Is Multifamily Supply Overtaking Demand?
Digested From "Is Multifamily Supply Overtaking Demand? A New Twist to the Debate Emerges"
GlobeSt.com (07/15/14) Morphy, Erika
Apartment industry professionals have been concerned about a bubble forming and then bursting in their sector ever since the Great Recession. Some contend that building in this sector is reaching a saturation point in a growing number of markets. Others counter that not only is a supply bubble not forming, but the current development pipeline is actually insufficient to meet the real demand for apartments now and in the months and years to come. After the flood of foreclosures from the recession, the demand for apartments soared amid short supply. So far, demand for apartment space has remained very high and has been able to blunt the growing supply. The reasons for this have been threefold: one, stricter lending requirements has made homeownership more difficult; two, young adults are shying away from owning anyway to remain flexible in their careers; and, three, there is a growing trend towards urban living.
The National Association of Real Estate Investment Trusts expects this shadow demand to continue fueling this sector for years to come especially as the job sector improves and more young adults strike out on their own and form their own households. Among the pessimists, though, is Reis senior economist Ryan Severino. He recently stated that even though demand will remain high, new apartment supply will likely overwhelm it if current trends hold. Rent growth is already moderating in some markets, he notes, with the San Francisco Bay Area and Seattle on pace to see the effects of oversupply on rents in the nearer term. Severino concluded, "The markets that started to recover the soonest, at least enough of them, are the ones where we're seeing a lot of the construction activity taking place right now. We're not seeing a lot of the construction activity in some of the secondary markets, where they're kind of the laggards right now."
Market Trend Insights
Surprise! U.S. Housing Starts Decline in June
Digested From "U.S. Housing Starts, Permits Decline in June"
Reuters (07/17/14) Mutikani, Lucia
In a surprising development, the Commerce Department reported a 9.3 percent drop in U.S. housing starts last month. Economists surveyed by Reuters had projected an increase to a pace of 1.02 million units for June, but crews broke ground at a clip of just 893,000 units on a seasonally adjusted basis. Starts on single-family houses slumped 9.0 percent to the slowest rate since November 2012, led by declines in the U.S. South, while multifamily activity skidded 9.9 percent. Building permits were 4.2 percent lower in June, disappointing projections. Permits for single-family homes increased 2.6 percent to the highest level since November, but permits for multifamily housing tumbled 14.9 percent.
Two Factors Boost Houston's Apartment Market
Digested From "Apartment Fundamentals Soar to Long-Term Highs in Houston"
Property Management Insider (07/17/14) Parsons, Jay
Tremendous job growth coupled with surprisingly moderate apartment construction is helping Houston's apartment sector post some impressive numbers. The city recorded long-term highs in both occupancy and rent growth during this year's April-through-June period. Occupancy in the Houston apartment market reached a 13-year high as of June 30, leaping 80 basis points to 94.4 percent. In addition, year-over-year rents reaccelerated in the quarter, climbing to 5.6 percent -- a number not seen in the two decades MPF Research has been tracking metro Houston. One of the drivers of this impressive apartment sector performance is the area's healthy employment growth. Houston added 93,300 jobs in the last year, trailing only the Dallas/Fort Worth market for growth over the past 12 months. Even more remarkable is that Houston has added 300,000 jobs on net since 2008, growing its employment base by 12 percent. MPF Research analysts say the one headwind facing Houston is apartment construction, which is currently at the highest level seen in five years with over 21,000 rental units under way. Such numbers will almost certainly cool down apartment fundamentals in the months to come, but not by much.
Where in Dayton Is Apartment Growth Strongest?
Digested From "Dayton's Apartment Market Remains Strong"
Dayton Business Journal (07/17/14) Barrow, Olivia
According to Miller-Valentine Gem Real Estate Group's 2014 Apartment Market Survey, multifamily housing remains one of the hottest sectors of Dayton's real estate market. In fact, this sector appears to be in full expansion mode. Even as new supply is being added each month, vacancy rates are at 6.5 percent overall -- down from 8 percent a year ago. In turn, the strong demand for apartments has helped to raise rents and make investing in the sector more attractive. Downtown Dayton's apartment market is the tightest, with a vacancy rate of 3.5 percent. Looking ahead, such developments as the Water Street apartments and the Student Suites project at the old Dayton Daily News building will dramatically increase the supply of housing downtown and likely lead to even more multifamily development.
