NAA Industry Insider: With Rentals in Fashion, Apartment Construction Hits 25-Year High | National Apartment Association

NAA Industry Insider: With Rentals in Fashion, Apartment Construction Hits 25-Year High


August 26, 2014


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Top Story

With Rentals in Fashion, Apartment Construction Hits 25-Year High
Digested From "With Rentals in Fashion, Apartment Construction Hits 25-Year High"
Wall Street Journal (08/20/14) Timiraos, Nick; Zumbrun, Josh

A large portion of July’s gain in housing construction came from the multifamily sector. A rolling 12-month total of multifamily starts with no seasonal adjustment shows that construction for the year ended July 31 reached its highest level since 1989, based on Commerce Department data. Diane Swonk, chief economist of Mesirow Financial, notes that substantial gains in apartment starts are less bullish for economic growth than a comparable increase in single-family construction. That is because single-family housing has a bigger multiplier effect for both employment growth and consumer spending. Swonk writes: "We will take what economic activity we can get, but our housing market model was designed in the U.S. to build a lot of single-family homes for owners, not multifamily homes for renters." Single-family building permits are only up 0.8 percent through the first seven months of 2014 compared to a year earlier. By contrast, there has been a 17.5 percent year-to-date gain for apartment permits.

Researchers say the surge in rental units offers additional proof that job gains are boosting household formation. It also indicates a shelter shortage that will require more construction -- for both owning and renting. Climbing apartment rents could eventually give potential home buyers added urgency. A separate Labor Department report reveals that rents were climbing at their fastest clip in five years last month, up 3.3 percent year over year. Many Americans have had no choice but to rent because they either lack funds for a down payment or cannot qualify for a home loan. Others simply prefer the flexibility that comes with renting. In turn, apartment company stocks have been on a tear. Shares of Equity Residential and AvalonBay Communities, for instance, closed Tuesday at their highest levels since the companies went public in the early 1990s.

Market Trend Insights

Are Apartment Storage Units a Threat to Self-Storage Businesses?
Digested From "Are Apartment-Complex Storage Units a Growing Threat to Self-Storage Businesses?"
Inside Self-Storage (08/14) Vosburgh, Glenda

National Apartment Association (NAA) President and CEO Doug Culkin observes that for-rent storage space is a growing trend in the apartment sector, as more and more communities around the country are offering this amenity. One of the factors fueling the demand is a growing appetite for urban living, as many Millennials shun the suburbs and more people -- especially empty-nesters -- downsize from houses to apartments. Although the NAA does not have any statistics on the number of installations or resident use, it is important to note that over 25 percent of self-storage tenants live in apartments or condominiums. "Apartment square footage, in general, is decreasing, leaving storage and closet space at a real premium for residents," states Culkin. "The popularity of these spaces has also grown because renting has become a preferred lifestyle choice for many empty-nesters and retirees who want to downsize and forgo the maintenance and upkeep that a large home requires." Sizes and rental fees for the spaces vary depending on the community and the location.

Most apartment communities have unused areas in parking garages and parking lots that are ideal for creating storage space. Additionally, some communities are experimenting with garage units that are very much like gym lockers. Culkin notes, "They're most often built to blend in with the individual apartment community and are mobile, so they don’t require footers or concrete pads for installation." For-rent storage spaces are included in all of Criterion Development Partners' new apartment communities. Development associate Brandon Hancock says for-rent storage space adds a new revenue stream for apartment owners and can also serve as a valuable marketing tool. Lincoln Property Co. reports that demand for extra storage space is strong in most of the markets it has communities in. Lincoln’s storage spaces range from closet-size to garage-size. The Dallas-based company also provides shared, partially enclosed areas with fencing. The Chicago market, in particular, is seeing strong interest in for-rent apartment storage. Irini Boeder, regional marketing director at Lincoln, concludes, "I think it happens more in urban environments where the living spaces are smaller."

