NAA Industry Insider: How Trading Size for Frills Is Fueling U.S. Apartment Boom

 

July 15, 2014
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TimeWarnerCableApril14
How Trading Size for Frills Is Fueling U.S. Apartment Boom
Digested From "Renters Trading Size for Frills Fuel U.S. Apartment Boom"
Bloomberg (07/10/14) Gopal, Prashant

Young professionals are paying top-market rents to live in new upscale apartment towers sprouting in Nashville and other downtown areas across the nation. In doing so, they are sacrificing living space for a prime urban location and such extras as dog-washing stations, poolside Wi-Fi, and even on-site cooking classes. Developers are finding themselves in the biggest U.S. apartment-construction boom in almost a decade. As a result, more and more are shrinking the size of new units so they can command luxury rates without narrowing the pool of potential residents. According to Census Bureau data, the median size of apartments in new U.S. buildings fell to 1,043 square feet last year. At the same time, leasing is getting more expensive. Axiometrics reports that the average rent per square foot was $1.25 in May, the highest since the firm began keeping such records in 1996. Micro units have been popping up in cities where space is at a premium, most notably New York; Washington, D.C.; San Francisco; Seattle; Boston; and Portland, Ore.

Market Trend Insights


RealPage-July14
Top Four Projections From Panel of Apt. Industry Leaders
Digested From "It's a Landlord's World, You Just Rent in It"
Housing Wire (07/09/14) Garrison, Trey

Although investor activity peaked in the housing industry two years ago, it remains abnormally high. With rental demand on the rise and supply dwindling, investors are expected to continue snapping up distressed properties and existing residences. Furthermore, homeownership will continue to decline due to several factors, most notably the still-high inventory of foreclosures. While minorities are forming households at a quicker pace than whites, such demographic groups are less likely to purchase a house. Those were just four of the consensus projections and evaluations at a recent panel event hosted by CoreLogic and the Urban Institute. Moderated by Stuart Quinn, policy research and strategy analyst for CoreLogic, the panel discussion focused on everything from the latest trends in cash sales and investor behavior to emerging challenges associated with the increase in wide-scale, scattered-site property management. Panelists also addressed the supply and demand of rental properties, along with the current and future state of the single-family rental securitization market. Participants included CoreLogic's chief economist Mark Fleming; Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute; and Andrew Jakabovics, senior director for policy development and research for Enterprise Community Partners.

Signs of Cooling in Philly's Apartment Market?
Digested From "Signs of Cooling in the Apartment Market?"
Philadelphia Business Journal (07/10/14) Kostelni, Natalie

Delta Associates late last week issued a report on the Philadelphia metro area's multifamily housing sector that shows higher vacancy rates and lower rents. Class A apartment communities saw vacancy rates increase in the suburbs (up 4.5 percent), Center City (5 percent), and South Jersey (5.7 percent). In the Center City area, monthly rents fell 1.6 percent to $2,141. Industry observers say with 5,025 apartment units being developed in the Philadelphia market, vacancies will continue to rise and rent growth will continue to decline. However, trends toward more people embracing urban living are expected to support a good portion of the new development.

Sunrise Survey Is Anything But Down on Albany Apt. Market
Digested From "Average Rents Increase at Albany-Area Apartments"
Albany Business Review (07/09/14) DeMasi, Michael

According to a new survey by Sunrise Management & Consulting, the average asking rent for apartments in the Albany, N.Y., metro area increased over the last year. However, researchers note, the two biggest counties substantially outperformed the two smaller ones. The average asking rent rose 3.29 percent in Saratoga County and 3.13 percent in Albany County. In the former, the average was $1,166.39. In the latter, the average was $1,298.44. Asking rents also climbed in Rensselaer and Schenectady counties, but by smaller margins. In the former, the average rose 1.14 percent to $1,162.46 a month. In the latter, the average inched up 0.05 percent to $979.21. The annual survey measured a total of 134 apartment communities with 26,923 rental units in the four counties. According to the study, the Albany region's fairly strong economy and healthy population growth drove the increases even as new inventory was continually added by developers. Average rent gains were less than the U.S. average -- 3.4 percent. Sunrise Management & Consulting President Jesse Holland believes area apartment construction and housing demands will continue to rise despite a general industry sentiment that the U.S. multifamily housing market is poised to wane. He concludes, "Nationally, the feeling is that the rental market has been fully supplied, if not oversupplied in some markets. In Albany, however, development has been characterized by underproduction, not overproduction. And while there are 2,500 apartments in the pipeline, we're still nowhere near the kind of development we saw in the 1970s."

