Apartments

Posts

Major Takeaways: Yardi Multifamily Report – October 2019

The extended period of good performance has produced one bad side effect: legislation enacted in three states to limit rent growth and pressure to act in more states. After a period of below-par growth in housing stock, the U.S. needs more units built, but rent control moves the needle in the opposite direction.

Earlier this week, Yardi Matrix issued its National Multifamily Report for October that highlighted supply and demand, rent growth trends, and political activity as we approached the end of Q4.

Yardi

 

According to the report, multifamily rent growth inched upward in October, as the average U.S. multifamily rent increased by $1 to $1,476. Year-over-year rent growth remained at 3.2%. Despite the expected slower month during the fourth quarter, Yardi expects continuous demand a slowly growing economy to keep rent growth above its long-term average.

The multifamily sector’s continuous strength over multiple years has resulted in an elevated number of rent-burdened households. In consequence, an increase in political pressure has yielded new rent control laws in three states: New York, California, and Oregon.

According to the Joint Center of Housing Studies at Harvard University, “More than 20 million renter households spend over 30% of income on housing, and 80% of renters and 63% of owners making less than $30,000 are cost-burdened.”

Yardi dubs rent control as counterproductive as it reduces investment, limits new development which perpetuates unaffordability, increases the cost burden on those who move or enter a new market, and reduces the incentive to make capital improvements which leads to degradation of already existing stock. Outlined affordability solutions include reducing exclusionary zoning, allowing more density, and more subsidized new developments.

Click here to view Yardi Matrix’s October Multifamily National Report in its entirety

“Like” us on Facebook at: www.Facebook.com/EPICamg

Subscribe for more blog posts, news updates, and more at www.EPICamg.com

Why Upcoming Fed Policy Changes Reinforce Positive CRE Outlook

Earlier this week, CNBC interviewed Marcus & Millichap’s President and CEO Hessam Nadji to discuss why upcoming Fed Policy changes and strong fundamentals reinforce a positive commercial real estate (CRE) outlook. Some major takeaways from the interview include:

  • Lower rates energize the market, Fed rates shifted from a headwind to tailwind.
    • Nadji explains how a Fed reversal turned what was considered a negative policy change at the end of last year into a positive one this year by stating, “The fed is now so accommodative in messaging that they’re going to be facilitating the life of this expansion, and not becoming a headwind to it. And of course, lower rates lubricate the market. “
  • Lack of overbuilding has resulted in a longer positive outlook for CRE.
    • Nadji attributes a lack of overbuilding in commercial real estate to the boom of E-commerce.

“Office space, for example, has been adding about 1/3 to 1/2 of new product compared to the prior peak of the cycle. Look at retail space in reaction to whats happened to E-commerce. The volume of any kind of retail being built is less than a 1/3 of what it was year-over-year prior to the last recession. That lack of overbuilding plus an economy that’s adding over 2 million jobs a year consistently in a low-interest-rate environment all spells a pretty good outlook for CRE.”

  • Tech expansion boosts demand for industrial real estates like warehouses, distribution centers, or storage facilities. E-commerce has been tough on traditional retail.
    • Tech-oriented metros experiencing increased rental demand for new hires.

Click here to watch the full four-minute CNBC interview with Marcus & Millichap’s President and CEO Hessam Nadji

“Like” us on Facebook at: www.Facebook.com/EPICamg

“Follow” us on Twitter at: www.Twitter.com/EPICamg

Subscribe for more blog posts, news updates, and more at www.EPICamg.com

Top Markets for Occupancy Growth Through April – Yardi Matrix

Earlier this week, Multi-Housing News posted an article highlighting takeaways from a recent Yardi Matrix report pertaining to occupancy growth through the first quarter of 2019. According to the numbers, the nation’s average occupancy rate decreased by 20 points year-over-year through April to 95 percent.

Despite the step back on a national level, the five markets highlighted by Multi-Housing News are defying the odds and have emerged as frontrunners for occupancy growth through April 2019.

The occupancy growth in these markets can be accredited to beneficial market characteristics such as strong demographic trends, favorable business climates, modest development in surrounding areas, and steady employment gains.

Click here for the full Multi-Housing News article and additional Yardi Metrix statistics regarding the highlighted markets and occupancy growth.

