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Major Takeaways from the NMHC Apartment Outlook for 2018

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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

Airbnb and its Impact on Real Estate

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If there are any Airbnb listing located near an apartment community, odds are that multifamily property has experienced some benefits.

According to a new academic study conducted by researchers from MIT, UCLA, and USC, a 10% increase in Airbnb listings would lead to a 0.39% increase in rents and a 0.64% increase in home prices in a zip code on average, meaning neighborhoods with listings are becoming more valuable. Data was collected by MIT Research Assistant Kyle Barron, UCLA Professor Edward Kung and USC Professor Davide Proserpio, as they compiled research from resources such as Google Trends, Zillow, Airbnb, and the Census Bureau.

While the report proves an increase of Airbnb listings has an effect on home prices, perhaps the most noteworthy finding from the report, especially for the multifamily industry, is Airbnb’s  impact on rents appearing to be linked to the availability of commercial listings in a particular market.

Fast Company’s writer, Ruth Reader explains, “They found that the percent of non-owner-occupied units listed in a given region determines the rate at which rents will increase. Rents rise more heavily when there is a preponderance of home listings that the owner is not living in.” More specifically, the study shows rental rates increase when landlords/owners take long-term inventory and move them to short-term markets like Airbnb.

As services like Airbnb and VRBO become more popular, it is only a matter of time before this new form of housing market has a larger effect on residential, commercial, and multifamily real estate from a monetary and regulation standpoint.

Read the entire Fast Company article here

The Advantages of Online Property Management Services

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Recent technological advances have made online property management tools less expensive and easier to use, even for smaller portfolio owners and managers. Online portals and other software programs make the renting process easier for all parties involved. As a result, online services are no longer viewed a bonus for tenants, but more so an expectation.

Having the ability to pay rent online is arguably the best perk of online property management services. Paying rent online offers multiple benefits for renters. For example, tenants don’t have to take the time to hand-deliver their monthly rent check, setting up automatic online payments ensures their rent is paid on time, and it eliminates the possibility of a tangible rent payment being stolen, lost, or misplaced.

Owners and managers see similar advantages when tenants pay rent online. In a recent article for Multi-Housing News, Ray Szabo, residential and commercial property manager with Santa Barbara Real Estate & Investment, stated:

“Having an online payment system eliminates the opportunity for a myriad of excuses that residents have for why they weren’t able to pay their rent on time, such as issues with the mail, running out of checks and so on.”

But making and receiving rent payments is not the only benefit of online property management services. An invaluable resource of online property portals is the ability to centralize maintenance management. Tenants can issue maintenance requests in the touch of the button, schedule preferred repair times, and track when the request was issued and completed. 

On the other hand, the maintenance team has an organized system to promptly and efficiently maintain the well-being of the property. Furthermore, maintenance workers are held more accountable with the online portal documenting the maintenance progress throughout the property.

Online rent payments and maintenance management are only two of the many benefits of online property management services. If property owners and managers correctly utilize such services, managing the property and communicating with the property’s community should become more stable and effective.

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Phoenix Heating Up?

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Phoenix has been experiencing steady improvements as of late, and it seems as if the capital of Arizona could continue trending upward for years to come. Yardi Matrix recently published the Spring 2017 Phoenix Multifamily Market Analysis. According to the report, new supply is on pace with demand, resulting in high occupancy rates, employment is on the rise, and job growth is strong thanks to low cost of living.

Other interesting facts and statistics included in the report:

  • Phoenix rents rose a nation-leading 5.1% year-over-year through March.
  • Yardi projects Phoenix rents to continue growing at above-trend 6% in 2017.
  • Strong investor demand: Over $5 billion worth of multifamily properties have changed hands since the start of 2016.
  • Over 1.1 million square feet of office space added to Phoenix market in first quarter of 2017.
  • $7 billion investment by Intel in the Fab 42 plant, which could produce ~10,000 local jobs.

The Yardi Matrix report contains a number of graphs, charts, and other helpful information so review the complete report for a complete understanding of the Phoenix multifamily market as of Spring 2017.

Click here for the entire Yardi Matrix Spring 2017 Phoenix Multifamily Market Analysis

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Over 50,000 New Apartments to Come in DFW Area

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The Dallas-Fort Worth area has been a hotbed for real estate construction for many years, and is set to stay on the rise as the first quarter of 2017 comes to an end. According to a recent article from The Dallas Morning News, DFW has experienced a 95% surge in new-construction starts in the first two months of 2017. The spike in new builds is estimated to result in 50,000 apartments with 30,000 of them hitting the market before year’s end.

Most of the new construction is taking place in the Frisco-Prosper and central Dallas areas. Frisco-Prosper is in the process of adding about 6,400 units to the market, and central Dallas has started construction on an estimated 5,700 new apartments.

The recent growth in new construction has been easily absorbed by the job growth in the DFW area. A large portion of the tenant base are relocating to the Dallas area for work, as the region adds about 100,000 jobs to the market every year. Furthermore, Drew Kile with Institute of Property Advisers forecasts the North Texas population increasing by 780,000 people in the next 5 years, so demand is projected to remain strong.

Click here to check out the full article by The Dallas Morning News. 

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Tenants Experiencing "Sticker Shock" in Dallas

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In a recent local news report from Channel 8 News, Dallas, TX, renters in the area described their experience with a pattern of frequent rent increases.

According to the news report, “The newly published April 2017 Dallas Rent Report shows prices across the city remain above the national media. On average, one-bedroom apartments were leasing for $1,260. Two-bedroom units were renting at $1,760.”