Three Reasons Why Apartment Company Shares Are Soaring
Digested From "Apartment Landlord Shares Soar to New Highs, But Will Demand Keep Rising?"
Wall Street Journal (08/20/14) Whelan, Robbie

As the economy continues to recover and construction of new multifamily housing surges, shares of the nation's biggest apartment owners are trading at all-time highs. Behind the rally is three factors: one, a significant increase in apartment construction; two, positive job growth; and, three, a continued preference on the part of young people to rent over buying. The Commerce Department recently reported that construction of multifamily housing hit an annual pace of 423,000 units in July -- its highest level since January 2006. "It's a combination of demographics, living preferences, and purchase behavior that is all favoring rental housing today," said AvalonBay Chief Executive Tim Naughton. But Naughton cautioned that there could be some headwinds on the horizon. He concludes, "In terms of economics, construction costs are now outpacing rent growth since the trough, which starting to squeeze yields a bit."

Essex Property Trust CEO Michael Schall said that his company may trim its apartment development pipeline from roughly 10 percent of the company's enterprise value to around 5 percent, partly because construction costs may be rising faster than income from apartment communities. Schall states, "We're going to be more conservative at this point in the cycle."

Millennials Going to Kansas City, to Live and Work
Digested From "Millennials Going to Kansas City, to Live and Work"
New York Times (08/20/14) Gose, Joe

Over the past decade, Kansas City's urban core has emerged as a desirable and even cool place to live. The shift has coincided with $5.5 billion in public and private projects, most notably the Kauffman Center for the Performing Arts, the Sprint Center arena, and the Power & Light District entertainment area, which features clubs, eateries, and a full-service supermarket. Since 2000, the number of people living in the city's central business district has soared nearly 50 percent to 20,000, reports the Downtown Council of Kansas City. Apartment developers added more than 6,130 rental units from 2002 through 2012. Currently, occupancy is above 95 percent, notes Cassidy Turley's local office. Kansas City officials would like to see the current number of downtown residents double. "We've got the infrastructure now to support 40,000 residents, and there's pent-up demand for housing," said Sean O'Byrne, vice president of business development at the Downtown Council. "I think the next 10 years are going to be spectacular for downtown because the groundwork has been laid to make development happen." The average rental rates for Class A apartments have risen from $1.24 a square foot 18 months ago to more than $1.30 a square foot, notes Cassidy Turley. Luxury apartment developers are seeking rents over $1.60 a square foot. Finally, Cassidy Turley expects that 715 new downtown apartments will open this year, with as many as 2,700 rental units expected over the next two years. Like other urban centers, downtown Kansas City owes a large share of its multifamily housing revitalization to the Millennial generation's desire for city living. Those age 25 to 34 comprise nearly one-fourth of downtown's population, states Cassidy Turley.

Salt Lake County Apt. Vacancy Rate Lowest in 13 Years
Digested From "Salt Lake County Vacancy Rate Lowest in 13 Years"
Deseret News (UT) (08/20/14) Lee, Jasen

The latest Cushman & Wakefield Commerce research shows that demand for apartments in Utah's Salt Lake County is at a decade-long high. Countywide, the overall apartment vacancy rate was at 3 percent -- the lowest in 13 years. The Cushman & Wakefield report further noted that the amount apartment residents pay for units per month has climbed 2 percent since Jan. 1 cersus the same period in 2013. Meanwhile, the number of rental units increased by 1.1 percent last year. The firm's 2014 Apartment Market study was conducted by James Wood, director of the University of Utah's Bureau of Economic and Business Research. "The apartment market in Salt Lake County can best be described as phenomenally strong and solid," states Kip Paul, executive director of Investment Sales for Cushman & Wakefield Commerce. in the past five years, the vacancy rate has decreased from 7.2 percent to its current level of just 3 percent. Researchers add that the overall average rental rate for all types of apartments is currently $865. Those searching for a two-bedroom, two-bath apartment are shelling out an average $983 a month. Wood also wrote that the annual demand for new apartments in Salt Lake County is now at 3,000 units per year, a 2.5 percent year-over-year gain. While most people opt for larger rental communities, the study concluded that demand in the shadow market is also on the rise.

