Category Archives: Economy - Page 2

DFW Apartment Market Good for Landlords, Investors–For Now

By Dees Stribling, Contributing Editor – MultiHousingNews.com

Dallas—Even though the Dallas-Fort Worth area never quite suffered the housing slump that many other U.S. markets did, the area’s relatively robust economy is creating new households that are tightening the apartment market. In fact, according to the recently released 2Q report by investment specialist Marcus & Millichap, employment gains in the Metroplex will be nearly 3 percent in 2012, nearly double the national average, and job seekers will be moving into the area, especially from less-than-robust markets in the Midwest and on the West Coast.

“As a result, leverage in lease negotiations will remain firmly on the side of apartment operators through the end of the year, spurring strong revenue gains,” the report predicts. In short, DFW apartment landlords are going to be in clover for the time being.

By the end of 2012, asking rents will have risen 3.4 percent to an average of $823 per month. Effective rents will rise at a faster clip of 4.2 percent as owners pare concessions, pushing the average to $744 per month by year-end, the report says.

But Marcus & Millichap also notes that there will (eventually) be some headwinds for landlords. Year-over-year, home sales in the market are up 20 percent, an indication that more renters are transitioning into single-family homes. Foreclosure activity is up more than 10 percent in 2Q12 from the second quarter of 2011, mitigating attrition from apartments to the housing market. But as foreclosure activity begins to abate and new construction of multifamily rental properties accelerates next year, apartment operators may have to react quickly with concession offerings to maintain the current tight occupancies.

New apartment construction is predicted to be quite vigorous in the coming quarters. Apartment completions will nearly triple in 2012, as about 8,100 units will come online by the end of the year. “Based on the rapidly expanding development pipeline, another dramatic increase in deliveries appears likely next year,” the report says.

In the meantime, investors are getting into the market while the getting is good. Transaction velocity will continue to escalate this year as out-of-state investors target large, better-quality deals in the Metroplex, the report anticipates. Despite cap rate compression through the past several quarters, local apartment properties continue to spin off stronger returns than similar assets in coastal markets.

For example, Class A cap rates for Metroplex multifamily can start as low as 5.5 percent, which still offers a 50- to 75-basis point premium over East Coast and coastal California metros. While investor demand for top-quality DFW assets remains elevated, prices are hovering near new construction costs, which may hamper the pace of appreciation over the next year. At the same time, though, the Class B sector may record further price growth, as many investors priced out of the Class A market shift their appetites to large Class B+ properties. Within this segment, prices for well-located 1980s assets have pushed above $40,000 per unit, changing hands at cap rates in mid-7 percent range.

Residential Price Increase Still Strong; Homeownership Slightly Up in 3Q

By Dees Stribling, Contributing Editor – CommercialPropertyExecutive.com

CoreLogic reported on Tuesday that home prices nationwide, including distressed sales, increased 12 percent on a year-over-year basis in September. This change represents the 19th consecutive monthly year-over-year increase in home prices nationally, according to the company. On a monthly basis, including distressed sales, home prices increased by 0.2 percent in September compared to August.

Taking distressed sales out of the equation, notes CoreLogic, and home prices increased year over year by 10.8 percent in September. Month over month, excluding distressed sales, residential prices increased 0.3 percent in September compared to August. The company counts both short sales and REO transactions as distressed sales, which in recent years have progressively become less and less a factor in most markets.

CoreLogic’s House Price Index, for which the year 2000 = 100, has been hovering below 150 since the end of the recession, though lately it’s been higher than 150. The bubble peak for the index was in 2006, when it briefly touched 200.

Homeownership Up Slightly in 3Q

The Census Bureau reported on Tuesday that the U.S. homeownership rate came in at 65.3 percent of households in the third quarter of 2013, its lowest 3Q level since the mid-1990s, up still up from the previous two quarters. During the first two quarters of this year, the rate remained at 65 percent; in the third quarter of 2012, the rate was 65.5 percent of households.

