NAA Industry Insider: Apartment Rents Climb Faster as Demand Tops Supply

July 8, 2014
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TimeWarnerCableApril14
Apartment Rents Climb Faster as Demand Tops Supply
Digested From "Apartment Rents Climb Faster as Demand Tops Supply"
Investor's Business Daily (07/02/14)

The latest Reis Inc. quarterly report shows that apartment rents in the United States grew at a quicker pace in this year's April-through-June period as resident demand climbed faster than the growing supply of multifamily housing. Rents after any discounts such as a free month rose 3.4 percent to an average $1,099 a month from $1,064 year over year. Effective rents had gained 3.2 percent in the first three months of this year, Reis researchers note. A tight supply of residences for sale and an improving job market are enabling apartment owners and managers to hike rents, even as developers scramble to meet demand by adding more communities to the market. More than 33,200 new rental units were completed last quarter, an increase from 29,990 a year ago.

The apartment vacancy rate was 4.1 percent as of June 30, unchanged from the first quarter and down from 4.3 percent year over year, the Reis report showed. The last time vacancies were that low was in 2001, when they had dipped to 3.9 percent. All 79 of the primary metro areas measured by Reis had gains in effective rents. This marked the first time that has happened since the previous recession. San Francisco led the country in effective rent growth, posting a 7.1 percent increase from a year ago. San Jose, Calif., placed No. 2 second (6.7 percent) and Seattle was third (6.2 percent).

Market Trend Insights


RealPage-July14
Three Reasons Why Denver Apartment Construction Is Booming
Digested From "Denver Apartment Development Boom Intensifies"
Denver Business Journal (07/01/14) Hendee, Caitlin

Apartment construction in the Denver market continues to boom for three reasons. One, the demand for new apartments remains high. Two, the Regional Transportation District's FasTracks transit project has come on line to rave review. Three, climbing rent prices are convincing more and more multifamily builders to invest in the market. The Denver market ranked among the nation's top markets for the completion of new rental apartments in the first three months of this year, notes CBRE Group's quarterly report. Of the 58,099 apartment and condo completions nationwide from January through March, over 50 percent were concentrated in 10 markets: Denver, Houston, Austin, New York, the nation's capital, Raleigh, Dallas, Minneapolis, Phoenix, and Seattle. Denver's market recorded 2,312 completions for the first quarter, with its tally on pace to top 9,000 units for the full year. CBRE further notes that the Denver market -- which includes Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas and Jefferson -- completed approximately 7,800 units in 2013 versus just 2,700 units completed for the 2008-through-2012 time span. With that demand, metro Denver apartment rates are soaring. In fact, Denver registered America's fourth-strongest rent inflation -- a 1.9 percent jump from the fourth quarter of 2013 to first-quarter 2014.

Millennials: Are They Finally Leaving the Nest?
Digested From "Millennials May Be About to Move Out"
Washington Post (06/26/14) P. A3 ElBoghdady, Dina; Badger, Emily

As Millennials prepare to move out of their parents' homes in large numbers, Harvard University's Joint Center for Housing Studies projects a surge in demand for rentals and starter homes. The leading edge of this generation will soon reach their 30s, the age range in which household formation increases, says Chris Herbert, director of the research center. The number of households in that age group is expected to rise by 2.7 million in the next decade. "As Millennials gain more of a financial foothold and make their presence felt, they're going to drive a whole chain of increased demand in the housing market," according to Herbert. Still, many young adults born between 1985 and 2004 face constraints such as oppressive student loan debt, which may change the scale and type of housing they buy.

Rents Continue to Rise in That Toddlin' Town
Digested From "Chicago-Area Rents Continue to Climb"
Chicago Tribune (07/02/14) Podmolik, Mary Ellen

New Reis Inc. data shows that average monthly apartment rents in the Chicago metropolitan area are close to topping $1,100, and strong demand for rental housing is expected to keep them high for quite some time. Typically, analysts notes, the construction of new units and moderating demand helps put downward pressure on rents. However, the current environment is bucking this trend. Reis Inc. senior economist Ryan Severino states, "Although new supply is likely to exceed the level of demand, demand should nonetheless remain relatively strong given the large number of young, single potential renters." In metro Chicago, average effective rents -- which measure rents after concessions are removed -- climbed nearly 1 percent to an average of $1,098 in the second quarter from the January-through-March period. That's an average, though, Reis researchers note. Many of the new apartments that have become available in downtown Chicago in recent months have rents starting at $2,000 a month. Compared with a year earlier, Chicago-area rents climbed 3.7 percent from April through June.