What Is the State of the Nation's Housing? A New Report Shows
Digested From "Affordability Is the Big Challenge for Housing"
Mortgage News Daily (07/15/14) Swanson, Jann
In its "The State of the Nation's Housing" report, the Harvard Joint Center for Housing Studies estimates that 40.9 million households were "cost-burdened" -- or spending more than 30 percent of their monthly income on housing -- in 2012. Despite a decrease of 1.7 million between 2011 and the following year, these households had increased by 9 million in the previous decade. Moreover, "severely cost burdened" households that spent half or more of their income on a mortgage or rent accounted for 5.8 million of that increase. The 2012 decrease was virtually all on the homeowner side. Research shows that more than 25 percent of homeowners are considered cost-burdened and 10 percent severely so. Cost-burdened renters did increase slightly in 2012 -- the sixth year in a row -- to 20.6 million. Almost 50 percent of those who rent are considered cost-burdened and 17 percent are in the severe category, according to Harvard researchers. Overall, the incidence of severe cost burdens is especially high among minority households: 27 percent of black, 24 percent of Hispanic, and 21 percent of Asian households were considered severely burdened compared to just 14 percent of white households.
Apts Are at Blackstone's Core in Its Drive for $100B in RE Assets
Digested From "Blackstone May Reach $100 Billion in Core Real Estate"
Bloomberg (07/18/14) Yu, Hui-yong
Blackstone Group LP may have $100 billion of low-risk real estate under management in a decade as the firm expands beyond distressed properties. Blackstone Chairman and CEO Stephen Schwarzman states, "The core-plus asset class is about three times the size of what we're doing in the opportunity class. . . . [If Blackstone can continue to generate strong returns], you could look at a business like this over a 10-year period and have $100 billion under management." Core real estate includes such high-quality, well-leased properties as prime apartment communities, office buildings, and shopping centers. Core-plus refers to similar assets that might need some additional work to increase values. Blackstone aims for net returns of between 10 percent and 12 percent with core-plus real estate, states Schwarzman. Blackstone ranks as the largest private-equity real estate investor, managing nearly $80.4 billion of total property assets.
Deals and Transactions
In Which Two States Did CBRE Broker $229M in Apt. Sales?
Digested From "CBRE Brokers $229 Million Apartment Sale"
Seattle Daily Journal of Commerce (07/17/14)
CBRE Capital Markets last week represented Berkshire Property Advisors in the $229 million sale of three apartment communities with 1,514 rental units in two states -- Washington and Colorado. The buyer was TruAmerica Multifamily, a joint venture between former Kennedy Wilson Multifamily Management Group President Robert E. Hart and The Guardian Life Insurance Co. of America. The venture expects to spend as much as $30 million renovating the various apartments, which were built in the 1970s and '80s.
Philly Apartment REIT Sets Share Price
Digested From "Realty Trust Sets Share Price"
Philadelphia Inquirer (07/17/14) Kanaley, Reid
Late last week, Independence Realty Trust Inc. priced a public offering of seven million shares at $9.50 per share for gross proceeds of approximately $66.5 million. The Philadelphia-based apartment owner's offer is expected to close July 21. Company officials plan to use proceeds to buy apartment communities and for general corporate purposes. RAIT Financial Trust has agreed to buy 300,000 of the offered shares. Independence is advised by a RAIT subsidiary.
Phoenix Market Heats Up With Two Big Apartment Sales
Digested From "Two Valley Apartment Properties Sold for $75.45M"
Arizona Republic (07/17/14) McLean, John
Entities of Commingled Pension Trust Fund (Strategic Property) JP Morgan Chase Bank in New York sold two luxury apartment communities in the Phoenix area to TA Associates for $75.45 million. The first was Pinnacle Terrace, a 300-unit apartment community in suburban Chandler. It changed hands for $39.2 million. The second was Pinnacle at Union Hills, a 264-unit apartment community in Phoenix that sold for $36.25 million. Marcus & Millichap's local office represented the seller, while the buyer was self-represented.
