3 Things I Learned Charting Apartment Building & Commercial Real Estate Market Cycles

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.

SEA occupancy v cycle position WTH
Click on images for full size.

Building our own CRE market cycle chart

To track a cycle for one market and sector we only need to answer five questions according to Professor Mueller’s methodology: Market occupancy, the 30 year Long Term Average (LTA) occupancy, rent growth, inflation and new unit construction. Later we’ll look at whether we can Continue reading 3 Things I Learned Charting Apartment Building & Commercial Real Estate Market Cycles

Widely Followed Apartment Market Cycle Research Misses Widely

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.

Seattle apartment occupancy vs. Cycle Monitor Market Position 2005 - 2014
Click on images for full size.

Why this up to date proprietary data is vitally important to your investment success:

You can fix a property but not a market cycle. Knowing where a market is in its cycle is critical for investors seeking to buy low and sell high. If signals are a year or more behind, prime opportunities will be missed to Continue reading Widely Followed Apartment Market Cycle Research Misses Widely

Apartment Building Investment Rocks Q2 across the US (video)

That happy feet sound you hear is coming from apartment building investors as they see their results from the second quarter:

  • Rents Up
  • Vacancy Down
  • New Supply Being Absorbed as soon and it’s built

Here’s the video report from MPF Research:

And it’s not just the usual Continue reading Apartment Building Investment Rocks Q2 across the US (video)

5 Key Trends from the ULI Report for Apartment Building Investors and Commercial Real Estate Pros

The Urban Land Institute/PriceWaterhouseCoopers annual report on Emerging Trends for Real Estate 2014 was released last week and apartment building investors and commercial real estate pros have some good things to look forward to next year. Note that this post refers to the Americas version of the report with separate sections on Canadian and Latin American markets but they also publish Asia-Pacific and European editions as well. This is the 35th edition of the report is it’s based on individual  interviews or surveys from more than 1,000 investors, fund managers, developers, property companies, lenders, brokers, advisers, and consultants.

Here are the 5 key trends we should all be aware of with my comments:

  • Survey participants continue to rank private direct real estate investment as having the best investment prospects. Pretty expected from this group but the National Council of Real Estate Investment Fiduciaries (NCREIF) recently released its property performance index for the third quarter of 2013 and on a trailing 12-month basis, the index’s return was 11.0 percent, split about 50/50 between income and appreciation. A pretty nice return compared to fixed income rates and a much safer looking bet than buying equities at their all time highs.
  • Dependence on cap rate compression to drive value is being replaced by an emphasis on asset management. Especially in the 24 hour gateway markets apartment building cap rates are about as low as they can get (well until you look at Vancouver BC) so property performance has to come from actually making the property perform. You also have the problem of what to do with your proceeds if you do sell, as you would be reinvesting right back into the same cap rate market that you sold in… unless you changed to a higher cap rate sector, suburban strip centers anyone?
  • Opportunities to develop property are finally appearing in sectors other than multifamily. CBRE Econometrics had a piece out last week showing that large (> 350k sf) warehouse properties are being snapped up as fast as they’re being built. Maybe developers who moved over to doing apartments the last few years will move back to their home sectors and ease off on the new supply of multifamily units.
  • Value-added investment ranked highest in terms of investment strategy; distressed properties and distressed debt ranked last. We were licking our chops a few years ago waiting for RTC 2.0 fire sales to begin and while we were able take down some bank owned inventory, the anticipated tsunami of defaults on commercial loans never materialized. At this point most everything has been extended and pretended into performing status or sold off and so it’s back to making money the old fashion way: Finding and/or creating value.
  • Both equity investors and lenders are widening their search for business to include secondary markets and niche property types. This will be a double edged sword for investors who are focused on those secondary and tertiary markets as debt financing will be more available but there will also be more competition from sophisticated outsiders with deep pockets. The key will be to make them your buyers so dig in, find the right properties and tie them up quickly.

Emerging Trends Barometer for Apartment Building Investors and Commercial Real Estate 2014

As always with real estate, sectors and markets are so distinct from one another it’s almost pointless to generalize as the chart above attempts to do so next week I’ll dive into the apartment sector to see what gems they’ve unearthed. Meanwhile for the Continue reading 5 Key Trends from the ULI Report for Apartment Building Investors and Commercial Real Estate Pros

The ‘Twin Peaks’ of Seattle Apartment Building Investment Plus MPF Research says rent growth holding strong there.

Friday twofer on Seattle. First is Dupre+Scott’s  entertaining and enlightening video on apartment building construction and property sales:

Mike has two nice charts showing apartment development numbers back to 1988 and sales volume back to 1981. Note that on the sales volume chart 2013 numbers are Continue reading The ‘Twin Peaks’ of Seattle Apartment Building Investment Plus MPF Research says rent growth holding strong there.

Local Apartment Building Investment Research Reports For 37 US Cities Now Posted by Marcus & Millichap

Requires (free) registration: M&M Research

Here’s a peek at their Phoenix Charts:

Phoenix Apartment Building Rent Trends Q2 2013

Phoenix Apartment Building Vacancy Q2 2013

Phoenix Apartment Building Construction Q2 2013 Continue reading Local Apartment Building Investment Research Reports For 37 US Cities Now Posted by Marcus & Millichap

Latest Commercial RE and Apartment Building Investment Cycle Charts Posted by Glenn Mueller PhD.

…. “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:

Apartment Building Investmet Cycle Chart Q4 2012

Is it a Seattle thing? Is he the Brent Musburger of commercial real estate? Continue reading Latest Commercial RE and Apartment Building Investment Cycle Charts Posted by Glenn Mueller PhD.

Apartment Building Permits Rise to Long-term Average while Vacancy Index Remains Low

In their latest apartment building permitting report Axiometrics says: “permitting increased 44.3% or 84,308 units from the January 2012 figure of 274,640 units.” This is very near the long term average of 280,000 units, see the chart:

Apartment Building Investment New Construction Permits

Note that single family permits are still Continue reading Apartment Building Permits Rise to Long-term Average while Vacancy Index Remains Low

Apartment Building Investment Cycle Analysis via Dividend Capital. Can this be right?

Dividend Capital’s Q3 Market Cycle Monitor Report is out and naturally I looked at the apartment building investment cycle chart first. Specifically these days I’m looking to see where the author, Glenn R. Mueller Ph.D. has placed the Seattle market in the cycle.

US Q3 apartment building investment cycle analysis from Dividend Capital

In this latest report you can see that it is listed at position 2 with only Norfolk listed lower at position 1. What does position 2 signify? According to the good Doctor, position 2 lies in the Phase 1 – Recovery Quadrant defined as having “No New Construction” and position 2 specifically having “Negative Rental Growth”. But how can this be? Continue reading Apartment Building Investment Cycle Analysis via Dividend Capital. Can this be right?

Risks to Apartment Overbuilding Averted, For Now says ReisReports

In a piece just out today ReisReports says that new apartment starts have been postponed to 2014 by many developers.

The “bubble” now shows up in 2014, but if economic growth ramps up, then additional supply will most likely be absorbed relatively painlessly.

But not all Metros escape. The report mentions Washington DC and suburban Maryland as two of those who will still see large increases in supply next year.

US Apartment Market moves big supply increase to 2014

Interestingly they name Seattle as a market that should be able to absorb the new supply coming because Continue reading Risks to Apartment Overbuilding Averted, For Now says ReisReports