Why Are More People Choosing to Rent Than Own in Greenville?
Digested From "More People Choosing to Rent Than Own"
GreenvilleOnline.com (07/09/2014) Davis, Angelia

U.S. Census statistics show that the U.S. homeownership rate in the first three months of this year was 64.8 percent -- its lowest in 19 years. Meanwhile, the period from March through May ranked as "one of the strongest three-month stretches we've seen in the 19 years we've been tracking apartments," observed Jay Denton, vice president of Axiometics. Looking at individual markets, effective rent growth and occupancy was 2.4 percent and 95.1 percent, respectively, in the Greenville, S.C., area during the second quarter. Both dropped slightly on a year-over-year basis, but picked up from quarter to quarter, states Axiometrics spokesman Ross Coulter. According to Coulter, new supply is the likely reason for "the annual slide between second quarter 2013 and second quarter 2014 of both effective rent growth and occupancy in the Upstate." More new multifamily development may be on the way. As of May, a total of 1,086 new units were permitted. Twelve months earlier, just 749 were permitted for this area. Furthermore, the Greenville-Spartanburg-Anderson area's apartment vacancy rate improved by one percentage point over the last six months to 6.8 percent, states Real Data. Absorption was "positive," Real Data researchers added, with a majority of the demand continues to be seen in the downtown Greenville area. Brian Reed, research manager at CBRE Greenville, remarks, "Then you've got that shift in demographics in that younger people want to rent rather than own and they generally want to be living downtown. Other local apartment professionals say they are seeing gains from both household formation and demand from Baby Boomers. "In a way, it's the perfect storm of people downsizing to apartments and people forming households, but not being able to buy houses so they're renting apartments," concludes Tony Bonitati, a broker in NAI Earle Furman's multifamily division.

Where Are Apartment Occupancy Rates Bumping Up?
Digested From "This Year's Bump in Apartment Occupancy Has Come in a Handful of Markets"
Property Management Insider (07/08/14) Willett, Greg

While most apartment market analysts anticipated that U.S. occupancy would backtrack a bit as deliveries accelerated throughout the current year, there has been an encouraging move in the opposite direction in the first six months. The second-quarter occupancy number for the top 100 metro areas nationwide came in at 95.6 percent, up slightly from mid-2013's reading of 95.3 percent. In many cases, the newest apartments are leasing as quickly as they can be delivered. As a result, they are not proving as big a drag on overall occupancy numbers as is typically the case when lots of units are moving through initial lease-up. Most of the increase in occupancy within existing -- primarily middle-market -- inventory has come in just a handful of metro areas. Such apartments have already been basically full for quite a while in most locations.

MPF Research states that the 10 metros that drove the country's jump in apartment occupancy the most during the last year are (in alphabetical order): Atlanta, Cleveland, Fort Lauderdale, Houston, Jacksonville, Las Vegas, Riverside, Sacramento, St. Louis, and West Palm Beach. Progress in occupancy made during the last 12 months has virtually exhausted the available existing product in five of those markets -- Cleveland, Fort Lauderdale, Riverside, Sacramento, and West Palm Beach. Consequently, they cannot be expected to fuel any further increase in occupancy moving forward. On the other hand, if job growth stimulates enough household formation to continue to generate substantial apartment demand, occupancy in the existing product base can improve to a meaningful degree over the near term in four other cities: Atlanta, Jacksonville, Las Vegas, and St. Louis. Houston remains the wild card in the bunch.

Tulsa-Area Apartment Rents, Occupancy Climbs
Digested From "Tulsa-Area Apartment Rents, Occupancy Climbs"
Tulsa World (07/11/14) Evatt, Robert

According to the Tulsa Apartment Survey compiled by CB Richard Ellis/Oklahoma, the vast majority of Tulsa-area apartment communities are enjoying very high occupancy rates. Not surprisingly, rental rates are on the rise. The average one-bedroom unit now rents for $532 per month, up $27 from a year ago. The average two-bedroom, two-bathroom apartment, meanwhile, rents for $714 per month -- a $36 increase from last year. The report's authors expect the rent increases will top out at 6 percent by the end of the year.

