Update: Bellingham Apartment Pipeline Report, May 8, 2015
What a difference a few weeks makes. Since the Bellingham Apartment Report in February, the pipeline has been growing tremendously with new projects being planned and older projects coming back to life. Right now we’re tracking more than 1,850 units either just completed this year or somewhere in the planning/permitting/construction stages.
This chart shows projected starts and completions if everything goes according to the typical timeline; 4-5 months to get permitted and just under 12 months to construct. The projections assume everything in the pipeline at this point is built out by 2017. Naturally there can and will be some slippage and some projects will get shelved but even those seem to eventually get built. And of course there will be more additions of both new projects and possibly others that have flown under the radar to this point.
So far this year 40 units received their certificates of occupancy; Tremont Townhouses, South Bay Suites and Buck’s Plaza but there are potentially 380 or so more that could complete this year. The majority of those come from Affinity’s 154 units and Village at Baker Creek’s 122 units. Thanks to this year’s non-winter the 60 units at Morse Square could finish up as well, especially since this is their fourth building there and they know all the moves by now. We’re still showing them completing in early 2016 at this point though.
Other projects projected to complete this year include Savchuk’s 42 on Bakerview, Catholic Family’s 42 on Cornwall and the 24 unit up on Maplewood. Next year’s projected completions include Cordata Green 79, Catholic Family Housing’s 50 units of plexes near the new Costco, 16 units at Stonecrest and the 160 units at Northwest & Sterling, CA Ventures 230 student units on Lincoln St. they took over from Campus Crest, a 23 unit planned for Maplewood, Belisle’s 20 and 42 on Tull Rd.
That’s a lot of completions and new units hitting the market but there’s more:
In 2017 we’re looking at 755 new units coming online vs. 680 in 2016 and 424 this year. That’s more than 1,850 new leasees to find, 3x as many as were needed the last three years. That’s almost 13% added to existing inventory and there could be concerted competition for residents, something that hasn’t existed in Bellingham for a while.
Projected to complete in 2017 are the 30 units at Hempler’s, Rael Development’s 142 student deal on Forest, 110 units north of the new Costco, Ralph Black’s 50 units on the old Fairhaven Hotel site and +/- 65 units at Fairhaven Harbor, as it’s rumored to be Dave Ebenal’s turn to try and make something happen there. There’s also the 175 unit market rate project on the south end of the Lincoln St. property that CA Ventures picked up with the student deal on the north next to Fred Meyer. That was a project that had permits ready to pick up and everything before it was shelved. Last but not least is the University Ridge 176 student unit deal that a number of people have assured me will get built in one configuration or another.
That’s a lot of construction work, roughly 275 million dollars worth and once the last nail gun is put back in the truck there’s a lot of property management that going to have to happen to fill all those units up too. We will definitely be finding out just how much pent up demand there is for rental units in Bellingham over the next few years.
We should have the spring update on vacancy and rents in a few weeks, until then good hunting- As always if I’ve missed anything or gotten it wrong please let me know, thanks.
2015 Bellingham Apartment Market Report
Bellingham Apartment Market Dodges One Bullet, Catches Another in 2014
2014 was a very interesting year in the Bellingham apartment market. On top of ramping completions the pipeline was poised to explode with as many more new units than were delivered the last three years combined but by the fall three projects with a combined 567 units were shelved. Whew, one bullet dodged but in the eleventh hour one that had been dodged for 10 years finally found its mark as the City Council voted in rental registration.
More on both of those stories below but first a look at market demand stats from the fall Runstad survey for context.
One note on the Runstad data, also known as WCRER: There are actually two WCRERs, Whatcom County Real Estate Research (wcrer.org) and Washington Center for Real Estate Research which is now part of the Runstad Center for Real Estate Studies at the University of Washington (http://realestate.washington.edu/) which is the source for the rent and occupancy y data in this report. Permitting and construction data is via City of Bellingham and Whatcom County.
