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.
The Strange Tale of the Seattle Apartment Building Investment Cycle and Maybe Yours Too.
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.
Why this up to date proprietary data is vitally important to your investment success:
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.
“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.
In May we posted an article Top 10 US Cities for new apartment building permits where Seattle came in sixth in new apartment building units permitted. Now a new list is out from Axiometrics with a breakdown by submarket and Seattle’s Downtown/Capitol Hill/Queen Anne submarket lands at number two with almost 4,000 units due to come on line in the near future.
Nice Axiometrics chart posted by MFE Mag showing the top apartment building investment markets for rent growth and employment growth. I understand the tech employment growth in SF San Jose and Seattle but the 2.8% job growth in Salt Lake City caught me by surprise. What do you think is driving job growth there?