While property owners gladly invite the increase in rent prices, tenants are finding it difficult to keep up. Despite new apartment complexes springing up across the city, the demand for apartments in one of the many trending areas of Dallas remains constant; which could be contributing to rising rent rates.

Click here to read Channel 8’s full article, and to see a quick video of local tenants and realtors offering their experience and expertise with rising rents in Dallas.

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Mastering the Make-Ready Process

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There are so many moving parts when a unit undergoes the make-ready process, execution can be stressful and overwhelming for an unprepared management and maintenance staff. If that’s the case, the make-ready process will cost a property excessive capital in maintenance and upgrades while losing important revenue due to extended vacancies. But with the right tools and tactics, a make-ready can be a smooth and efficient transition that will ultimately be well worth the dedicated time, money, and effort. Listed below are some excellent  tools and procedures to optimize the make-ready process. 

Technology

Lease expiration management plays a crucial role in the make-ready process. Being able to efficiently monitor and manage current and upcoming vacancies will largely dictate how efficient performing a make-ready will be. There are an abundance of revenue management/lease expiration software programs on the market property managers can use to simplify lease, revenue, and market monitoring. That being said, it is always important to maintain a human element when using technology, as the software should be viewed as a tool, not an employee replacement.

Click here to see a list of accredited lease management software programs. 

Walk-Throughs and Preventative Maintenance

Management should be regularly performing walk-throughs to monitor the state of each unit.  The walk-throughs offer a number of advantages. First, management can bill tenants for any damage done to the unit and maintenance can make the necessary repairs that may have prolonged the make-ready period. Second, walk-throughs allow maintenance teams to make any repairs  that would otherwise become a larger problem as time passed such as leaks, mold, or structural  irregularities. In the end, proactive management and maintenance shortens the make-ready to-do-list and reduces a unit’s vacancy duration.

The make-ready process begins the instant management sends out a notice to vacate the unit. In addition to consistent walk-throughs, performing inspections prior to a unit becoming vacant will help understand what is needed to complete the make-ready. Furthermore, pre-inspections will minimize unexpected maintenance problems, prepare the renovation team to execute the make-ready processin a single, efficient effort, and ultimately reduce the total time the unit is vacant.

Staff Incentives

Having a proactive maintenance staff is one thing, but being able to combine that with a knowledgeable, well-trained management team is what turns a good property into a great one. If the property staff is running like a well-oiled machine, cooperatively working towards a common goal the make ready process should be a breeze. A good way to ensure everyone is on the same page is offering the staff incentives based on how fast a make-ready is completed along with the quality of their execution. With everyone’s bonus being tied to each other’s performance, the staff is encouraged to excel as a team. Additionally, the cost of incentives is minimal compared to the loss in revenue from having a vacant unit on the books for too long.

Bonus Tip

Sometimes a staff has to start multiple make-readies at the same time, which can be overwhelming, even for the most prepared of staffs. One way management can get a head start on the make-ready process is having leases expire on Mondays. When leases expire at the beginning of a week, often times tenants will move out over the weekend. This reduces the number of days a unit is vacant, as it allows management to begin the make-ready process a few days early while the tenant is still paying rent on the unit.

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Tenant Turnover

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Yesterday we talked about tenant retention and some characteristics that motivate them to renew their lease. Using the aforementioned strategies will certainly help minimize resident turnover, but even a property with desirable amenities and excellent service, there will always be a situation where a good tenant has to move out. As soon as a unit becomes vacant,  the following actions taken by management and ownership are crucial in terms of cost and revenue.  

Check out this article from Multifamilyexecutive.com that offers some beneficial tactics owners can use to offset the disadvantages of resident turnover and potentially turn a negative situation into a positive one.

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Tenant Retention

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Property owners are always looking for a competitive edge when it comes to the never-ending battle of attracting and retaining good tenants. Naturally, having a clean property, attractive curb appeal, desirable amenities, and a convenient location are all major factors in bringing in new tenants and filling vacant units. But what does it take to get the best tenants to sign on the dotted line when lease renewal season rolls around? 

It’s a combination of a property’s physical amenities and the quality of service provided by a management team that motivates a resident to move out or renew their lease. We think it’s more about the intangibles, rather than the physical attributes the property offers that keep tenants coming back. If a property has a friendly, inviting community with a management team that prioritizes honest relationships and high-quality service tenants that value these characteristics in a property will be encouraged to remain a resident for, ideally, many years to come.

In an article from Multifamilyexecutive.com, author Melanie G. French, the Executive Vice President of Operations of Cortland Partners, offers a well said explanation on what it takes to retain tenants, build trust and cooperation among the community, and the importance of a property’s staff to demonstrate genuine care for the needs and wants of their tenants.

Click here to read French’s article in its entirety.

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DFW on the Move

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In a recent article in D Magazine, author Brian O’Boyle briefly discussed projected and current trends in the Dallas-Fort Worth (DFW) area for multifamily housing. To sum it up, DFW continues to be a hotbed of growth with buyers focusing on “value-add” products.  In addition, a projected 29,000 new units are to be added to market, along with construction entering some of the northern suburban areas.

O’Boyle is the founder and vice chairman of ARA, A Newmark Company Dallas office. ARA is the largest full-service investment advisory firm in the nation that focuses exclusively on the brokerage, financing and capital sourcing of multifamily properties.

You can read the article in full detail by clicking here, or the hotlink provided above.