Good article in Asset Management Quarterly Value Add Has Its Day talking about how investors have split since the Financial Meltdown in 2007 into a risk adverse group favoring mostly Class A apartment building investments in core markets and a more risk tolerant group seeking high returns by purchasing distressed debt.
This has created an opportunity to generate good returns with investments in properties that need help of some kind. A few bullet points:
“It’s [The polarization] left this big open hole in the middle of the playing field for middle-risk, middle-return strategies, and it’s made the pricing on value add very attractive,”
“It should be an extremely desirable place to invest but you haven’t seen a lot of investors go there yet, which is why it’s such an interesting opportunity.”
Just got an email from Jay Denton, Research VP at AXIOMetrics saying the national apartment building occupancy is 94.3%, a level not seen since 2006. Class A occupancy is at 95.5%, class B is 94.8% and class C is 92%. Also many submarkets around the country will see the first new supply of units this summer. Even so properties in Lease Up are doing well, averaging more than 20 move-ins a month. Further strength in the market is reflected by the fact that concessions are down to only 2-3 weeks in many markets.
Home prices have crashed. Interest rates are at all-time lows. If you’re in the market to buy, homes are more affordable than they’ve been in years. Or are they?
From a WSJ report posted by Motley Fool:
The median down payment in nine major U.S. cities rose to 22% last year on properties purchased through conventional mortgages. … That percentage doubled in three years and represents the highest median down payment since the data were first tracked in 1997.
In their June 2012 Economic Update, Freddie Mac says: “Over the year ending March 2012, an additional 1.5 million households moved into rental housing. That’s a 4 percent increase in renter-occupied dwellings in a single year.”
The increase in apartment demand has helped to enhance property values, on average up about 25 percent during the past two years from their trough during the first quarter of 2010…
A piece on Seattle apartment building rents over the last ten years by Matt Goyer in his Urbnlivn blog really caught my eye. Matt looked at data from seattlerentals.com for four popular sub-markets and charted them out here. Naturally I wanted to see what that meant percentage-wise so I built a spreadsheet and added a percent change column. Here’s what that looks like:
All within a stone’s throw of 45% growth in 10 years, not bad at about 3.8% annual compound rent growth. But let’s slice the data another way and look at the rent growth by sub-market:
Now we start to see some divergence with Queen Ann at 61% (4.86% compound) and Belltown with 57% (4.59%). Where the ‘average’ rent growth really looks good is when it’s compared to Capitol Hill with only 34% (3.01%) and in Bellevue with only 30% (2.42%). Mind you that is just the ‘average’ 10 year rent growth for these markets so it’s only an indication of what any particular property may have achieved. But here’s where the numbers get really interesting: Continue reading The Danger of Averages: Seattle Apartment Rents by Unit Type 2002-2012
As reported by MHN Online. The Towbes Group, a Santa Barbara multifamily company has imposed a no-smoking policy in the 13 multifamily properties it manages in the Santa Barbara area. Common areas and individual units will be smoke free in 6 months.
We had received an increasing number of concerns from our residents regarding second-hand smoke
The percentage of Californians who smoke is down to around 15 percent
Recent California legislation allows landlords and property owners to offer “smoke free” living environments at their apartment communities.
We are committed to giving our residents the best living experience possible in their homes.
The cost to turn an apartment that has been smoke free is significantly less than that of an apartment that has been smoked in.
The most important reason is the ability to give our residents a ‘healthy’ option in multifamily housing.
And the results: “Out of those numbers [2,000 units in 13 communities], I received two complaints from residents who were not in agreement with our new policy. In addition, we did have one resident let us know they would be moving out of one of our communities. If anything, that very small number validated our decision to go smoke free. We really believe that we will attract a greater number of prospective residents by offering a ‘smoke free’ living experience.”
Not bad eh? Create a more healthy living environment for your residents while reducing turnover costs. Have you done this with your apartment buildings? If you have please share your experiences with us.
The Fed used a hypothetical family with $126,400 in 2007 to prove that point. In 2010, that same family’s net worth dropped to $77,300. Median family income also fell—from $49,600 in 2007 to $45,800 in 2010. The number comes from the Fed’s Survey of Consumer Finances, due out this coming Monday.”
An interesting piece from Bloomberg entitled: Private Equity Has Too Much Money to Spend on Homes talking about how hard it is for large funds to buy foreclosed homes in bulk and turn them into rentals reminded me of a conversation I had with one of my private equity clients who was consulted by Tom Barrack’s Colony Capital about doing just that (and he said don’t).
“Funds planning to invest more than $6 billion to buy and rent foreclosed homes are finding it easy to raise money. The difficulty is spending it… The folks that raised capital are worried about under- accumulating properties and how to get capital out in an efficient way, Richard Ford, a managing director in the real estate investment banking group at Jefferies Group Inc., said in a telephone interview. A lot’s being raised. Less than $2 billion of institutional capital has been spent.”
Portland’s recovery in jobs driven by the return of tech and the lure of its funky coolness (see Portlandia) is noted in Kiplinger’s slide show on the 8 Cities with Surprising Job Growth where they’re expecting 130,000 new jobs in the next five years:
“After devastating job losses in the recession, Portland has made a spectacular recovery, fueled by the tech mini-boom and the area’s attractiveness to young people. Anchored by Intel and its 16,000 employees, Portland will maintain its moniker as the Silicon Forest for its more than 1,200 high-tech firms, most of them small to medium-size.
In a piece just out today from Reis Reports says that: “We have seen declining cap rates fueled by a variety of key factors such as declining interest rates, risk-aversion in the wake of the recession with investors training their sights on what they perceive to be a less-risky property type, and the improvement in property fundamentals, especially in the apartment sector.”
But: “With the sale of high-quality assets dominating the marketplace, this has fueled the ongoing disconnect in pricing between buyers and sellers, preventing many assets that are not of the highest quality from trading. With sellers taking their cues from current market statistics, they are being relatively aggressive regarding the prices that they are willing to accept to consummate a transaction. However, frustrated buyers feel that many assets should not command the same premium that the highest-quality assets currently command in the market and consequently buyers are unwilling to pay such vertiginous prices.”