Hockey Arena Project Could Help Detroit Reach Apartment Goals
Digested From "Red Wings Arena Project Would Add Hundreds of New Market-Rate Apartments Downtown"
HometownLife.com (07/20/14) Reindl, JC
Apartment hunters will be looking to score when construction commences this fall on Detroit's new hockey arena project. Included in the plans for the $200-million entertainment district are hundreds of market-rate rental apartments in at least four new mid-rise buildings that will go up around the arena and near Comerica Park. The apartments are projected to be ready for occupancy by the summer of 2017. The precise number of rental units is still being determined and will likely top 500. As the district attracts interest from other housing developers, though, the tally could reach 2,000 within a decade. Christopher Ilitch, president and CEO of Ilitch Holdings, says that influx would help to ease a housing crisis that has gripped the city's core for the last couple of years. Strong demand for new housing in the increasingly trendy Midtown, Corktown, and downtown areas has resulted in leased-out buildings and long waiting lists for apartments. New developments take time to finance and build. At the same time, apartment owners and managers are hiking rents. The newest significant development in Midtown is 3909 Woodward, which opened near the end of this year's first quarter. By early last month, it had leased all of its 61 apartments. Typical rents range from $990 to $1,250 a month for one-bedroom units to $1,830 for the largest two-bedroom apartment. April Dawson, leasing associate for the Woodward, said she receives as many as 15 calls or e-mails a day inquiring whether there are apartments left. The best she can do is add names to the waiting list.
What Is Modular Apartment Design, and How Does It Stack Up?
Digested From "NY Building Shows How Mod Design Stacks Up as Cool"
Washington Post (07/20/14)
Dubbed the Stack, this new, seven-floor structure in Manhattan is being touted as the city's first multi-story, modular-built apartment building. Located near the borough's northern tip, it aims to show that while stackable apartments can save developers time and money, modular doesn't necessarily have to mean monotonous. Indeed, the apartments' interiors defy their boxy components with varied floor plans and stylish fixtures. Modular construction entails assembling a building from prefabricated sections rather than building from the group up on-site. It has been around for decades, but interest has grown recently nationwide and in New York City, in particular. The world's tallest modular building, the 32-story "B2" apartment tower, is now being erected in Brooklyn and will boast 363 rental units when completed at the massive Atlantic Yards complex. Supporters say modular construction can reduce both costs and timetables as module factories do not have to worry about bad weather. Of course, the technique does presents its own set of challenges -- such as opposition from labor groups -- and not all projects have proven speedy. The Stack's 28 apartments were formed from 59 modules. The rectangular components are each 12.5 feet wide and 50 to 60 feet long, but with different interior doorways, walls, and other attributes. The modules' interior layouts interlock like jigsaw puzzle pieces to form apartments of various sizes and configurations. Construction started in the fall of 2012.
The New Must-Have Amenities: Bark Parks, Coffee Bars, and More
Digested From "Apartments Pile on Amenities in New Developments"
Greater Wilmington Business Journal (07/18/14) Callison, Jenny
In Wilmington, N.C., local apartment residents are finding that today's multifamily housing communities are offering a lot more than just a living room, kitchen, and a place to sleep. Through both design and amenities, an array of new and existing developments are increasingly catering to individual tastes while encouraging a sense of community. As in other metro areas, more young professionals and older adults are opting to rent instead of buy a home. Tribute Properties President Robert Bishop states, "Apartment amenities have evolved over time as developers have followed the changing interests and lifestyle patterns of apartment residents. It used to be that an apartment community would offer tennis courts and a pool table for recreation. Now you’d be hard-pressed to find a pool table, and fitness centers have become more important to residents than tennis courts." Tribute Properties, which has developed more than 7,000 apartments in North and South Carolina, still owns and manages more than 5,000 of them. Amenities at its Wilmington-area communities include so-called "bark parks" for pet exercise and fashionable meet-and-greet areas where residents can convene.
