Mike Scott of apartment research firm Dupre+Scott has some shocking news for apartment building investors. While most lenders require a minimum reserve of $250 per unit per year for capital expenses and many owners reserve up to 400, according to actual expense budgets Mike tracked for properties in the Seattle area actual capital expenses have been averaging $750 a year for the last dozen years and the trend is definitely up:
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.
…. “Only six markets advanced their position on the [Dividend Capital Apartment Market] cycle chart.” Once again with the notable exception of Seattle who has left in the basement of the cycle despite overwhelming evidence that it has moved well up in the cycle by his own definition. See my post from last quarter detailing the definitions and why Seattle’s apartment building investment cycle location according to Dr. Mueller is incorrect here. For other cities have a look and let me know if your markets are accurately placed: