Apartment Building Loan Rates Rise as 10yr Treasury jumps 31bp in Ten Days

After two weeks of holding at 5.068% the apartment loan rate we track rose to 5.274%, pushed higher by the 10yr Treasury moving up 31 basis points in the last week and a half. The spread between the two remained below the 2013 average of 2.628, coming in at 2.394:

Aparment Building Loan Rates Rise August 20 2013

This means that the monthly payment on a $1,000,000 apartment building investment loan with 30 year amortization would rise from Continue reading Apartment Building Loan Rates Rise as 10yr Treasury jumps 31bp in Ten Days

Who is buying all those properties and what does it mean for the apartment building investment cycle?

Mark Hickey of CoStar put out a piece looking at who was responsible for the near record $65.8B of apartment building investment in 2012. CoStar’s numbers show that private owners/developers did just about half of all acquisitions last year and institutions were in for 12%, both near their recent trends. REITs on the other hand increased their share by a third, responsible for 12% of sales volume last year.

Interestingly the sellers were pretty much the same groups, except REITs who were the largest net buyers last year.

Apartment Building Investment by REITs 2004 to 2012

Last year REITs raised 15x the equity they did in 2008 (and 20x the total capital). Up against pockets that deep Continue reading Who is buying all those properties and what does it mean for the apartment building investment cycle?

Back To The Future: A Brief History of Apartment Building Design

Mike Scott of Dupre+Scott Apartment Advisors gives a tour through the last hundred years or so of apartment building design. Plus ça change….

In the accompanying article (here) Mike talks with builders and developers about current trends in apartment design and amenities. Interestingly many of these changes provide a competitive advantage to Continue reading Back To The Future: A Brief History of Apartment Building Design

Good News and News: Apartment Q3 update web conference replay now posted from Marcus & Millichap

Good presentation on the current national apartment building investment sector from Marcus & Millichap. New supply remains constricted except for a few cities, they didn’t mention any names *cough Seattle cough* but if you’re in one of them and tracking the pipeline it’s easy to read between the lines.

Apartment Building Investment Market Improvement Expected to Continue

Another interesting trend is that Continue reading Good News and News: Apartment Q3 update web conference replay now posted from Marcus & Millichap

Rent Vs. Buy And The Great Myth of Homeownership as an ‘Investment’

Renting vs. Buying debunks the myth of home ownership as an investment

There have been a number of reports recently claiming that renting is more expensive than buying a house. This is a great thing as everyone involved in selling, building and financing houses would tell you, especially if it were true. Unfortunately it is not for a variety of reasons, one of them being that owning the home you live in just isn’t that good of an investment, but we’ll get to that in a moment.

The first hurdle is the challenge of amassing the 20% down payment. On the average US home price of $242,300 the downpayment would be $48,460. That is essentially one whole year’s worth of the US median income of $51,413, so the question is how long would it take someone to save that much? This question is nearly always ignored in these comparisons. But say we all have a rich relative who leaves us the downpayment in their will, it’s all good after that right?

monthly rent vs. mortgage payment not a good comparison of the true costs

Some of these type of reports simply compare the average local rent to the mortgage payment for the area’s average home and therefore can be discounted out of hand. Others include taxes and insurance which is slightly better but they are still missing a very big piece of the cost of owning and operating a home; repairs and maintenance. Continue reading Rent Vs. Buy And The Great Myth of Homeownership as an ‘Investment’

The shape of the entire yield curve drives #CRE pricing, not single Treasury rate- CBRE Econometrics

Research out from CBRE Econometric Advisors shows that the typical risk-free benchmark rate, the 10 year Treasury, does not accurately reflect the cost of capital risks in asset pricing for commercial real estate. The whole yield curve or ‘term structure’ should be used instead. Highlights from their report:

  • Our research shows that it is not a single risk-free rate that drives asset pricing, but rather the entire term structure of interest rates (also referred to as the shape of the yield curve; we use these terms interchangeably). This term structure effect is so strong that relying upon a single benchmark rate in one’s analysis (as is typically done by analysts and investors) is inappropriate. We will demonstrate this below, using our empirical model of cap rates.

Cap Rates vs Yield Curve for Capartment building investment pricing

What is the average annual per unit expense for an apartment building investment? Great reader question answered.

Mike in Milwaukee, WI, that is a great question. Answer: $3,000- 5,000/unit/year. How’s that for an accurate but relatively useless answer?  The real question is what is the annual expense per unit of the property you are looking at?  If you are a large institutional investor like a REIT looking at national or regional averages like those published in the NAA Annual Survey (See the included charts for results from the 2011 survey) can give you an indication but you can bet the institutional players know their own costs to the penny.

Apartment Building Operating Expenses Per Unit 2011
Source: NAA 2011 Survey of Operating and Income Expenses in Rental Apartment Communities

In most larger metros there are also companies who collect and publish apartment surveys showing the areas average rents, occupancy, expenses, etc. One thing to make sure of is that the survey is based on properties similar to yours.  There are a number of national companies doing multifamily research but they tend to focus on institutional sized properties 100 units and up so their numbers wouldn’t be comparable for a smaller property. For instance the average property in the NAA survey has about 250 units.

The most important number is the actual Continue reading What is the average annual per unit expense for an apartment building investment? Great reader question answered.

US Apartment Building Vacancy Below 5%, Rents Growing at Fastest Pace Since ’07.

Apartment Building Vacancies Plunge to 2001 Levels

 Main bullet points from Reis Report’s Q2 Apartment Highlights:

  • National vacancies continue to plunge, ending Q2 at 4.7%.
  • There was a slight moderation in vacancy compression, following 10 quarters of vacancy declines.
  • With such low vacancy levels, landlords have been accelerating rent increases.
  • Effective rents increased 1.3%, the fastest pace since Q3, 2007.
  • Inventory growth remains restrained with just 10,000 units coming online.
  • Developers are starting to build more properties to take advantage of the tight market conditions.

vacancy below five percent for US apartment building investorsHow are vacancy and effective rents trending in your market?

What’s not to like about the Seattle and Portland Apartment Building Investment Markets?

“Even compared to a healthy and expanding nationwide market, multifamily in the Pacific Northwest is seeing exceptionally strong gains. A growing renter population and accelerating job growth have helped solidify cities like Portland and Seattle as cornerstones of the apartment industry, and the positive trends show no sign of letting up.” So begins a glowing report in the latest digital edition of MHN Magazine (On page 22). What’s not to like about an article like that, especially one with a cover shot as beautiful as the one in this article? Below is just a portion of it and Photoshopped or not it is something to behold.

The glowing words and photos are accompanied with a pretty good looking chart too, showing the declining vacancy and rising rents in those two markets as well: Continue reading What’s not to like about the Seattle and Portland Apartment Building Investment Markets?

Q3 Apartment Building Investment Reports Now Available From Marcus & Millichap

M&M covers 39 major apartment building investment markets in the US and have just published their Q3 reports. Here’s a list of the metros they cover:

Marcus & Millichap Q3 2012 Apartment Building Investment Market ReportsThey also provide snapshots of the Office, Industrial, Retail and Self-storage sectors in many of those markets, accessible from the tabs on the page. Note this information requires registration at the website to view.