Where Have the First-Time Home Buyers Gone?
Digested From "Where Have the First-Time Home Buyers Gone?"
Wall Street Journal (08/18/14) Timiraos, Nick; Stiles, Matt

The role of first-time buyers in the housing market has dialed down from a few years back, when a generous tax credit and lower prices lured them to the market. As far as homes financed by conventional or government-backed loans, however, a new Federal Housing Finance Agency (FHFA) study notes that first-time buyers still represent a historically high share of purchases. FHFA researchers found that the first-time buyer share of purchase-mortgage lending skyrocketed from 37 percent in 2003 to a high of 63 percent five years ago, when Congress enacted an $8,000 tax credit for first-time buyers. Since 2009, though, the share of mortgages to first-time buyers has steadily declined, landing at 56 percent last year. That is still higher than at any time between 1993 and 2008, though. States with the highest first-time buyer shares include California, Nevada, Maryland, and New York. Nayantara Hensel, one of the study's co-authors, remarked, "These are areas that have metropolitan areas and there are more opportunities for younger folks." First-time buyer shares were lowest in rural states, namely Montana, Wyoming, Iowa, Kansas, and Wisconsin.

Deals and Transactions

Metro Denver's Biggest Apartment Sale of 2014 Closes. How Big?
Digested From "$120 Million Sale of Fitzsimons Apartments Is Metro Denver's Biggest of 2014"
Denver Business Journal (08/20/14) Armbrister, Molly

A 600-unit apartment community known as 21 Fitzsimons this past week changed hands for $120 million, making it metro Denver's biggest apartment sale this year. Located in suburban Aurora, it was purchased from The Pauls Corp. by an undisclosed buyer. The acquisition tops June's $95 million purchase of Parc Belmar in Lakewood as the area's largest apartment deal thus far in 2014. Atlanta-based Apartment Realty Advisors brokered the deal, one of five transactions closed by the company for a total of $270 million in multifamily deals in the past couple of weeks. ARA's Terrance Hunt remarks, "21 Fitzsimons is located at the epicenter of the largest medical development in the U.S. The Fitzsimons Life Science District continues to add jobs daily with one of the biggest bumps in employment coming with the completion of a new Veterans Affairs Hospital in early 2015." With 600 apartments, Fitzsimons will control the majority of the area's rental housing market because of the limited ability to add additional apartment communities to the immediate vicinity. Built in three phases, 21 Fitzsimons, the entire community was completed earlier this month.

What Firm Will Manage Three Luxury Apt. Towers in Manhattan?
Digested From "FirstService Residential Chosen to Manage Three Luxury Rental Towers in Lower Manhattan"
Insurance News Net (08/22/14)

FirstService Residential has been tapped to serve as managing agent for a trio of luxury apartment towers in Lower Manhattan. All three buildings are located in the Financial District and owned by DTH Capital. Together, 20 Exchange Place, 63 Wall Street, and 67 Wall Street contain 1,353 rental apartments. DTH Capital CEO Steve Galiotos states, "We believe that retaining FirstService Residential management . . . will complement the many enhancements we are currently making to these properties and will significantly upgrade the quality of service for our residents." To further enhance the resident experience, DTH Capital is repositioning the buildings to offer a higher level of service and luxury. Soon-to-be completed improvements range from an elevator modernization project to extensive renovations to hallways to a main lobby redesign.

