Digested From "West Coast REITs Poised For More Growth, Analyst Says"
Investor's Business Daily (06/09/14) Cariaga, Vance

Cowen & Co. analysts recently provided a bullish outlook on REITs that operate in West Coast markets, singling out Palo Alto, Calif.-based Essex Property Trust as one to watch in particular. They expect Essex will lead the apartment sector in same-store net operating income both this year and in 2015 thanks to two factors -- its highly regarded asset acquisition strategy and the general strength in its underlying West Coast markets. According to Cowen analyst James Sullivan, his takeaway from meetings with apartment management teams at the recent NAREIT conference in Manhattan is that West Coast markets "continue to outperform" expectations. He remarks, "We had expected a slight moderation in NoCal growth to be partly offset by a pickup in SoCal, but NoCal performance has surprised many on the back of strong job growth." Essex has emerged as a leading developer and operator of apartment communities in California and Washington state. So much so that Sullivan recently raised his estimates for the company's full-year funds from operations to $8.26 per share from $8.19. Meanwhile, analysts polled by Thomson Reuters expect Essex will log FFO of $7.32 this year and $9.15 next year.

How Apartment Managers Can Urge Residents to Grill Safely
Digested From "Grill Safely; Stay Away From Buildings"
Gadsden Times (AL) (06/11/14) Thornton, Donna

With grilling season upon us, now is the time apartment owners and managers should reiterate safe flame and fire measures to their residents who cook outdoors. Capt. Larry Murray, Rainbow City's Fire Prevention Officer, observes that a number of apartment community managers in his general area have raised the question about a long-standing regulation stating that grills should be kept 10 feet from a building -- a regulation that effectively bars grills from apartment balconies. But even residents on the ground floor of an apartment community need to be careful about grilling too closely to their building. "It's not that apartment complexes don't want people to grill," Murray commented. "It's just important that it be done safely." Fortunately, he notes, many garden-apartment communities have common areas where people can grill. Murray estimates that he keeps his own personal grill about 20 feet away from his home.

Legal/Legislative Did You Know


EDUConfAd14
Marietta Council Approves Program to Lower Crime at Apartments
Digested From "Marietta City Council Approves Police Program Meant to Lower Crime at Apartment Complexes"
Marietta Daily Journal (06/12/14) Butschek, Hilary

In Georgia, recent bouts of violent criminal activity have compelled the Marietta City Council to vote 6-1 in favor of an ordinance to fight crime. The lone holdout was Councilman Philip Goldstein, who insists the measure violates constitutional property and due process rights. The ordinance also passed despite a comment from Penelope Round, a representative of the Atlanta Apartment Association, who had requested the council not vote on the ordinance. At a meeting prior to the vote, Round stated, "I'm just here to ask for a little bit more time. I'm very supportive of what the chief is doing. . . . We just haven't seen an ordinance like this before." Round told the council her association wants more time to look over the ordinance to provide comment and advice to members regarding its implementation. She contends that the association's advice would help, because it has helped remove barriers to participation for apartment communities before. Councilwoman Michelle Cooper Kelly rejected her request, stating that it was not the police department's responsibility to react to her requests as an organization but to act in the prevention of crimes. Kelly remarks, "I just don't know if I’m in support of our public safety department benchmarking with an association that represents the masses." Police can now ask apartment communities with higher rates of crime than the city average to be a part of the voluntary program in order to work to reduce crime there. Once an apartment community is part of the program, it will have to pay $250 to have cops give suggestions on ways to fix up the property so less crime will occur. Suggestions typically range from having a sturdy and adequately tall fence to trimming tall shrubs to upgrading exterior lighting. Police would also be allowed on an apartment community's premises to search for city code violations of health or safety.

Spokane Residents Speak Out Over Parking Meters Near Apts
Digested From "Neighbors Frustrated After City Drops Parking Meters Around Apartment Complexes"
KXLY.com (WA) (06/09/14) Cruz, Kylee

People living in one Spokane neighborhood are up in arms after the city installed three dozen parking meters around their apartment communities near Sacred Heart Medical Center. Among those angry is local resident David Bibb. He states, "You don't expect people to put up parking meters where you live. . . . I was very surprised because no one told us it was going to happen." Officials at City Hall said the growing number of Sacred Heart employees sparked the need for the meters. David Steele with the City of Spokane said local residents will ultimately not have to empty their pockets to park as long as they obtain a pass that they can put on their vehicles so they won't be ticketed. The passes became available to residents late this past week, and meters will not be enforced for the time being. Even still, Bibb and his neighbors say they don't like being out of loop.