At the height of the housing bubble in 2006, 69.2 percent of all households owned their homes, but that number proved unsustainable in the face of the contraction of the housing market, the subprime meltdown, and the Great Recession. In the post-recession era of tighter lending standards and fewer middle-class jobs, that peak will probably not be reached again soon, if ever.

The demographics of employment is also a factor in holding down the rate of homeownership. Younger workers have suffered more unemployment than their middle-aged counterparts in recent years, and thus have less money to put into home buying and no equity to turn to for a downpayment. According to the Census Bureau, 63 percent of adults 18 to 31 had jobs in 2012. In 2007, before the recession, 70 percent that age group was employed.

Wall Street had a mild mixed day on Tuesday after starting out a lot lower, with the Dow Jones Industrial Average off 20.9 points, or 0.13 percent, and the S&P 500 down 0.28 percent. The Nasdaq managed to eke out a gain of 0.08 percent.

Detroit Posts Third Consecutive Year of Job Gains for First Time since 2000

By Philip Shea, Associate Editor – MultiHousingNews.com

Source: Hendricks-Berkadia

Far from the gloom and doom that has come to characterize many people’s view of the Motor City over the past few years, this metro has seen nearly 100,000 jobs added over the past three years, and many submarkets are beginning to see vacancy rates plummet below 4 percent.

According to a recent report by Hendricks-Berkadia, occupancy increased by 90 basis points year over year between 2011 and 2012 to 95.5 percent, while vacancy in Central Washtenaw County—a populous suburb of Detroit—fell to 2.6 percent. Additionally, sales volume of multifamily properties have picked up dramatically since the economic downturn—rising from just over $100 million in 2010 to nearly $600 million in 2012.

And while construction of new properties has lagged considerably over the past three years, Hendricks-Berkadia projects that deliveries will rise to 360 market-rate units this year and 450 market-rate units in 2014.

The businesses and industries responsible for the uptick in employment include professional and business services and education and health services, which accounted for 22,000 of the positions created last year. Yet the city’s hallmark auto industry is also posting gains, with General Motors planning to hire 1,500 new workers in their Warren facility over the next few years.

And while the Central Washtenaw County submarket continues to post lowest vacancies, other areas like Southwest Wayne County and Southeast Oakland County are not far behind, with rates of 3.6 percent and 3.8 percent, respectively. These areas include townships such as Romulus and Birmingham.

Source: Hendricks-Berkadia

Meanwhile the submarket with the highest rents continues to be the Farmington Hills/Troy area, with the 2012 average rent coming in at $1,033 per month. This was followed closely by the downtown Detroit submarket, coming in at $944 per month. Farmington Hills is an affluent submarket with a 2010 median household income of just under $110,000.

Looking forward, Hendricks-Berkadia expects the metro to add over 65,000 jobs, which will boost occupancies even further, ultimately driving the overall vacancy rate to 3.4 percent. This is an exceptional development, especially considering this figure has averaged 6.8 percent over the last 10 years.

New City Plan Will Reduce Boston Homelessness by 2016

By Veronica Grecu, Associate Editor – MultiHousingNews.com

After detailing the $16.5 billion “Housing Boston 2020” plan that calls for 30,000 new residential units completed by 2020, Mayor Thomas M. Menino announced this week another housing strategy that aims to fight homelessness in Boston.

Named “Bringing Boston Home”, the new plan was put together over the past four years by members of the Leadership Council on Homelessness in an effort to reduce the number of people living on the city’s streets or public shelters by 50 percent by the end of 2016.

There were almost 7,000 homeless people living in shelters, on the street, in transitional housing or enrolled in residential treatment programs at the end of 2012, according to data revealed by the Boston Business Journal. That accounts for approximately 3.2 percent of the total Boston population—a 23 percent drop since 2009—and an extremely small number as compared to other cities its size.