Industry Buzz

How to Unplug From Information Overload
Digested From "How to Unplug From Information Overload"
Property Management Insider (08/21/14) Blackwell, Tim

"The average person checks their phone at least 110 times per day," Patty Morgan-Seager of Seager Marketing told attendees at June's National Apartment Association Education Conference and Exposition in Denver. While cell phones, tablet computers, and laptops are important tools to help today's workers stay in contact and keep pace with the speed of business, these devices are so attached to people that they can become physically perilous. Users can feel overwhelmed by being connected from sunrise to sundown. Morgan-Seager said the mental drag that goes with staying in the conversation can interrupt the balance of work and play in life. She recommends re-conditioning one's self to put the devices down in an effort to find better work-life balance. "I think we should consider shutting down and stepping away from our devices, just a little bit at a time," she said. "Maybe 10-15 minutes at a time." Morgan-Seager reminded conference attendees that it is important to understand the difference between working hard and working with passion. For too many people, work has becomes life, especially when enabled by devices. She concluded, "If you're working for something you don't care about, it's called stress. On the flip side, if you're working hard for something you care about, it's called passion."

How Albuquerque's Walk-Bike-Transit Score Has Affected Rents
Digested From "Walk-Bike-Transit Scores Driving Higher Apartment Rents in Albuquerque"
Albuquerque Business First (08/20/14) Scott, Damon

Apartment communities in the Albuquerque, N.M., metropolitan area that have solid walking, biking, and transit scores command an average rent that is nearly 26 percent higher than those that do not. The news was revealed at the recent Apartment Association of New Mexico's 2014 outlook meeting. Local apartment expert Todd Clarke said that cities that cater to Millenials' desire to rent and use mass transit are definitely seeing a payoff. According to the association's results, the university corridor commands the highest rents in the city, followed by Downtown and Uptown. Clarke said Millennials are also seeking studio apartments, which is changing the apartment landscape citywide. The walk-bike-transit scores have become an increasingly valuable tool for property developers and real estate brokers. For instance, Walk Score gives Downtown Albuquerque a score of 98 and Mesa del Sol a 2, Clarke said.

Why These Fla. Apartment Communities Are Moving to Paid Visitor Parking
Digested From "Tallahassee Apartment Complexes Move To Paid Visitor Parking" (FL) (08/18/14) Alcock, Andy

Florida State and Florida A&M University students moving into off-campus housing this month may be in for a bit of a surprise. Around 20 Tallahassee apartment communities are launching a new paid parking system for visitors. It's all started by a new company dubbed Parknpay App. Visitors to each of the communities can use the app to pay for parking with either a credit card or debit card. Payments can also be made to the firm's website. Parknpay App founder J.D. Camp says it is up to the individual communities as to what to charge. He adds that the main purpose is not money, but safety. People who pay for the spots are required to submit their names, e-mail address, and license plate number for easy tracking by apartment managers and their staff. Camp remarks, "I think it's worth it if it's just a couple of dollars just to make sure everybody's who's here is supposed to be here."

Legal/Legislative Did You Know

2014 July Mission Banner
New Jersey Apartment Association Offers Sept. Education Programs
Digested From "New Jersey Apartment Association Offers September Education Programs"
RealEstateRama (08/19/2014)

The New Jersey Apartment Association (NJAA) is set to host a couple of educational programs next month designed to help apartment professionals elevate their skills. NJAA members will earn Continuing Education Credits (CECs) towards National Apartment Association (NAA) Designations at each session they attend. The first will be held Wednesday, Sept. 10. Titled "Understanding Credit Scoring & Reporting," attendees will indeed learn how credit and public record court information is used to assess rental risk and resident selection. They will also be taught how scoring affects whether individuals qualify for credit and the credit terms they are offered. The second session will be held on Tuesday, Sept. 16. Titled "Evictions and Fair Housing: What You Need to Know," this program will discuss such issues as grounds for eviction under the law, an in-depth review of the eviction process, and understanding what "reasonable accommodations" are.