Two Big Factors Bolstered Philly's Apt. Market in Q2
Digested From "Philadelphia Saw Rent Growth in Second Quarter"
Philadelphia Business Journal (07/02/14) Kostelni, Natalie

Axiometric researchers confirm that the Philadelphia apartment market witnessed a 2.7 percent increase in monthly rents in this year's second quarter. Two main factors -- demographics and an increasing desire to rent rather than own -- have played significant roles in the strength of the local apartment market. Of the top 25 metro areas tracked, Philadelphia placed in the middle of the pack for rent growth from April through June. San Jose, Calif., ranked first with 5.2 percent in rent growth, while Edison, N.J., was last at 2.0 percent. The overall U.S. apartment sector recorded its strongest quarter since 2000's July-through-September span, Axiometric states. While the firm's research addressed the change in occupancy from quarter to quarter, it did not look at overall occupancy rates. Looking at Philadelphia's Center City, though, the apartment vacancy rate there remains well under the 5 percent mark.

Can L.A. County's Devilishly High Rents Be Sustained?
Digested From "Los Angeles's Insanely High Rents Have Become Unsustainable"
Curbed Los Angeles (07/03/14) Barragan, Bianca

The average monthly rent for an apartment in Los Angeles County was $1,471 in the second quarter of 2014, which is only 2.4 percent higher than the same three-month period a year ago. By contrast, Reis Inc. research shows, the rest of the nation witnessed an average increase of 3.3 percent. Researchers say the weak gains in the second quarter are due to "a sustainability issue" -- i.e. there just aren't enough people who can keep up with bigger monthly hikes Such trends could even point to a "topping out" for L.A. County rents at least, in general, until more people get jobs or salary hikes. "We're in a place we've never been before. The very low vacancy rate says rents should go up. The affordability problem says they can't," states the director of the Lusk Center for Real Estate at USC. Meanwhile, a number of apartment owners and managers apparently have yet to get the news. A recent survey shows that about 70 percent of them in L.A. County plan to raise rents in the next year. Looking at the city of L.A., data from rental site Lovely showed rents there shot up more than 13 percent in the first three months of this year -- faster than even San Francisco.

Don't Flip Out! Investors Are Looking to Cash Out of Rentals
Digested From "Investors Who Bought Foreclosed Homes in Bulk Look to Sell"
New York Times (06/28/14) Goldstein, Matthew

A year ago, investment firms were buying up foreclosed homes at a rapid clip to rent them out. However, with the supply of bargain-priced distressed residences on the decline, some of the earliest investors are looking to cash out by flipping the properties to competitors. Among them is the Waypoint Real Estate Group, which reportedly is shopping as many as 2,000 houses in California that it acquired in the past several years in private investment funds. The homes, most of which are rented, are being shown to other companies backed by investor money that have also scooped up distressed houses in such states as Arizona, Florida, and Illinois. Some of the largest institutional investors in the market for foreclosed residences -- chiefly the Blackstone Group, American Homes 4 Rent, and American Residential Properties -- have slowed their pace of acquisitions in response to two factors: climbing home prices and a shortage of foreclosed properties that do not require extensive renovation. Waypoint is following the lead of such other early investors as Oaktree Capital Management and the Och-Ziff Capital Management Group. However, unlike those two firms, Waypoint is not actually exiting the single-family home market. It is still managing more than 7,000 properties for a publicly traded REIT it established in 2013 with the Starwood Capital Group, dubbed Starwood Waypoint Residential Trust.

Deals and Transactions


Lowes-14April
Two Reasons Why Portland Area Continues to See Apt. Deals Like This
Digested From "Lake Oswego Apartments Sell in One of Year's Biggest Real Estate Transactions"
Oregon Live (07/01/2014) Njus, Elliot

In one of the largest Portland-area real estate sales of 2014, a 347-unit apartment community in Lake Oswego, Ore., has changed hands for $63 million. San Francisco-based Friedkin Realty Group purchased the One Jefferson apartment community from Prometheus Real Estate Group Inc., another California investment group. The Portland metro area has become a hot market for out-of-state investors for two reasons: one, its low 4 percent vacancy rate as calculated by the Census Bureau; and, two, it also offers more affordable investments than larger cities. One Jefferson is Friedkin's only property in the state, but the privately held group does owns a couple of large apartment communities in Vancouver, Wash., as well as properties close to Seattle and in five other states -- California, Utah, Colorado, Illinois, and Indiana. Morton Friedkin states that his company has bid on several apartment communities throughout Oregon in recent years, but has found it to be a highly competitive market. "We've come up short," he conceded, "and sometimes being the winning bidder is not the smartest thing to do. [Portland has] attracted some serious investors, and they've brought along some serious amounts of capital." Moving forward, Friedkin hopes to make other investments in the state. One Jefferson was 97 percent occupied at the time it was on the selling block.

