Seattle Area Multifamily Report now posted on Reis Reports- Caps flat, rents mixed but vacancy down

See the report here: http://bit.ly/xm8uUG

Zero Bound Interest Rates, The Zirp Dimension, Stagflation and #Multifamily

Zero interest rates and apartment building investment.

First my condolences to Bill Gross on the loss of his brother-in-law. Reading his piece in PIMCO’s latest Investment Outlook it is clear that the world’s biggest bond manager is running out of places to generate returns for their investors and by extension this applies to all income investors, especially retired people trying to live on interest income. For those would like to retire soon you may have to delay that decision for “an extended period’ as Edward Harrison over at Credit Writedowns put it in Permanent Zero and Personal Interest Income.

Gross’ points out that the Fed’s zero interest rate policy (ZIRP) which they have just announced to maintain through 2014 and their defacto though opaque continuation of quantitative easing (QE2.5 as he tweeted it) threaten to take us into another dimension where their policies have the opposite effect of their intentions.

“Much like the laws of physics change from the world of Newtonian large objects to the world of quantum Einsteinian dynamics, so too might low interest rates at the zero-bound reorient previously held models that justified the stimulative effects of lower and lower yields on asset prices and the real economy.” – Bill Gross

His bullet points:

  • ​ Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside.
  • Most short to intermediate Treasury yields are dangerously close to the zero-bound which imply limited potential room, if any, for price appreciation.
  • We can’t put $100 trillion of credit in a system-wide mattress, but we can move in that direction by delevering and refusing to extend maturities and duration.

For more views on this and Europe too see also Entering the Debt Dimension from Phil’s Picks on the Phil’s Stock World Blog.

What does this mean for Multifamily?

The Zirp Dimension leads to Stagflation where economic growth remains anemic yet prices on essential Continue reading Zero Bound Interest Rates, The Zirp Dimension, Stagflation and #Multifamily

Supply Shortage Continues in Multifamily. Apartment vacacny lowest in 11 years.

From WSJ Developments-

Little new apartment construction and surging demand has created a shortfall of 2.5 million units, the largest the nation has seen in more than a half-century, according to research from Nareit, a trade group for real-estate investment trusts.

As we’ve reported, apartment landlords are seeing vacancy rates decline as more Americans rent by choice or necessity. In the fourth quarter, apartment vacancy fell to the lowest rate since late 2001, with the national rate dropping to 5.2% from 6.6% a year earlier, according to Reis Inc. The vacancy rate had risen as high as 8% in 2009.

Pent-up demand could pull that rate even lower. According to Nareit, the normal rate of household formation is about 1.2% annually. But, with the sour economy in the last four years, the rate plunged to about 0.5%, as people delayed moving out and opted to live with roommates and parents longer. This has created an unmet demand of about 2 million households, “about three times what it has been in previous business cycles,”… See the whole article here

The #Multifamily Asset Twilight Zone: In default but payments still being made. Opportunity or? Via @rshall03

A common theme adopted by the industry is that lenders continue to delay action on distressed assets for as long as possible.

The fact is that this scenario is borrower-specific. If a borrower is acting in good faith, the lender may allow the asset to continue operating, resulting in a commercial property “Twilight Zone.”

The Twilight Zone is made up of properties on which loans have defaulted or in which default is likely imminent, but the borrower is still willing to provide all available cash flow to the lender, even if it is not enough to cover the payments. The lender agrees to accept net rents and, in turn, keeps the building operational, albeit in a limbo period.

When the lender does finally pull the plug value opportunities can Continue reading The #Multifamily Asset Twilight Zone: In default but payments still being made. Opportunity or? Via @rshall03

Multifamily rental construction definitely the brightest sector in housing market.

See the Housing Wire piece here:

Seattle Apartment Building Investment Cycle peaking or just taking a breather?

In his Q4 report on the Seattle multifamily market ARA’s Jim Claeys says:

Vacancies and Concessions UP

Absorption and Rents DOWN

New Construction Pipeline UP 140% from year ago

Also Home and Condo Sales UP 41, 70% respectively

Sounds kind of like the cycle is moving to the next phase doesn’t it? See the whole article here: This may be a good time for developers to reassess their projections

FHA Streamlines Approvals on Multifamily loans less than $25M/250 units.

“It’s a huge help,” says Jonathan Camps, managing director of production for Washington, D.C.-based Love Funding.

In the past, any loan of at least $15 million, or any deal of more than 150 units, had to go through the FHA’s National Loan Committee. That threshold has been dialed up to $25 million, or 250 units.

What’s more, any existing FHA-insured loan looking to refinance through the Sec. 223(f) program no longer needs to go through either the regional or the national loan committee.

Good news indeed! See the whole article here: FHA Streamlines Multifamily Loan Approvals

Top 10 Tips for Acquiring Distressed Multifamily Properties

Nice article in MHN Online, good tips and reminders. There are still plenty of properties worth less than the debt, and there are more foreclosures to come. Most of the distressed multifamily properties are B, C and D class properties. These properties can provide great returns with cap rates from 8 percent to 12 percent on existing income, and in most cases have plenty of vacancy for even more upside.

My top two that apply to all properties distressed or otherwise:

Good management: Distressed B, C and D properties require experienced and diligent asset and property management. Your management team should be top notch. Your turnaround plan should be realistic and properly implemented.

Talented leasing staff: Your leasing team should be properly motivated and for lease marketing extremely thorough. You want a well-thought-out, multi-disciplined lease up plan to stabilize properties in this cycle.

See the article here: http://bit.ly/xW6fZp

DC Multifamily sales surge to $4.7B in 2011, up 1.1B from 2010.

By Daniel J. Sernovitz Staff Reporter – Washington Business Journal

I believe this quote from the article reflects an important trend in multifamily, indeed all residential development, re-development and infill: “People are paying a premium to be within a one-block radius of a Metro station, and properties within walking distance of Metro stations continue to be a strong lure for investors,”…

One thing the article doesn’t cover is where prices are vis-a-vis replacement cost… makes me wonder where they are in their apartment market cycle-

See the whole article here: DC Multifamily Sales Surge in 2011

Only 38k Multifamily units added in 2011; demand = 300k+. Grubb & Ellis 2012 Forecast

New development is picking up but is restrained by lack of lender appetite.

Senior housing to see vacancy decline below 10% also.

Via Grubb & Ellis’ 2012 Real Estate Forecast available here: http://bit.ly/xfBnmd

Thanks to Jason Brumm of G&E San Antonio