“Bringing Boston Home” will specifically address seven major issues that the city needs to solve:

-          Reduce the number of people living on the streets by half by the end of Fiscal Year 2014;

-          Find permanent shelter for 80 homeless individuals who use the city’s hospital emergency rooms by 2016;

-          Use Boston’s emergency shelter system only for short-term stays, not as a long-term housing solution;

-          Set up a system of regional services and support outside the city to help homeless individuals released from the criminal justice and social service systems find appropriate housing solutions;

-          Reduce the number of families facing eviction for unpaid rent by 25 percent by providing housing subsidies;

-          Allow and support access to educational, skill training and advancement possibilities in order to prevent recurring homelessness and promote long-term stability;

-          Create 225 housing units for homeless people by the end of 2016.

According to Boston.com, the plan already has $2.4 million in available funding, and another $4.9 million will be raised by 2016 through reprioritizing existing resources and attracting further public and private funding.

“We are going to help our most challenged and medically frail homeless off the street; make sure that the mentally ill, ex-offenders, and youth don’t unnecessarily wind up in shelters, and help families in subsidized housing keep their homes, even when unexpected circumstances make it hard to pay rent,” said Mayor Menino in an official statement.

Pending Home Sales, Mortgage Delinquencies, Unemployment Claims Down

By Dees Stribling, Contributing Editor – CommercialPropertyExecutive.com

According to the National Association of Realtors on Thursday, the Pending Home Sales Index, a forward-looking indicator based on contract signings (but not closings), dropped to 107.7 in August from a downwardly revised 109.4 in July. That’s still above August 2012, however, when the index was 101.8. Pending sales have been above year-ago levels for the past 28 months.

NAR chalked up the drop to tight inventory conditions, higher interest rates, rising home prices, and continuing restrictive mortgage credit. “Sharply rising mortgage interest rates in the spring motivated buyers to make purchase decisions, culminating in a six-and-a-half-year peak for sales that were finalized last month,” NAR chief economist Lawrence Yun said in a statement. “Moving forward, we expect lower levels of existing-home sales, but tight inventory in many markets will continue to push up home prices in the months ahead.”

The Realtors also predict that although total existing-home sales this year will be up about 11 percent to nearly 5.2 million units, little change in sales will be seen in 2014, with sales forecast to increase less than 1 percent. The national median existing-home price should rise 11 to 12 percent for all of 2013, but ease to an increase of 5 to 6 percent next year, with general improvement expected in inventory supplies. 

Mortgage Delinquencies Continue to Drop

Lender Processing Services (LPS) released its First Look report for August on Thursday, which found that the U.S. mortgage delinquency rate – which the company defines as loans 30 or more days past due, but not in foreclosure — decreased to 6.2 percent from 6.41 percent in July. The “normal” rate for delinquencies–that is, the rate recorded during periods of relative economic health–ranges from 4.5 percent to 5 percent.

The percentage of loans actually in the foreclosure, which has been the bane of local residential real estate markets in recent years, dropped to 2.66 percent in August from 2.82 percent in July.  That’s still a good bit higher than the “normal” rate of around 1 percent, but it’s still the lowest level in more than four years.

The states with the highest percentage of noncurrent loans, including both delinquent and in foreclosure include Florida, Mississippi, New Jersey, New York and Maine, according to LPS. Those states with the lowest percentage of noncurrent loans are out West in the energy-boom states, including Montana, Colorado, Wyoming, and the Dakotas.

Initial Unemployment Claims Drop

The U.S. Department of Commerce reported on Thursday that for the week ending Sept. 21, initial unemployment claims were 305,000, a decrease of 5,000 from the previous week. The four-week moving average was 308,000, a decrease of 7,000 from the previous week, and the lowest that figure has been since mid-2007, before the recession.

Wall Street had an up day on Thursday after a run of losers, despite the prospect of federal government shut down come Oct. 1. The Dow Jones Industrial Average was up 55.04 points, or 0.36 percent, while the S&P 500 gained 0.35 percent and the Nasdaq advanced 0.7 percent.

5 Long-Time Resident Retention Tips

by  - Property Management Insider

The old Texas saying “Dance with who brung ya” was a favorite of former Texas Longhorns head coach and legend Darrell Royal. It seemed fitting that Anne Sadovsky and I talked about that expression at June’s Apartment Association of Greater Dallas (AAGD) officer installation dinner where she was recognized with an appointment as a lifetime AAGD member and drew two standing ovations.