Crime-Free Multifamily Program Is a Peach in Georgia
Digested From "Peachtree Corners Adopts Crime-Free Multifamily Housing Program"
Gwinnett Daily Post (08/20/14) Stephens, Chris

In Georgia, the Peachtree Corners City Council last week adopted a resolution in support of the Crime-Free Multi-Family Housing Program. Headed by officer David Martinez, the program is aimed at reducing crime in area apartment communities. "The goal is to keep crime and drugs off the property," stated Martinez. "Part of the program requires managers to do background and credit checks on people who want to lease apartments." Once an apartment community is certified to carry the logo, certain responsibilities must be met and maintained. Applicants will be immediately disqualified if background checks show they had any violent felonies, three or more non-violent felonies, or are on active parole/probation. If residents are found to be breaking the law, the lease agreement gives apartment owners and managers the right to civilly terminate leases. According to Martinez, "The benefits are huge. We've seen crime reduction in areas that have done this of up to 70 percent, there are lower maintenance and repair costs, and improved personal safety for tenants and managers." Gwinnett County Commissioner Lynette Howard describes the program as key for Peachtree Corners to continue avoiding criminal activity. “When it was first implemented in some apartment communities around Gwinnett Place Mall, crime dropped 50 percent in that first year," she noted.

NAA Announcements

Give Me a Break (Out Education Session)!

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Register before Sept. 3 to save $100 and be part of the industry’s exclusive forum for connections, strategies, best practices and tactical innovations focused on accelerating real returns on real properties.
The 2014 NAA Education Conference & Exposition: Navigating Disability Minefields

Fair housing liability is a moving target (especially when based on disability, the No. 1 fair housing issue in the U.S.), and if you don’t know the locations of the minefields, you’re bound to pay the price.

The session, “Navigating Through Disability Mine Fields”—one of more than 50 offered in Denver during the 2014 NAA Education Conference & Exposition—reinforced today’s operational challenges. Mines keep changing; new ones are being set out and old ones continue to resurface.

How do you keep up with evolving issues—medical marijuana, second- and third-hand smoke, misuse of ADA parking spaces, hoarding—and the tools for addressing them? You’re in luck: “Navigating Through Disability Mine Fields,” as well as other unparalleled education sessions focused on operations such as “Show Me the Money: 10 Proven Ways to Increase Online Payments”—are now available to you as part of the NAA Education Institute’s (NAAEI) “REWIND” program, offering 20 video recorded sessions and 22 audio-synched PowerPoint sessions from the 2014 NAA Education Conference & Exposition. Order your sessions today!
Convinced you have a fantastic session idea for the 2015 NAA Student Housing Conference & Exposition, Feb. 17-18 at the ARIA Resort in Las Vegas? Don’t keep it to yourself! Individuals interested in sharing their insight are encouraged to submit a proposal through NAA's online platform by Friday, September19, 2014.

Presenters/Panelists should plan to conduct one-hour presentation, which should include audience engagement, with no more than three co-presenters/panelists (Please be sure to include at least one property manager; submission with suppliers only will not be considered.). Please note that the submission process and requirements have changed. Visit the section “instructions for submitting” on the online platform for further guidance.
Coming in October: NAAEI Leadership Experience

If you work in a regional position or as a corporate department head in an apartment management company and would like to learn how to lead effectively across generations, delegate tasks to develop and train others and more importantly, find time to work on future business growth, The NAAEI Leadership Experience: Powered by Dale Carnegie is an investment that will pay dividends.

Where: Cincinnati
When: October 8-9, 2014

Register today!
Coming Soon: NALP "Real Life Story" Contest

We're re-vamping NAAEI's NALP course and we want to hear from YOU! We're looking for specific, concrete stories about real-life experiences that have happened to you, including what happened, why and the result. These video clips will be incorporated into activities within the new NALP course. Prizes will be awarded for each valid submission with extra prizes if your submission is chosen to be part of the program

Learn more about the contest by contacting NAAEI's Shana Treger.

Stay tuned!
NAAEI Designation Courses Offered Near You!


Roanoke Valley Apartment Association
November, 2014

CAM Online


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
September, 2014

San Antonio Apartment Association
September, 2014

NALP Online


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.
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