“Like” us on Facebook at: www.Facebook.com/EPICamg

Subscribe for more blog posts, news updates, and more at www.EPICamg.com

Marcus & Millichap/NREI Investor Sentiment Survey

Earlier this week, Marcus & Millichap and National Real Estate Investor (NREI) distributed the results of their second-half Investor Sentiment Survey.

Researchers collected data by emailing invitations to participate in this online survey to public and private investors and developers of commercial real estate. Recipients of the survey included Marcus & Millichap clients as well as subscribers of NREI selected from commercial real estate investor, pension fund, and developer business subscribers who provided their email addresses.

The survey was conducted in the third quarter of 2018, with 543 completed surveys received. Survey respondents represent a broad cross-section of industry respondents that include private investors, developers, advisors, lenders, and REITs among others.

The largest percentage of respondents are private investors at 45%. Respondents are invested in a variety of property types with a majority of 66% invested in apartments.

Tax Reform and How it Has Affected Investor Sentiment

After the Tax Cuts & Jobs Act was approved, investor confidence was high and trending upward, but the most recent survey shows that same confidence level has regressed to 150 – the same level as the second half Investor Sentiment Survey of 2017. See Figure 1 for a visual representation.

Despite the lowered confidence level, many survey participants maintain positive views of tax reform. According to the collected data, 57% of respondents think the economy will grow faster as a result of the new taxes compared to the 68% who held the same view in the first half survey. Furthermore, one-third of respondents expect growth to remain the same and 10% expect slower growth in the future.

The 60% of respondents who said they consider tax reform to be favorable for commercial real estate also reflects a drop compared to the 71% who held the same view at the beginning of the year. See Figure 2 for a visual representation.

John Chang, senior vice president of research services at Marcus & Millichap, expressed uncertainty regarding the effects of tax reform by stating, “Investors are still getting their arms around the new tax law, so it’s still a little too early to anticipate a lot of change resulting from tax reform.”

That said, over 50% of survey respondents do expect tax changes to increase the flow of investment capital and 46% think the new tax laws will raise property values.

Interest Rates

Continually increasing interest rates have become one of the biggest concerns for investors. Approximately 65% of respondents note rising interest rates as their primary concern followed by unforeseen shocks to the economy at 48%. Both political uncertainty and rising operating expenses round out the top investing concerns for respondents at 44%. See Figure 4 for a visual representation.

“The Fed has implied that it will likely raise rates again in December, although whether or not they follow through with that remains to be seen,” says David Shillington, president of Marcus & Millichap Capital Corp. He also noted that there could be some risk to the economy if short-term rates were to rise above the long-term rates, which is often interpreted as a sign of an upcoming recession.

Apartment Outlook

Investors maintain a bullish outlook on apartment performance, but the desire to increase holdings has consistently declined over the past few years. 50% of apartment owners think it is better to hold, while the other half is torn between buying and selling. Although, buying confidence has decreased since hitting a peak in 2010 when over 70% of respondents were eagerly targeting multifamily properties.

The apartment sector has performed well for a number of years now, but investors are becoming concerned about the volume of construction coming into the market. On average, developers are delivering roughly 270,000 new units per year for the past five years.

However, thanks to the robust economy, absorption of new units has been keeping pace with construction. John S. Sebree, first vice president, national director of the National Multi Housing Group at Marcus & Millichap, credits the health absorption rate to significant household formation. In addition, Sebree noted that housing demand is expected to outpace completions on a national level.

The majority of survey respondents have a favorable outlook on apartment performance. Similar to past surveys, 62% of survey responders expect the general value of apartment properties to increase. The average expected value increase is 3.5%, down from the predicted 5% in the first half survey, but still, a very healthy level compared to other property types.

Investor Strategy

Despite indications of caution, survey responders are maintaining their optimism for the economy and real estate performance. 79% of respondents believe strong job growth will continue through 2018 and into 2019.

Most respondents agree real estate continues to offer more favorable returns than other investment classes and that it is better to invest in real estate rather than the stock market. Investors are also well-resources with 56% of respondents claiming they have an abundance of capital to invest.