In 2012, Tribute Properties introduced a different kind of apartment community to Wilmington: the gated South Front Apartments near downtown. South Front amenities were developed to create a specific lifestyle experience, ranging from a community great room with fireplace and big screen TV to a coffee bar and theater to loaner bicycles and bike storage area. There is also a community roof garden and water park. Not surprisingly, there is a waiting list for units. Tribute Properties is now working on a similar urban redevelopment apartment community in Asheville, with plans to transform an old Chrysler dealership into a boutique apartment community. Meanwhile, a quick scan of websites of apartment properties near the University of North Carolina Wilmington campus show that students have their pick of places with swimming pools, sun decks, billiard rooms, coffee bars, and sand volleyball courts, along with on-site fitness facilities and even tanning beds.
CoStar Gives Long the Lead Role at Apartments.com
Digested From "CoStar Group Promotes Brad Long to President at Apartments.com"
CoStar Group Inc. this past week promoted Brad Long to president of Apartments.com, its online apartment rental marketplace. In that post, Long will be in charge of managing the sales and marketing operations of Apartments.com. He will report directly to CoStar founder and CEO Andrew C. Florance. Florance remarks, "With 19 years of advertising experience and eight years of experience in the multifamily housing industry, Brad is well qualified to help drive future growth of Apartments.com while strengthening the company's position as a leader in the multifamily housing internet listing space." Long is an eight-year Apartments.com veteran, having served most recently as vice president of sales. He succeeds Dick Burke, who is exiting the company to pursue other opportunities. Apartments.com features approximately 20,000 communities nationwide. CoStar Group acquired Apartments.com back in April to complement the online marketplaces it operates for commercial real estate.
Which Texas Town Is Expanding Its Use of Reclaimed Water to Apts?
Digested From "Euless Expands Its Use of Reclaimed Water to Apartments"
Fort Worth Star-Telegram (07/20/14) Campbell, Elizabeth
The city of Euless, Texas, is providing lightly treated water for irrigating to apartment communities in the northern part of town. Other cities across the region are similarly using reclaimed water to help with conservation during the ongoing drought. The Arbors of Euless was the first apartment community locally to be connected to the pipeline being built by Euless. "We were thrilled when the city came to us and asked if we were interested in participating," stated Mary Harrington, regional manager of the Arbors of Euless. "We readily accepted." The apartment community is using the reclaimed water to irrigate its exterior landscaping. City officials estimate that the Arbors will see at least a 20 percent savings on its water bill. Elsewhere locally, the Villages at Bear Creek is using the reclaimed water in fountains, and a new development of single-family homes and commercial businesses close by plans to use the treated wastewater to irrigate their common areas.
Legal/Legislative Did You Know
GCAA, Charlotte Leaders Discuss Community Criticisms of Apartments
Digested From "Apartment Industry, Charlotte Officials Discuss Community Criticisms of New Development"
Charlotte Business Journal (07/18/14) Boye, Will
The Greater Charlotte Apartment Association (GCAA) last week sponsored a gathering in which city residents could voice their criticisms of new multifamily housing development locally. Among the complaints voiced were that new infill apartment communities lack desired retail and that they fail to enliven the streets around them. In response to the complaints, the Charlotte-Mecklenburg Planning Department has drafted multifamily housing design guidelines that could be adopted as policy by the City Council to encourage new apartment construction that is consistent with the surrounding community. The overall goal will be to create a vibrant pedestrian environment. None of the new apartment communities that prompted the criticism were identified at the GCAA event. Nevertheless, local apartment developer and panel discussion moderator Jud Little said the feedback has been heard. "As we've added new communities," he stated, "there have been a series of issues raised by different folks and, particularly with all these infill communities, a series of criticisms have been made." He notes that the planning department's draft design guidelines address such items as building placement, building design, and choice of exterior materials.
Can Smoke-Free Housing Rise in Kansas Without Official Bans?
