Are apartment builders better predictors of the Apartment Building Investment Cycle? Based on the latest cycle at least (a sample of one, admittedly) it appears that they are.
On the chart above the blue line represents the NAHB’s Multifamily Production Index (MPI) which began falling in the 3rd quarter of 2005 and fell for four straight Continue reading Is Builder Sentiment a Better Predictor of the Apartment Investment Cycle?
The National Multifamily Housing Council’s NMHC Quarterly Survey is out now and three of the four categories held fairly steady but the availability of debt financing dropped twenty five points from sixty to thirty five. A reading below fifty indicates worsening conditions and the report on the survey said that with Continue reading Apartment Financing Hits An Air Pocket in Latest NMHC Survey
Seattle’s Strange Trip Through the Apartment Building Investment Cycle Part II
In part I we saw that some of the most widely followed market cycle research can’t be relied on without question. If knowing where we are in the market cycle is the most important thing (and not everyone agrees, see the comments from one of my private equity guys about that under part I here) then the best solution is probably to chart the cycles for the markets we’re investing in ourselves. If you’re in multiple CRE sectors in a lot of markets hopefully you have someone on your team or can hire a consultant (like Ashworth) to chart those cycles.
Building our own CRE market cycle chart
To track a cycle for one market and sector we only need to answer five questions according to Professor Mueller’s methodology: Market occupancy, the 30 year Long Term Average (LTA) occupancy, rent growth, inflation and new unit construction. Later we’ll look at whether we can Continue reading 3 Things I Learned Charting Apartment Building & Commercial Real Estate Market Cycles
Back in 2012 it appeared that Seattle’s movement through the real estate cycle was stalling out. Not the actual market by any stretch of the imagination but instead where it was placed on the apartment market cycle charts in the Cycle Monitor report from Dividend Capital Research. These quarterly reports on the real estate market cycles for the five main Commercial Real Estate (CRE) sectors in more than fifty markets around the US were widely followed but something was wrong.
You can fix a property but not a market cycle. Knowing where a market is in its cycle is critical for investors seeking to buy low and sell high. If signals are a year or more behind, prime opportunities will be missed to Continue reading Widely Followed Apartment Market Cycle Research Misses Widely
…In its investment cycle?
Well Integra Realty Resources (IRR) is just out with their 2015 Viewpoint Report covering where they think things are and where they might be headed in the five major sectors of Commercial Real Estate (CRE); office, industrial, retail, multifamily and hospitality… as well as a bonus piece on self-storage. IRR is one of the largest independent commercial real estate appraisal firms in the U.S and this is their 25th annual IRR Viewpoint in the fifteen year history of the company according to their chairman in his introduction. Not sure on the math there but I do have their reports going back to 2002.
In the report they cover cap rates, going-in cap rates, discount rates, yields, reversion rates and much more but the first thing I look at is their market cycle chart for the multifamily sector:
So IRR has an idea of where your apartment market is, provided your market is in one of the sixty plus places where they have an office. The big question is do you agree with their placement? It is very important to review the data and form your own idea on this because there are good reasons to doubt Continue reading Do You Know Where Your Apartment Market Is Right Now?
Was on NAI Global’s call with Peter Linneman, their chief economist who had some very interesting things to say for apartment building and commercial real estate investors yesterday. Note he’s an actual real estate guy as well as a Wharton professor and I would have lobbied for a better job title at NAI with his background.
First is about the bombshell quote from above. Linneman said there are many studies about home buying that show the down payment is the issue not the mortgage payment and disputes the whole people buy a monthly payment thing.
If I don’t have the downpayment it doesn’t matter what the interest rate is.
Young people are having a very hard time saving for a downpayment at zero percent interest and their parents and grandparents can’t afford to help at zero percent interest on their savings either. Linneman summed it up by putting it in a golfing context: It’s not the green fees it’s the club membership that make it expensive. Japan is the poster child for this bad policy, they’ve been doing QE for twenty five years and it’s done nothing to fix their problems.
The most interesting thing from a multifamily perspective was that he believes we’re at the beginning of the capital cycle for CRE including apartments:
He also believes that cap rates will Continue reading QE is the most destructive policy for housing in world history. – Dr. Peter Linneman Good for apartments?
The National Multihousing Council’s (NMHC) latest apartment investment survey out today has market tightness falling to 52 from 68 last quarter. With 50 representing the better vs. worse divide, results show respondents are feeling the bite of new supply plus a bit of seasonal slowdown as well I sense:
While the Sales Volume and Debt Financing measures both improved, Equity Financing also slipped. As you can see from the charts above the results tend to be noisy and I suspect that with the survey format it carries a few behavioral biases as well. You can see that the world was ending according to Continue reading Apartment Market Tightness, Equtiy Financing Slide Backwards in Latest NMHC Survey
The Urban Land Institute/PriceWaterhouseCoopers annual report on Emerging Trends for Real Estate 2014 was released last week and apartment building investors and commercial real estate pros have some good things to look forward to next year. Note that this post refers to the Americas version of the report with separate sections on Canadian and Latin American markets but they also publish Asia-Pacific and European editions as well. This is the 35th edition of the report is it’s based on individual interviews or surveys from more than 1,000 investors, fund managers, developers, property companies, lenders, brokers, advisers, and consultants.
Here are the 5 key trends we should all be aware of with my comments:
As always with real estate, sectors and markets are so distinct from one another it’s almost pointless to generalize as the chart above attempts to do so next week I’ll dive into the apartment sector to see what gems they’ve unearthed. Meanwhile for the Continue reading 5 Key Trends from the ULI Report for Apartment Building Investors and Commercial Real Estate Pros
A lot of the usual suspects when it comes to multifamily markets have moved pretty far into their cycles and if your home area is like ours ti’s getting pretty fully priced. With our value investor mindset that means we’re looking for the next markets to do well over the coming 10-20 years. As apartment building investors we say:
Fortunately two different sources provided data and maps to answer Jerry’s demand. The first is from the NAHB (the National Association of Home Builders) in an Eye On Housing piece called Uneven Aging. The report actually has two maps, the first showing the 2000 to 2010 growth in the Continue reading Skate to where the apartment building investment puck is going: Top US markets for future population and job growth.
We all know that jobs are a critical driver of the apartment building investment cycle and so we dutifully follow along with the talking heads when the unemployment number is estimated, released and then its potent debated. But Mike Scott over at Dupre+Scott points out in a piece posted Friday that apartment building investors should be following employment, not unemployment. Specifically he recommends measuring how many jobs it takes to create demand for one apartment unit. Currently in King County (where Seattle is the county seat and where Dupre+Scott is located) it takes about 8 jobs to do that:
The formula is simple: Net new jobs / apartment units absorbed. And if you’re an multifamily investor in the tri-county area (King, Pierce and Snohomish in WA State) that Dupre+Scott provides apartment investment research for, they’d be happy to supply you this information http://www.duprescott.com.
Looking at the chart we can see that while currently it takes about eight jobs to fill one unit it wasn’t always so and in fact the twenty year average is closer to nine. Mike explains Continue reading More important than unemployment for apartment building investors?