Deals and Transactions


Lowes-14April
In What Two States Did TruAmerica Spend $229M on Apartments?
Digested From "TruAmerica Buys M-F Portfolio in Colorado, Washington for $229M"
Commercial Property Executive (07/11/14) Kalinoski, Gail

Continuing to build its West Coast apartment portfolio, TruAmerica Multifamily has acquired a 1,514-unit portfolio in two states -- Colorado and Washington -- from Berkshire Group. The total purchase price was $229 million. CBRE Capital Markets represented the seller, a Boston-based firm that specializes in acquiring and managing apartment communities and property-related firms for institutional investors. The CBRE Capital Markets' Debt & Structured Finance team secured a $168.8 million loan for the acquisition. Meanwhile, Brian Eisendrath of CBRE's Los Angles office arranged the financing for TruAmerica, a privately held property investment firm founded last year by Robert Hart and The Guardian Life Insurance Co. of America. TruAmerica and its partners aim to spend between $25 million and $30 million renovating the apartment communities, which were erected in the 1970s and '80s. Noah Hochman, TruAmerica's director of acquisitions, comments, "This was a complex transaction with many moving pieces. We are extremely satisfied with the team's ability to overcome hurdles and exceed the terms quoted at application." TruAmerica has been active in recent months, especially in the Seattle metro area.

Look Who's Loosening Credit for U.S. Rental Property Owners
Digested From "Cerberus, Blackstone Loosening Credit for U.S. Landlords"
Bloomberg (07/07/14) Perlberg, Heather; Gittelsohn, John

U.S. property owners with a single rental house can now get cash from Wall Street to purchase more. Cerberus Capital Management is financing low-volume deals for small investors via its FirstKey Lending, with looser terms than government-backed mortgages. B2R Finance, Blackstone Group's rental lending arm, is making a similar push to these small landlords. Cerberus Capital CEO Randy Reiff states, "Our premise has always been to be able to lend to the middle market and entrepreneurial borrowers in the space, not just the institutional borrowers. The biggest guys have always enjoyed access to capital. The largest part of this market is really the entrepreneurial owners." At a time when many Americans are struggling to obtain a mortgage and homeownership is on the decline, these two companies are vying to lend to owners of the nearly 14 million rental homes nationwide. Cerberus, Blackstone, and Colony Capital are also scrambling to package debt on homes managed by separate landlords for the first multi-borrower bond sale. Blackstone continues to rank as the largest U.S. single-family landlord, having amassed approximately 45,000 houses since the first quarter of 2012. Its B2R unit plans to offer funding to investors who only need one rental home to qualify, beginning this year.

Latest Tampa Apt. Sales Continues South Florida's Momentum
Digested From "Portfolio of Waterfront Tampa Apartment Properties Fetches $80 Million"
Tampa Bay Business Journal (07/07/14) Kritzer, Ashley Gurbal

UDR Inc. has sold a portfolio of waterfront apartment communities in Tampa for $80.73 million. The Colorado-based REIT sold the various properties to Cortland Partners of Atlanta. Jamie May, chairman and CEO of locally based JBM Institutional Multfamily Advisors, represented UDR in the deal. According to him, investor interest in Central Florida's apartment sector is continuing to climb. With regards to the UDR portfolio, May said he fielded multiple offers for the entire offering. He concludes, "We really were able to tap the appetite of the large private national and some private regional investors."

Industry Buzz


SatelliteProlinkJuly14
10 States With the Most Student Debt
Digested From "10 States With the Most Student Debt"
USA Today (07/05/14) Kent, Alexander; Hess, Alexander E.M.

Recently released data from the Institute for College Access and Success shows that average student debt levels have soared in recent years, topping almost $30,000 in 2012 from $18,650 just eight years earlier. In addition to growing debt levels, a bigger proportion of students are taking out loans, increasing from 67 percent to 71 percent in that time span. Furthermore, of the 10 states with the highest average student debt, seven also had the highest proportions of students going into debt. At the same time, some states with the highest levels of student debt tended to have lower levels of total debt, including home loan, credit card, and auto debt. This is likely because higher student debt discourages future borrowing. Ann Marie Wiersch, senior policy analyst at the Federal Reserve Bank of Cleveland, remarks, "If you look at debt-to-income ratios, it's not surprising that someone with the burden of student debt faces challenges with purchasing a home or a vehicle." States with the highest debt levels in 2012 were disproportionately located in the Northeast. In that region of the country, private schools are more prevalent. High debt levels mean that graduates have to spend their money paying off debt instead of spending it as consumers and stimulating the economy. A recent National Association of Realtors survey showed that student loans were an obstacle to homeownership with 77 percent of people polled. Delaware ranked as the No. 1 state with the highest average student debt, followed by New Hampshire, Pennsylvania, Minnesota, and Rhode Island.

REITs Eye Bigger Piece Of Single-Family Home Rentals
Digested From "REITs Eye Bigger Piece Of Single-Family Home Rentals"
Investor's Business Daily (07/11/14) P. A10 Cariaga, Vance

Rising home prices have caused a number of institutional investors to pull back from investments in single-family rental homes since the first of the year. However, REITs have helped fill the gap by buying up rental homes nationwide. Their challenge moving forward will be to convert the properties into profitable investments, which is not as easy as it was a few years ago when large numbers of distressed residences could be purchased at record-low prices. Buyers not only got to watch those purchased assets rise in value, they got to collect rent while doing so. Now, with home prices on the rise in many markets and not as much distressed real estate available on the cheap, it is more difficult for investors to earn such enticing yields. National Association of Realtors chief economist Lawrence Yun observes, "There appears to be less enthusiasm among institutional investors than there was in prior years." By comparison, many REITs have continued to embrace the market for single-family rentals. Proof of this came earlier in July when American Homes 4 Rent, a REIT that specializes in single-family rentals, acquired Beazer Homes' Beazer Pre-Owned Rental Homes for nearly $263 million in debt and equity. The deal added more than 1,300 homes to American Homes 4 Rent's portfolio in four states -- Arizona, California, Florida and Nevada -- padding a portfolio that already included over 25,000 homes in 22 states. The biggest player in the market for single-family rentals remains Invitation Homes, an affiliate of the Blackstone Group that has invested more than $8 billion in nearly 43,000 such properties.

Which State Is Tops in Baby Boomer House Rentals?
Digested From "Florida Tops Baby Boomer House-Rental Markets"
Investor's Business Daily (07/11/14) P. A10 Howell, Donna

A new RealtyTrac study shows that investors who recently purchased homes to rent are enjoying an average annual return of 9.97 percent nationwide, which is down from 10.60 percent a year earlier. However, with a Baby Boomer influx, parts of Florida are yielding twice this year's average. For their results, researchers analyzed 370 counties and factored in second-quarter home prices amid a real estate rebound and rents for three-bedroom properties. Median home prices in the 370 counties increased more than 7 percent from a year ago, on average, from April through June. RealtyTrac Vice President Daren Blomquist remarks, "Home prices have increased at a faster pace than fair market rents in most counties over the past year, eroding the average returns available to investors buying rental properties. Even so, an average annual return of nearly 10 percent across all the counties we analyzed nationwide is still solid, and investors holding on to rental property for the long term will also typically benefit from home price appreciation on top of the annual returns from rental income." RealtyTrac singled out Anderson County, S.C., as the highest-yielding market at 15.33 percent. Other locations placing in the top five included Woodbury County, Iowa; Pickens County, S.C.; Alachua County, Fla.; and Spotsylvania County, Va. Finally, RealtyTrac named areas north of Tampa, Fla. -- specifically Pasco County and Hernando County -- as the top markets for renting to Boomers.

Legal/Legislative Did You Know


Fla. Cops Hope to Make Charges Stick Against Drop Box Thieves
Digested From "KPD Urges Residents to Stop Using Rent Drop Boxes"
Osceola News Gazette (07/11/14) Jackson, Ken

In Florida, the Kissimmee Police Department (KPD) is urging city apartment residents not to use rent drop boxes because of an ongoing theft of rent checks. This marks the second time in three months that the KPD has responded to thefts from drop boxes that residents of apartment communities use to deposit their monthly rent checks. Local police detectives are urging those who rent to stop using the boxes as check thefts have this past week been reported at two additional properties -- the Wellington Woods and the Outrigger apartment communities, both in Kissimmee. The previous rash of similar thefts happened back in May when thieves used a sticky substance to pull the checks and money orders out of the boxes. Police were able to obtain video surveillance from one of the communities at that time, showing suspects arriving at approximately 4:18 a.m. on the morning of May 4. One suspect worked on the box for nearly 10 minutes while another served as a lookout. At that time, KPD officials took reports from five apartment communities regarding burglaries to their drop boxes. The sticky substance was found on four of the boxes, but no arrests were made. KPD spokesperson Stacie Miller comments, "This is a regional problem and most likely a theft ring."