Per Square Foot rents climbing, vacancy declining:
Which turns into unit rent growth at the unit level:
Not bad considering that nearly three times as many new units came online in 2014 compared to 2013 or 2012 but there’s and asterisk attached; more on that in a moment. Note this is the 6 months’ change in rents since the previous report; fall vs. spring or spring vs. fall.
For now occupancy is just at the long term average and rents seem to be making up for their bad showing last spring:
With a 30 year average occupancy of 98.5% Bellingham is the definition of a constrained market especially in light of how easily the new supply has been absorbed. Many markets around the country would love to get their vacancy rate down to 10% so it’s good to be an owner here. Note the rent change here is Year over Year; spring vs. spring and fall vs. fall.
But, as I mentioned there’s an asterisk:
Those rosy numbers are based on just a 13% response rate to the latest survey. Not sure why owners and property managers stayed away in droves but it’s not a good situation. Maybe it’s just complacency; my property’s full and rents are up a little, what do I care about market data? I think this ties in with one of the year’s major stories, more on that below.
The fall Runstad report broke out the locations of the respondents for the first time and it turns out all the Whatcom County data came from within Bellingham. That might not be the case historically but the current stats are all about what’s happening with apartments inside the city boundaries.
For the first time the Runstad report also included more detail on unit types and stats:
Year over year vacancy up 10 basis points but rents were also up almost 5% and rents per sf climbed to 1.08. However since only two thousand units in eighteen properties bothered to provide data it has to be taken with a grain of salt. The properties that did respond averaged over 100 units in size so that portion of the market seems pretty well represented.
Bullet #1 New Supply in the Pipeline: Dodged
Last year 285 units were delivered (received certificates of occupancy, green columns) compared to just over 100 in 2013 and 2012. Permitted units jumped up to over 500 but a good chunk of the pipeline from 2013 evaporated and that brings us to the bullet we did dodge- a big slug of new supply hitting the market.
The big story was what happened to all those units (809, blue column) that were in the pipeline in 2013. Typically they turn into permits in about 4-1/2 months on avg. which then turn into completions in about 11 months on average. So where did all those 800+ units in the pipeline go? Two large developers who had a combined 567 units in three complexes pulled the plug on their deals.
The first was Ambling Development Group’s University Ridge project of 176 3bed student housing units that essentially was NIMBYed out of existence. Note that this was vacant property already zoned for multifamily so no cherished shrines were being demolished or uses radically changed. This is something the COB and County need to figure out because with the mandated growth assigned by the state our two choices are either to pave the county from south to north with sprawl or make sure the land can be put to use in the manner already planned for. Plus demographic and lifestyle trends are towards live/work/play transit friendly/car optional and people are already complaining about the ‘brutal’ 15 minute commute from the Lake Whatcom area into town.
The second developer to pull their project was the Campus Crest REIT who had two, a 175 unit market rate property and a 216 unit student oriented deal right next door to each other on Lincoln St. south of Fred Meyer. The student deal was already permitted, the market rate property only needed a consolidated correction letter and site work was well underway on both so this must have been a particularly tough decision. The issue had to do with senior management (or lack of) at the REIT, both the CEO and CFO were fired and some twenty development projects across the country were terminated. Financial statements were being reviewed, the board brought in an experienced REIT guy to refocus on getting existing properties performing and restructuring their largely short-term debt.
Two larger projects remain in the pipeline, the 60 unit Morse Square IV and the 79 unit Cordata Greens. At the south end of the project building IV will complete the ‘square’ in Morse Square and bring the total units up to 234. Morse is a Consolidated Correction Letter away from a permit so it should be starting soon. Cordata Greens is a collection of 14 or 15 buildings all individually permitted and they should be starting up soon as well.
Word through the grapevine is that the Lincoln St. properties have already been snapped up by a large developer so they‘ll be back in the pipeline soon in some form. Note that removing the cancelled 216 units from the permitted count for 2014 means that we’ll see slightly more new units delivered this year as last; 312 vs. 285 or about 1.9% of existing supply vs. 3.22% including the 216 cancelled units. Even if they come back into the pipeline this year they’ll be joining only 146 others meaning that as of now we’re looking at an increase to 362ish deliveries in 2016.