Overall, investors are becoming more selective at this point of the economic cycle, but remain active and confident in the market.

—–

*All statistics, figures, and quotes accredited to Marcus & Millichap/NREI Second Half 2018 Commercial Real Estate Investor Outlook

Click here to view the Investor Sentiment Survey Report in its entirety

“Like” us on Facebook at: www.Facebook.com/EPICamg

Subscribe for more blog posts, news updates, and more at www.EPICamg.com

Rent Control Battle in California and Beyond

“Certainly there is a housing shortage, so we need to be building housing, but what we are also seeking to address is the crisis of displacement…We’re seeing vulnerable communities — people of color, elderly folks, people with disabilities, single parents, low-income people and the middle class — being pushed out of California and becoming homeless.”

One of the hottest items on California’s November voting ballot is a rent control initiative called Proposition 10. The proposal intends to repeal a 23-year-old state law that tightly limits all forms of rent control within California. The desire for rent control in California has coincided with the rising cost of living throughout the state.

According to The Sacramento Bee, the nonpartisan Legislative Analyst’s Office (LAO) reports “Soaring housing costs have led to a net loss of 1 million citizens who have fled California from 2007 to 2016…and homelessness is higher here than any other place in the nation.”

Despite the widespread support from community groups like the AIDS Healthcare Foundation, California Teachers Association, California Nurses Association, and many others, the latest poll by the Public Policy Institute of California reports,

“A whopping 60 percent of likely voters say they will vote against Proposition 10, a measure on the Nov. 6 statewide ballot that would repeal the state Costa-Hawkins Rental Housing Act, which strictly limits rent control in cities across California. Repeal would restore broad authority to cities to enact any rent control law they choose.”

According to the LAO’s analysis of Proposition 10, the proposed repeals could result in more harm than good. LAO analysts warned of declined new rental construction, removal of units from the market, and the value of housing possibly dropping. Any of these factors would directly affect local government property tax revenue, which equates to ~$60 billion every year.  Furthermore, enacting new rent control laws would require millions of dollars per year to enforce, and result in a decline in income tax revenue, especially from the newly-affected property owners and investors.

It is important to consider how these restrictive laws and proposals affect citizens, property owners and investors, and a state’s overall economy. And while Proposition 10 is exclusive to California, and rent control laws vary from state to state, the negatives effects outlined in the LAO analysis showcases how impactful the ongoing battle of rent control is from a real estate professional, owner, or investor standpoint.

Click here to learn more about Proposition 10 and rent control.

“Like” us on Facebook at: www.Facebook.com/EPICamg

Subscribe for more blog posts, news updates, and more at www.EPICamg.com

Accelerated Rent Growth and Projecting Occupancy

“Demand for 106,716 apartments in the third quarter well surpassed completions that totaled 83,170 units, RealPage reported. Year-to-date, the country’s occupied apartment count has increased by 295,750 units compared to new project deliveries totaling 232,911 units.”

In a recent article for MBA Newslink, author Michael Tucker highlighted recent rent growth trends and expected occupancy rates as we approach the end of the year. This article provides statistics reported by RealPage, Richardson, Texas. RealPage -EPIC Asset ManagementAccording to RealPage’s statistics, U.S. apartment rent growth accelerated to a 2.9 percent annual pace in the third quarter. RealPage chief economist, Greg Willett, said this step up from the second quarter’s rent growth percentage has reversed the slowing pattern of apartment price increases recorded since late 2015.

 

Despite the momentum surpassing expectations in the third quarter, it remains to be seen how it has affected the overall picture. That said, Willett did note that apartment owners “gained a little more pricing power” during the quarter as occupancy increased from 95.4 percent to 95.8 percent.

To view this article in its entirety, click here.

“Like” us on Facebook at: www.Facebook.com/EPICamg

Subscribe for more blog posts, news updates, and more at www.EPICamg.com

 

Multifamily Holds Strong in First Half of 2018

At the halfway point of 2018, the U.S. multifamily market has held strong despite projected hurdles in the form of elevated supply levels, decelerated rent growth, and lack of affordability in major metros. As of June, the national average rent has risen to an all-time of $1,405 and year-over-year rents are up 2.9%, a 20-basis point jump from May.