No Low-Income Credits for Downtown Multifamily Developments
Digested From "No Low-Income Credits for Downtown Multifamily Developments"
Memphis Business Journal (06/09/14) Poe, Ryan

Just one Shelby County multifamily housing development out of 12 applicants will receive low-income housing tax credits (LIHTCs) from Tennessee in 2014. The Tennessee Housing Development Agency this week released its list of 23 preliminary winners of roughly $15 million LIHTC allocations statewide, including the rehabilitation of the 200-unit Wesley Highland Meadows community -- the largest out of Shelby County by unit count. This year's round of LIHTC allocations is a blow for several downtown Memphis projects, most notably the second, 100-unit phase of the New Blossom apartments. The developers of most of these projects say they do not plan on moving forward unless they receive LIHTC allocations.

NAA Announcements


Playcore-June14
Don’t Miss A Single Moment of the 2014 NAA Education Conference & Exposition

The time has finally arrived for the 2014 NAA Education Conference & Exposition – the conference kicks-off tomorrow, Wednesday, June 18 in Denver. For those of you who won’t be in Denver, you don’t have to miss a single moment of the unparalleled instruction in all things property management.

NAA’s Education Institute (NAAEI) is once again presenting its “Rewind” program, offering 21 recorded video sessions and 20 PowerPoint-synced audio sessions from the 2014 NAA Education Conference & Exposition.

Act fast, as prices will increase when the Conference concludes.
Four Ways to Stay in the Know at the 2014 NAA Education Conference & Exposition

Whether you are in Denver or following along back in the office, here are some great tips to stay connected to what’s going on at the conference.

1. Keep An Eye on #NAAEduConf Get yourself and your tweets in front of influential multifamily housing professionals, follow what’s trending and be the first to know of special announcements and offers.

2. Join the National Apartment Association Community on LinkedIn and become a fan of NAA on Facebook. Use social media to its fullest potential: Communicate with like-minded peers and connect with each other before arriving onsite.

3. Connect on www.naahq.org. Getting involved means becoming a part of the virtual community convening in Denver. Keep in touch with new friends year-round with this networking opportunity from NAA.

4. Check out NAA Today and NAA TV. Find out what’s going on today, what happened yesterday what’s coming tomorrow with NAA’s daily multimedia outlets: NAA Today, the official daily of the 2014 NAA Education Conference & Exposition (in print and online) and NAA TV, broadcast on site and through www.naahq.org.
Will We See You In Florida This October?

Register today for the 2014 Maximize: The Multifamily Asset Management Conference—October 13-15 at the Amelia Island Plantation Resort in Amelia Island, Fla.—the industry’s only event dedicated to staying ahead of the ever-evolving operational curve. The new name for the incredibly successful Apartment Revenue Management Conference reflects the important role that revenue management plays in professional apartment management.

Nowhere else but the Multifamily Asset Management Conference can you find world-class education and first-rate networking, as well as ideas and strategies for boosting net operating income. Maximize: The Multifamily Asset Management Conference focuses on five key areas: Expense Management Strategies; Revenue Enhancement and Pricing Strategies; Data Analytics and Performance Benchmarking; Capital Markets Financing Strategies; and Innovation.

Register today and be first in line for the information, insight and answers to questions necessary to boost your bottom line.
A Message from REALPage: Why Ask Why?

Occupancy is high. Retention is steady. Business is good. Why fix what isn’t broken? If you’re ok with the status quo, don’t read any further. But, if you want to drive growth, increase NOI, build and amplify your property’s reputation, we’ll show you how to do it with RealPage Resident Services. Because for people like you, good enough just isn’t.
NAAEI Designation Courses Offered Near You!

CAM:

Nevada State Apartment Association
September, 2014

Roanoke Valley Apartment Association
November, 2014

CAM Online

CAMT:

South Dakota Multi-Housing Association
September – October, 2014

Apartment Association of Greater Omaha & Lincoln
September – November, 2014

Lubbock Apartment Association
October – December, 2014

Connecticut Apartment Association
October – December, 2014

Roanoke Valley Apartment Association
October – November, 2014

CAPS:

Chicagoland Apartment Association
July, 2014

NALP:

Roanoke Valley Apartment Association
September, 2014

NALP Online

CAS:

Nevada State Apartment Association
September, 2014

Roanoke Valley Apartment Association
November, 2014

NAAEI Leadership Experience: Powered by Dale Carnegie:

Greater Cincinnati Northern Kentucky Apartment Association
October, 2014

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.
Did You Know?

This is the week we've all been waiting for! The 2014 NAA Education Conference & Exposition is here! Make sure to follow the event on Facebook, Twitter and Instagram. #NAAEduConf
Upcoming Events

2014 NAA Education Conference & Exposition
June 18-21
Colorado Convention Center
Denver

2014 Multifamily Asset Management Conference
October 13-15, 2014
Amelia Island Plantation Resort
Amelia Island, Fla.



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