Two New Apt. Towers to Rise on Manhattan's East Side
Digested From "Plots & Ploys: Power Blight, Tower Site"
Wall Street Journal (07/02/14) Brown, Eliot

A lot on Manhattan's East Side that was held for years by Consolidated Edison Inc. will now give rise to a couple of luxury rental-apartment towers. JDS Development Group confirms that it is proceeding with construction of the SHoP Architects-designed towers, which will be located at 626 First Ave., after securing $390 million in financing in June from Cornerstone Real Estate Advisors LLC. "Basically, we want to build the highest-end rental the city has ever seen," remarks Michael Stern, managing partner at JDS. Rents. The 800 apartments are expected to average more than $80 a square foot. According to Stern, the foundation for the towers is almost complete, with vertical construction expected to begin soon after. Development has been a possibility at the site since at least 2005, when developer Sheldon Solow purchased it and a bigger site a few blocks to the north from ConEd. Solow rezoned the sites three years later to allow for apartment towers, but did not proceed with construction. He sold the smaller site to Stern in 2013 for nearly $175 million.

Industry Buzz


SatelliteProlinkJuly14
More Pools in St. Louis Co. Test Positive for Bacteria
Digested From "Increasing Number of Pools in St. Louis Co. Testing Positive for Bacteria"
KMOV (MO) (07/03/14)

In Missouri, St. Louis County health officials have closed five pools since the first of the year because they have tested positive for bacteria. County officials test 900 pools each summer for bacteria, including pools at area apartment communities and municipal pools. To date, 160 tests have been conducted and officials said 29 have tested positive for high levels of bacteria -- 50 percent higher than in recent years. Carrie Dickhans with the St. Louis County Health Department notes, "We've had outbreaks in the past of other things, but over the past three years haven't had as many incidents of bacteria samples coming back as we have this year." She and other health officials recommend that pools where bacteria is detected super chlorinate. Only those that test positive for e. coli are shut down. Officials said some pools will be inspected more than once this summer.

Five NYC Buildings Hit Market at Twice the Price of 2010 ... Why?
Digested From "5 Buildings Hit Market at Twice the Price of 2010"
Crain's New York Business (07/02/14) Geiger, Daniel

Rising apartment rents are pushing residents ever further out from the center of New York City. At the same time, this trend has fanned the interest of investors in purchasing apartment buildings in those emerging areas. Buyers will now have such an opportunity in Washington Heights, a rapidly gentrifying section of upper Manhattan. In that part of the Big Apple, a portfolio of five apartment properties has hit the market with an asking price of around $32 million. That is almost twice what its owners paid for them during the recession just four years earlier. The buildings together boast 146 apartments, most of which are rent stabilized. They are walk-ups with more than 80,000 square feet of air rights, allowing the possibility of future expansion. Massey Knakal broker Robert Shapiro is handling the sale of the portfolio. He points out that the dramatic hike in value reflects the growing belief that the neighborhood will net higher monthly rents in the coming years as gentrification continues to take hold. He concludes, "This is the best market in upper Manhattan that I have seen in 13 years, even better than the boom in 2007. People are paying the highest prices ever here because they believe this area has a lot more upside."

Legal/Legislative Did You Know


Look Who's Teaming Up for Landmark Housing Partnership
Digested From "HUD, Treasury Team Up for Landmark Housing Partnership"
Reverse Mortgage Daily (06/30/14) Dowell, Cassandra

The Federal Housing Administration (FHA) is teaming up with the Department of Treasury to help distressed homeowners avoid foreclosure and increase access to alternative housing options. The collaboration not only aims to widen access to affordable rental options, it will also seek to expand borrowers' access to credit. Additionally, the partnership will support the FHA's multifamily mortgage risk-sharing program. FHA Commissioner Carol Galante remarks, "Families have been especially hard hit during the rental housing crisis. Demand is soaring and prices are climbing. To help the many hard working families who cannot find affordable rental housing, we are partnering with the Treasury Department to broaden our efforts to create and preserve safe, decent, and affordable rental housing by allowing more housing finance agencies access to the capital they need to build or maintain affordable multifamily apartment buildings."

Which Apartments Are the First to Go Smoke-Free in CA County?
Digested From "Kings County Apartments to Implement Smoke-Free Policy"
Merced Sun-Star (CA) (06/30/14) Elwood, Katie

El Sol Properties is set to be the first in California's Kings County to implement a smoke-free policy starting July 8. The policy seeks to safeguard residents, visitors, and staffers from the dangers of second-hand smoke in their apartments. It will prohibit all residents from smoking in 75 percent of certain rental units in the 80-unit apartment community; in all common areas, including the swimming pool areas; and on balconies and patios of all apartments. Smoking will be allowed in designated outdoor areas only. El Sol Properties operates the Outrigger, Casa del Rio, and Normandy apartment communities in Hanford, Calif. The apartments are implementing the program with help from the Kings County Tobacco Control Program.

Are Resident Fears About Rent Hikes in Oakland Materializing?
Digested From "Tenant Fears About Rent Increases in Oakland Materialize"
East Bay Express (06/30/14) Tepperman, Jean

Resident organizations in Oakland have been concerned that some apartment owners would rush to do upgrades on their buildings and hike monthly rents by Aug. 1. On that date, new citywide rules go into effect, limiting the ability of owners and managers to pass on the costs of capital upgrades to their residents. Fears that owners would indeed try to beat that deadline appear to have been justified at least at one apartment community in downtown Oakland. A group of residents say they have proof that the new owner, First Class Lodi, is proceeding with costly renovations in order to raise rents prior to the new citywide restrictions take effect. Some of the residents have been there for decades, protected from major rent increases by rent control. They learned immediately after the recent sale that the new owner is planning "capital improvements" and will increase rents to cover the price. The improvements include repainting the exterior, installing an on-site fitness facility, and new landscaping in the front. Martin Higgins, principal of The Apartment Group, which is managing the building, confirmed the plans also include "new energy-saving double-pane windows, enhanced security, and facelifts to the exterior and the 1960s-era lobby." Oakland's new citywide rules limit apartment owners' right to pass through capital improvement expenses to 70 percent of the total cost and limit all rent increases to 10 percent annually.

NAA Announcements


MissionSponsor-April14
Will You Take Your Assets to the Max This Fall?

It’s only been a few short years, but expanded interest in big data and business intelligence has accelerated the appetite and application of predictive analytics in the asset management space. A direct reflection of this trend is the convening of the 2014 Maximize: The Multifamily Asset Management Conference—October 13-15 at the Amelia Island Plantation Resort in Amelia Island, Fla.—the industry’s exclusive forum where the connections, strategies, best practices and tactical innovations emerge to accelerate real returns on real properties.

Register today to be among the select forward-thinkers dedicated to extracting total value and return from multifamily real estate assets and portfolios. If you’re interested in greater value creation and revenue optimization, the 2014 Maximize: Multifamily Asset Management Conference was created for you.

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.

The 2014 NAA Education Conference & Exposition: Win Friends and Influence People

Judging by the number of professionals who attended the session, “NAAEI Presents: Communicate to Lead,” the principles from “How To Win Friends and Influence People” are as relevant today as they were in 1936. During the session—one of more than 50 presented in Denver during the 2014 NAA Education Conference & Exposition—Ercell Charles, Vice President of Instruction at Dale Carnegie of Georgia, instructed a packed room of eager students on one of the most important components of effective leadership: Effective questioning and skills.

Charles underlined the importance of making others sincerely feel important and how that seemingly simple act creates successful leaders. Not only do these skills improve communication and relationships, they also ultimately engender bottom line gains for property management firms and their human resources.

Didn’t make the session or want to hear it again? You’re in luck: “Communicate to Lead”—as well as other unparalleled education sessions focused on leadership such as “The Four Great Imperatives of Great Leaders”—are now available to you as part of the NAA Education Institute’s (NAAEI) “REWIND” program, offering 21 recorded video sessions and 20 PowerPoint-synced audio sessions from the 2014 NAA Education Conference & Exposition. Order your sessions today!
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If you received the AIMS Update or the HotSheet, you are already subscribed. If you wish to subscribe, contact NAA’s Carole Roper.
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CAM:

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September, 2014

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November, 2014

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September – October, 2014

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October – December, 2014

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October – November, 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?

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Upcoming Events

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June 18-21
Colorado Convention Center
Denver

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October 13-15, 2014
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Amelia Island, Fla.



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NAAEI Leadership Experience: Powered by Dale Carnegie

NAAEI Leadership Experience: Powered by Dale Carnegie  

Responding to the need for leadership training within the apartment industry, NAAEI has partnered with Dale Carnegie Training to deliver a world-class program called the NAAEI Leadership Experience....