With rents increasing by $29 in the second quarter, it is the highest quarterly rent growth percentage (2.1%) since the second quarter of 2015 when rents grew by 2.3%. The strong showing from the multifamily market should temper some fearful projections of decelerated rent growth turning into flattened or regressive rates after the peak years of 2015 and 2016.

The spring season is not a stranger to seeing elevated rent growth and is not necessarily a reliable indication of future trends but considering the doubts and reservations of the multifamily market’s strength entering 2018, the first-half numbers for the year are reassuring.

From a market standpoint, Orlando continues to lead the nation with 7.4% year-over-year rent growth. Markets in the Southwest such as Las Vegas (6.5%) and Phoenix (5.0%) have experienced rent growth as southern and western Californians look for more affordable living costs. Tech-based markets like Seattle, Denver, and  San Francisco rebounded with favorable rent growth in the second quarter of 2018 after experiencing some sharp deceleration in previous quarters. View the chart above to see how job growth, occupancy rate, rent growth, and supply levels are interacting with each other.

*All statistics are credited to Yardi Matrix

 

“Like” us on Facebook at: www.Facebook.com/EPICamg

Apartment List’s Renter Confidence Survey

Recently, Apartment List, a home-finding service that offers apartment recommendations based on personal experiences and preferences, released results from its third annual Renter Confidence Survey. According to Apartment List, the Renter Confidence Survey “is the largest survey focused exclusively on renters, providing unique insight into what states and cities must do to meet the needs of America’s 111 million renters.”

The survey is based on 45,000 survey responses gathered between October 1, 2016 and December 6, 2017, to determine the best/worst cities for apartment renters. Survey respondents gave their cities an overall score based 11 rating factors such as safety, affordability, job opportunities, weather, taxes, and more. Below is a graphical representation of overall renter satisfaction by state: 

Click here to interact with the graphic above

Here are some key overall findings from the Renter Confidence Survey:

  • Overall, the top four rated cities for renters are Plano, TX, Huntington Beach, CA, Scottsdale, AZ, and Cambridge, MA.
  • Among the 50 largest U.S. cities, Raleigh, NC, Boston, MA, Virginia Beach, VA and Minneapolis, MN earned the top scores for renter satisfaction. The lowest-rated cities were Detroit, MI, Oakland, CA and Tucson, AZ.
  • Small to mid-sized cities tended to receive higher ratings than large cities. 38 percent of small to mid-sized cities received A- or higher compared to large cities’ 24 percent.
  • States rated most-highly by their renters are Colorado, Alaska, South Dakota, Minnesota, and Idaho. States with the lowest ratings from their renters are Arkansas, Lousiana, Mississippi, Wyoming, and West Virgina.
  • Millennial renters love Boulder, CO, Madison, WI, and Arlington, VA.

In addition to overall ratings, renters rated specific factors that have a direct impact on their renting experience. Important takeaways include:

  • Markets with the most unsatisfied renters based on job opportunity are mostly southwest cities hit hard by recession such as Santa Ana, CA, San Bernardino, CA, Glendale, AZ, and Mesa, AZ.
  • Based on safety, renters rate Plano, TX, Boulder, CO, and Irvine, CA the highest.  Renters feel the least safe in Stockton, CA, San Bernardino, CA, New Orleans, LA, Memphis, TN, and Newark, NJ.
  • It’s no surprise Colorado and California have the highest-rated weather. Cold weather cities in the Rust Belt and Northeast have the lowest-rated weather.
  • Renters gave high ratings to college towns such as Boulder, CO, Ann Arbor, MI, Raleigh, NC, and Madison, WI for their social life.

Other important findings:

  • Only 38 percent of renters are satisfied with the cost of living in their city.
  • The top three factors renters are most satisfied with include commute time, pet-friendliness, and recreational activities.
  • The four factors that are most indicative of overall renter satisfaction are safety, job opportunities, social life, and recreational activities.

Major Takeaways from the NMHC Apartment Outlook for 2018

Digested from National Real Estate Investor

With demand holding strong, 2018 is expected to be a fruitful year for the multifamily industry. That is the general consensus at the National Multifamily Housing Council (NMHC) Annual Meeting in Orlando, FL., being held this week. Having said that, there is a feeling of reserved optimism among attendees and experts of the NMHC Outlook Meeting due to expected interest rate increases, more supply coming to market, and the market naturally moving to the mature/declining stages of the industry cycle. Here are some major takeaways from the opening-day events. 

