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Will Apartment Revenue Management Systems Drive Residents To Homeownership?

Handing the keys back? Will apartment Revenue Management Systems drive tenants to homeownership? — Who’s handing who the keys?

Property Management Insider had a piece out last week How Revenue Management Systems Make Leasing and Renewals Easier that talked about how RMS took all the emotion out of raising rents on renewing residents.

…a community manager may occasionally resist a rate increase for a long-time resident or one who has become valued over the years. Business is business, however.

“When they start to say, ‘Oh, Mrs. Johnson has been here six years,’ we try to get them away from the emotional aspect of pricing,” he said. “We say if we really wanted to lift our rents and maximize our revenue, we have to make some tough decisions, and some people who can’t afford it may have to move out.” [Emphasis Mine]

As owners, operators and property managers who doesn’t love getting top dollar rents?

The math behind RMS (if done correctly) can definitely drive rents higher if it’s backed up by enough data to draw statistically valid references. At its Continue reading Will Apartment Revenue Management Systems Drive Residents To Homeownership?

CA Retirment Plan Commits Additional $2 Billion to Apartment Builidng Investments.

Updated 1:46pm Correction: Updated to reflect that CalPERS is only shutting down its hedge fund investments, not its private equity placements. See Calpers Is Done With Hedge Funds; Paid $135 Million in Fees Last Year for 7.1% Return at Bloomberg.com

Was just on a call this morning with Peter Linneman, Chief Economist at NAI Global where they were discussing CalPERS’ decision to eliminate their investments in hedge funds. That hasn’t had any effect on their apartment building investments however [Or has it in a positive way?]. While I was on the call I received a note from PERE announcing that the California Public Employees’ Retirement System (CalPERS), the largest public pension plan in the US has committed more than S2,000,000,000 additional funds to multifamily investments during meetings this past July:

$1.33 billion to Institutional Multifamily Partners, seeking multifamily acquisition and development opportunities throughout the US.
$412.79 million to a partnership with Invesco Real Estate for core apartment properties in the West and Midwest.
$200 million went to a joint venture with Pacific Urban Residential for Class B multifamily assets in the western US.
Note that the 200M was in addition to the 214M committed when the JV was formed in January this year.
A less than $100M commitment to apartment lender and asset manager Centerline Holding which is now owned by Hunt.

All this was part of a 6.6B commitment to commercial real estate joint ventures, one of the largest single month investments made by the $300 Billion retirement plan. For the details see CalPERS commits $6.6bn to RE on PERE. Note: registration may be required.

Apartment Building 10yr Loan Rates: Is 4.5% The Lower Limit?

The apartment building investment loan rate we track was down to the high 4.5s the last couple weeks of August and clocked in today at 4.603%. The spread between it and the 10 year Treasury has been trending above the 120 day average for five weeks and I’ll have more on that below. The ULI <60LTV rate has been noisy and almost looks like it’s fighting to continue lower:

10 Year Treasury versus Apartment Building Loan Rates Sept 8 2014 — Click for full size image.

While the ULI rate works its way south, it seems like 4.5% is the hard boundary for the Continue reading Apartment Building 10yr Loan Rates: Is 4.5% The Lower Limit?

Good News on Latest 10yr Treasury, Apartment Building Loan Rates and Spread Chart

In more good news for apartment building investors, both the 10 year Treasury and apartment loan rates have moderated since the Fed’s “non-taper” announcement in mid-September. The spread between the T10 and the 10 year apartment loan rate we track has come in as well. Since 9/16 the Treasury has drifted down from 2.88% to yesterday’s quote of 2.53% while the loan rate has moved from 5.282 down to 4.921, bringing the spread in to 2.381 from 2.402. The average spread for 2013 has also narrowed to 2.573%:

Notes about the apartment Continue reading Good News on Latest 10yr Treasury, Apartment Building Loan Rates and Spread Chart

Show Me The Apartment Building Investment Markets, part II. (Skate to where the puck is going)

Just after I hit Publish on the top markets for population and job growth piece called: Skate to where the apartment building investment puck is going I found a great Richard Florida Atlantic piece for this month’s edition called The Boom Towns and Ghost Towns of the New Economy looking into the changes of fortune for US markets since the crash five years ago.

The recovery has been good (What crash? good in a few) in some areas, seemingly non-existent in others and in many a slow grinding process that has yet been unable to return to pre-crash levels. The first thing that everyone should look at is job growth but Florida looked deeper into High Wage growth around the country:

High wage growth for apartment markets. More at www.ashworthpartners.com — Click for full size image. Source: Atlantic Online.

And then looking forward into Continue reading Show Me The Apartment Building Investment Markets, part II. (Skate to where the puck is going)

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:

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

How much to budget for apartment building Capital Expenses? Many smaller properties spend up to 2x more

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:

These are actual CapEx expenses from actual properties and while they definitely vary from market to market, the cognitive error is probably about the same everywhere. Some investors may say well we only buy newer properties so that we don’t have CapEx to worry about. Unfortunately their research shows that even Continue reading How much to budget for apartment building Capital Expenses? Many smaller properties spend up to 2x more

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.

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?

CBRE Research: Since 2010 population shifting towards urban but apartment building construction is outpacing growth in

… A number of major metros

CBRE Econometrics is out with a new report showing population growth trends in major US metros has shifted towards urban centers since 2010 but apartment building investors have been keeping pace (or exceeding it) with new construction. Author Gleb Nechayev, Senior Managing Economist lays it out nicely in a series of charts:

First Population Growth Average Change 2000- 2010

Population Growth in major Apartment Markets 2000 t0 2010 — source: CBRE Econometrics

Raleigh is the only metro with significant urban vs. suburban population growth. Note that one-county metros such as Continue reading CBRE Research: Since 2010 population shifting towards urban but apartment building construction is outpacing growth in

FHFA’s DeMarco re-affirms cutting Fannie and Freddie apartment building loan volume.

As reported by CoStar: “Given that the multifamily market’s reliance on the enterprises has moved to a more normal range, to move forward with the contract goal, we are setting a target of a 10% reduction in multifamily business new acquisitions from 2012 levels,” Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA) said. “We expect that this reduction will be achieved through some combination of increased pricing, more limited product offerings and tighter overall underwriting standards.”

Fannie and Freddie Apartment Building Loans as percent of multifamily originations — Source: www.multifamilyexecutive.com/

While 10 percent doesn’t sound like much, Fannie Mae and Freddie Mac combined to finance about $62.8 billion in multifamily deals last year, meaning about $6 billion in liquidity will Continue reading FHFA’s DeMarco re-affirms cutting Fannie and Freddie apartment building loan volume.