Housing Authority to Ban Indoor Smoking at Two Apt. Communities
Digested From "Auburn Housing Authority Votes to Ban Indoor Smoking at 2 Apartment Complexes"
Time Warner Cable News (07/07/14)

In Alabama, residents of two Auburn apartment communities will soon be unable to light up in their units. The Auburn Housing Authority voted July 7 to ban indoor smoking at Malone Village and Olympia Terrace, which together contain more than 230 apartments. Residents were informed of the possibility of a ban back in May, but they received no written comments. Only residents from three apartments showed up at last Monday's public hearing. Housing Authority officials say bans like this are being instituted at public housing nationwide, with some quite extensive. Auburn Housing Authority Executive Director Stephanie Hutchinson remarks, "We chose to go with a more gradual approach. I don't think that our residents are ready for a 'no smoking' blanket ban, and we certainly weren't ready to institute something like that, so we just decided to go with the no indoor smoking ban." The ban is set to go into effect Sept. 1.

NAA Announcements


MissionSponsor-April14
When It Comes to Asset Management, Are You a Jetson or a Flintstone?

The Maximize: 2014 Multifamily Asset Management Conference, Oct. 13-15 at the Omni Amelia Island Plantation Resort in Amelia Island, Fla., isn’t for everyone; just those forward-thinking professionals who are collectively pushing the boundaries of multifamily housing revenue management and data analytics and are willing to share to get something in return.

Register today to be among this select group of professionals dedicated to extracting total value and return from multifamily real estate assets and portfolios.

Fifteen years ago—what some might call the “Bedrock era”—“technology” meant asset managers had to learn how to rewire their communities to provide cable and Internet service. “State of the art” meant knowing how to run cable through risers. Today, the “Orbit City era,” the name of the game is how technology can manipulate information—sales performance data, pricing and demand data, resident information, Key Performance Indicators, cost benchmarks, data hidden in analog systems, among many other factors.

If you’re interested in greater value creation and revenue optimization, the Maximize: 2014 Multifamily Asset Management Conference—the industry’s exclusive forum where the connections, strategies, best practices and tactical innovations emerge to accelerate real returns on real properties—was created for you.
The 2014 NAA Education Conference & Exposition: Don’t Worry, It’s Only Your Reputation at Stake

If the number of attendees at the session, “Truth or Dare: Responding to Online Reviews,” are any indication, any multifamily housing organization with an Internet presence had better be serious about managing its online reputation.

During the session—one of more than 50 presented in Denver during the 2014 NAA Education Conference & Exposition—Misty Sanford, Renter’s Voice; Puneet Singh, Kimball, Tirey & St. John LLP; Jennifer Staciokas, Lincoln Property Company; and Francis Chow, Ellis, Partners in Management Solutions and Renter’s Voice; shared firsthand advice on how to deal with negative online comments and effectively solicit positive reviews while creating a foundation for genuine customer relationships. They also discussed the myriad legal pitfalls when responding to negative ratings and reviews as well as legal actions that can be taken regarding reputation management.

Didn’t make the session or want to hear it again? You’re in luck: “Truth or Dare: Responding to Online Reviews,”—as well as other unparalleled education sessions focused on marketing and leasing such as “Practical, Actionable Ideas for Mastering Digital Marketing”—are now available to you as part of the NAA Education Institute’s (NAAEI) “REWIND” program, offering 20 video recorded sessions and 22 audio-synced PowerPoint sessions from the 2014 NAA Education Conference & Exposition. Order your sessions today!
Stay in the Know with the New Apartment Advocate!

Know what’s going on policy issues that affect the industry by reading the new Apartment Advocate e-newsletter. NAA Government Affairs’ flagship publication merges the AIMS Update and the HotSheet plus adds new content to give you an insider’s look at what’s happening in apartment industry advocacy.

If you received the AIMS Update or the HotSheet, you are already subscribed. If you wish to subscribe, contact NAA’s Carole Roper.
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

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?

NAA Turned 75 this year! Celebrate with NAA.
Upcoming Events

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



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Event Highlights

Have You Registered Yet for the 2015 NAA Education Conference & Exposition?

Have You Registered Yet for the 2015 NAA Education Conference & Exposition?  

Registration is now open for the 2015 NAA Education Conference & Exposition, the can’t-miss annual gathering of more than 8,000 multifamily housing professionals that features game-changing...