  1.  There could be four interest rate increases this year. During its December meeting, The Federal Reserve indicated that it plans on hiking interest rates at least three times this year to stay on par with the economy’s strength. However,  Richard Barkham, a global chief economist at real estate services firm CBRE, thinks there could be a fourth rate increase later in the year. In addition, the U.S. is expected to transfer from negative interest rates to positive ones, which is interest rates minus inflation. Barkham notes that negatives rates are an indication of the benefits of monetary policy support.
  2. The economy may enter a declining state in the next three or four years. Despite an expected decline in the economy, Barkham expects the multifamily industry to weather recession easier than other asset classes given the shift in homeownership numbers.
  3. Blue collar areas and workforce housing present key opportunities for growth in the current environment. Greg Willett, chief economist at RealPage, a Texas-based firm providing property management software solutions, says regions with a high volume of blue-collar workers have provided consistent rent growth, despite a lack of construction happening in said areas.
  4. There is a bifurcation in rents between class-A and class-B apartments. Jay Lybik, vice president of research services at Marcus & Millichap, attributes the disparity between class-A and class-B apartments to the change in the provided product that’s being built. During the early 2000s, 90 percent of new builds were garden-style apartments. Recently, 75 percent of new supply are mid- and high-rise style apartments. The gap between class-A and class-B was approximately $225 in rent. Lybik notes the gap has increased to $525. Currently, Boston is experiencing the largest rent gap between class-A and class-B apartments, with rent difference of a whopping $1,170.
  5. Increased scrutiny is key when it comes to development. As the economy begins to phase into the mature stage of the industry cycle, margins of error are beginning to tighten. Interest rates continue to climb, rent growth begins to slow, land is becoming more expensive, and labor costs are rising. So the importance of ‘picking the right fight’ is more prominent than ever. That said, the same narrowing margin of error prompting caution simultaneously result in higher quality deals being executed in a more disciplined manner.
  6. Despite an expected deceleration of new builds in 2018, some metros might out-build their demand.  High-demand markets such as Dallas or Seattle are at risk of bringing too much new inventory to the market that could outpace rent growth, according to Willett. Other markets on Willett’s watch list include Denver, Boston, Nashville, Tenn. and Charlotte, N.C.

Click here for more information on the NMHC Annual Meeting: National Multifamily Housing Council

2018 Multifamily Outlook

2017 was a strong year for the multifamily industry. The market performed well with favorable demographics and provided a healthy investment environment. Despite a very high number of new units added to the market, occupancy rates stayed high as rental demand continued growth throughout the year. In addition, rents and property values had a generally-upward trend across the country, less certain cities and submarkets that experienced some challenges.

Will multifamily momentum carry over to 2018? While there are some mixed opinions, a number of industry indicators and pundits are confident the multifamily sector will remain strong in the new year. 

According to Doug Ressler,  director of business intelligence for commercial real estate data firm Yardi Matrix, new construction competition carrying over from 2017 could finally put a dent in occupancy rates.  “Occupancy will begin to have a slight downward trend in 2018 as new supply is introduced,” says Ressler. In 2017, occupancy rates averaged 95.6 percent. Based on Yardi Matrix data projections, 2018 will maintain a similar average of 95.4 percent.

That said, Ressler also noted the possibility of developers slowing the pace of new builds as the year progresses, which would improve the outlook for 2019. With fewer developments coming to market, 2019 would forecast some strong occupancy rates that could encourage property managers to increase rents. “We see national rent growth continue its positive climb in 2018,” says Ressler. in 2017, rents averaged an increase of 2.4 percent. Yardi Matrix projects 2018 rents to grow by 2.9 percent.

Industry professionals could see a change in target markets as the industry shifts into the new year. For example, some submarkets experienced strong growth as we rounded out 2017. So if that growth remains consistent this year, suburban/satellite cities benefitting from “demand overflow” could become popular investment environments.

All quotes and figures have been digested from Yardi Matrix and NREI Daily.