Digested From "Lawrence Health Advocates Promoting Smoke-Free Housing"
Lawrence Journal-World (KS) (07/19/14) Bruce, Giles
In Kansas, the city of Lawrence currently has no ban on smoking in multi-unit housing communities. While some apartment owners and managers restrict smoking, their properties comprise only a small percentage of the total rental units in Lawrence. Nevertheless, the American Lung Association is advocating for smoke-free housing both locally and nationwide, contending that cancer-causing secondhand smoke can travel through doorways, cracks in walls, ventilation systems, electrical lines, and plumbing. Mindful of the health dangers, the Lawrence-Douglas County Health Department has launched a public education campaign to let residents know about their options for smoke-free housing. Forty-eight of 71 local apartment managers polled by the health department had some of kind of smoking policy in place. Of those, 19 restricted smoking inside their apartments. A handful even prohibit smoking on decks and patios. Charlie Bryan, community health planner with the Lawrence-Douglas County Health Department, remarks, "As an industry, large housing complexes are becoming more inclined to ban smoking, as it protects against liability from nonsmokers with health issues. They also know there's a market demand for smoke-free housing. And it saves them money, as it costs less to turn over [an apartment] if it was inhabited by a nonsmoker, and reduces the risk of fire hazard." To be sure,some apartment owners have been proactive. Lawrence-based Gage Management, for example, has decided to ban smoking in its rental units beginning Aug. 1 after receiving complaints about smoke damage from residents who could smell smoke coming from adjoining apartments. Still, even those communities that ban smoking cannot guarantee that apartments will be smoke-free, as residents may violate the agreement. In such cases, management is including a passage in their lease agreements that prevents them from being liable if that does happen.
We’re Going to Turn Perceptions of Revenue Management Upside Down This October— Will You Be There To See How?
Multifamily housing asset managers, the unsung heroes who spend their time balancing competing demands of an organization to ensure profitability, should mark their calendars for the Maximize: 2014 Multifamily Asset Management Conference (Maximize), Oct. 13-15 at the Omni Amelia Island Plantation Resort, Amelia Island, Fla.
Assembled for asset managers, Maximize was designed to assist professionals in the field to perform better and yield more from the same assets,
This isn’t your grandfather’s revenue management conference: Experts from a spectrum of disciplines, including Expense Management Strategies; Revenue Enhancement and Pricing Strategies; Data Analytics and Performance Benchmarking; Green Practices Including Utility Management; Capital Markets Financing Strategies; and Innovation, will be on hand to outline exactly how to extract total value and return from multifamily real estate assets and portfolios.
Register before Sept. 3 to save $100 and be a part of the industry’s exclusive forum for connections, strategies, best practices and tactical innovations focused on accelerating real returns on real properties. Omni Amelia Island Plantation Resort hotel discount rates are available until Sept. 15.
The 2014 NAA Education Conference & Exposition: Here Come the Millennials!
Look around your company right now—within the next six years, almost half of your colleagues will be Millennials. With a reinvented workforce that looks, thinks and acts dramatically different just over the horizon, now is the time to start asking yourself whether you understand what they want and value, and how you’ll operate within this “New Normal.”
Multifamily housing professionals are clearly preparing for this transition, as evidenced by the size of the crowd during “The Millennial Majority: Are You Ready for the Workplace’s New Normal,” one of more than 50 education sessions presented in Denver during the 2014 NAA Education Conference & Exposition.
Presenters Virginia Love, Waterton Residential; Kara Rice, Grace Hill, Inc.; and Steve Matre, Banner Property Management; informed the crowd that more than 10,000 baby boomers are turning 65 each day, creating job openings but also fostering an incredible loss of experience and institutional knowledge.
Want to find out what to do during the next few years to create long-term stability out of this chaos? You’re in luck: “The Millennial Majority: Are You Ready for the Workplace’s New Normal,”—as well as other unparalleled education sessions focused on operations such as “Using Big Data to Gauge Your Business Performance”—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!
Nevada State Apartment Association
Roanoke Valley Apartment Association
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
Roanoke Valley Apartment Association
Nevada State Apartment Association
Roanoke Valley Apartment Association
NAAEI Leadership Experience: Powered by Dale Carnegie:
Greater Cincinnati Northern Kentucky Apartment Association
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.
2014 Multifamily Asset Management Conference
October 13-15, 2014
Amelia Island Plantation Resort
Amelia Island, Fla.
Don't forget to check out Lauren Boston's weekly blog for a humorous take on all the latest trends in the multifamily housing industry. Check out Lauren's latest blog!
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