So we dodged a bullet on the new supply, for now at least. Word from developers and brokers is that the University Ridge property will be developed at some point too, just not right now. There’s a lot of institutional, foreign and cross-border money looking for a multifamily deal right now and with the core markets fully priced that money is venturing out into smaller markets in search a home. Add in a rising dollar and slowing growth in China (and the rest of the world) and it very likely much more development is coming to our little corner of Washington.
Over the last five years Bellingham has added a thousand units or about six and a half percent to existing supply. According to the City’s figures those thousand units cost about $109k each not including land. Based on the $104.75 per square foot for apartment construction costs which the City based their fees and costs on last year, more than $114M in apartments and mixed use deals have been permitted since 2010 with almost half coming in 2014. As mentioned above though about two hundred permitted units were killed in October and I can’t help feeling bad for any project that survived the gauntlet of permitting only to die within sight of completion.
Word is that the Lincoln St. properties could hold even more than the 391 units originally planned for that space. Lots of land up around Cordata as well as James St. N of I-5 and Barkley has more multifamily coming. Not widely understood is that Barkley’s land runs all the way north to 542 so there’s room for a lot of apartments.
Outside the city only one multifamily project was permitted last year in Whatcom County: The 68 unit, $6.5 million Greenbrook Retirement Center.
Bullet #2 Rental Registration: That’s Going to Leave a Mark
Finally there’s the bullet that caught us after being dodged for a decade; rental registration. As it was related to me there are a small number of what’s been termed slumlords, mostly with less than five unit properties, who’ve been taking advantage of how difficult it is to develop new housing in this town. With long term vacancy less than 2% and 15,000 plus students (and all the regular folks) looking for somewhere to live every year it should come as no surprise that unscrupulous (or lazy) landlords crop up who fail to maintain their properties. The idea seemed to be that rather than enforce existing codes more laws were needed and being that it’s what lawmakers love to do.
The city council succumbed to that which would not go away and in the waning days of the year and unanimously voted to start the rental registration program. Following the current legislative trends from the other Washington (DC) they left it up to others to figure out how to make it work. But hey, they can campaign on having passed it!
The regime has two parts, mandating that all rental units be registered with the city and inspecting units to make sure they meet the ‘safety’ portions of the building codes. The registration part is so that if you’ve done nothing else wrong you can still get in trouble for not registering. The inspection piece is Pandora’s Box in real life.
The council members hoped that the cost of registering and inspecting units wouldn’t be passed on to the tenants who are the beneficiaries of this whole additional layer of bureaucracy yet the city didn’t feel they should have to pay either so that leaves…. owners who generally are pretty good at business; that cost will get passed along to tenants.
As it stands now the council doesn’t want to finalize the ordinance until the full cost is known but the talk is something like $10-30 per unit (per year) for registration and $80-90 for inspections which are scheduled for once every three years and my math says that’s $40-60 a year per unit that everyone will pay so that no one whose job it is has to actually single out the few slumlords and make them clean up their properties. More of the gory details can be found here: http://www.bellinghamherald.com/2014/12/16/4030480_bellingham-city-council-approves.html?rh=1
And an interview last week with new Planning Director Rick Sepler on the program (I wonder if he knew what he was stepping into?): http://bbjtoday.com/blog/city-planning-director-talks-rental-registration/30215/
It seems like rental registration is a situation where the complacency from 98.5% occupancy came back to bite owners in the pocketbook.
- Today as one owner put it: “How sweet it is to be an owner. Values up, interest rates down, rents up and cash flow up. I have refinanced most of my portfolio as well, not complaining!”
- Going forward more supply is coming and potentially in large numbers. This will put a premium on retention and making sure turning units are in top shape.
- The details of rental registration have not yet been carved into stone tablets so continue to make the economic case with your city council members.
- And finally make sure that your properties participate in the apartment survey from the WCRER at Runstad/UW so you will have accurate data to base your financial plans on.