The idiom is very much in line with what Sadovsky has preached in her work as an industry trainer and consultant: Go with the players who best help you win. To Sadovsky’s point, retaining existing residents – especially those who have danced the dance with your property for many years – is critical in keeping apartments full.

Build Value by Building Relationships with Long-Time Residents

“Historically, we get so focused in our efforts to get new customers that we forget at renewal time about those who have lived with us and paid their rent for a year or more,” she said. “We spend our money and time on marketing to new residents, even standing on the corner banging our drum, to drive new business. Too often we forget the most important thing – keeping people we’ve got.

“We have improved greatly through the years. However, we still have room for improvement.”

A full roster of prospects can make it tempting for any head coach or property manager to look the other way when a long-time resident doesn’t renew. Having a call/wait list is insurance. But the cost for turnover is very expensive, an industry fact. For some properties it can be $3,000 or more (vacancy loss, marketing expense, labor costs, concessions and other costs) to get an apartment ready after a vacancy. The rule of thumb is that it costs five times or more to replace the resident than to keep them. With an industry-accepted 50-55 percent turnover rate, we’re talking serious money.

Yet, Sadovsky reminds, that the industry doesn’t always think about the impact that a long-time resident has on the property, both in the value of the community but also the property. “If they stay with you for 10 years, they’ve bought the darned apartment,” she said. “Think about that: if you use $1,000 as a rent average per month, times 12 months times 10 years, that’s 120,000.”

Improve Resident Retention with Genuine Expressions of Gratitude

Sadovsky suggests that property managers can retain long-time residents with a genuine expression of gratitude; something much more meaningful than a digital trinket or gift card that the resident could potentially use somewhere else. And in the process, the apartment can add bottom-line value to its property.


Image of a thank you card

“It’s a great idea to offer some incentives for renewals while being smart enough to retain those incentives at the property. At the same, the resident is being honored for having been there and paid the rent, and encourages them to renew. The incentives can be more of a perceived value than anything, and could be part of an ongoing rewards program that rewards residents the longer they live at the property.”

Here are five simple incentives for just a few hundred bucks that Sadovsky believes will encourage residents to continue living at the property and improve resident retention rates:

1. Make Reserved Parking a Perk for Loyal Residents

Parking is an issue in huge urban areas, and offering a resident his/her reserved space can be very attractive. Residents may actually be willing to pay additional for the parking, which could be rolled into the lease agreement.

2. Bring Back that New Apartment Feeling

Turn that apartment back into that “brand new” unit simply by painting and cleaning up. Ann contends that some people move out because the apartment is dirty. The resident may never have cleaned their oven or there is mildew in the shower. Contract a bonded maid service for half a day to give the place a good scrubbing.

3. Create a Sense of Ownership

One perk to home ownership is that any out-of-pocket improvements made can add to the long-term value of the property. While renters may want to improve their apartment, they are not getting potential return on the investment because the property is not theirs. However, if the apartment property makes an upgrade as a reward for long residency and renewal, the renter gets the benefit without dipping into their wallet. Obviously, the property benefits in value. The improvement can be as simple as putting in a nice light fixture in the dining room or adding a ceiling fan in a bedroom.

4. Become a Part of the Routine

Drive by any national coffee chain in the morning and you’ll see a great opportunity. Tell your residents to avoid that drive-thru on the way to work by stopping the office for a cup of premium coffee to go. The amenity will not only save your customers money and commute time but let’s them know they are valued.

5. Establish a Sense of Community

It is sad that we’ve lost the sense of community in our country. Recent events in Cleveland support that. And when residents frequently see moving vans on the property and residents leaving, that further weakens the neighborly bond. Apartments can plan simple events or social gatherings, usually at a nominal expense, so that residents gather and get to know each other. People are less likely to move if they have strong bonds with neighbors, and property managers should help knit the apartment community together.

A show of appreciation to a long-time resident at renewal time, or any time for the matter, doesn’t have to be over the top.

“Our residents need to feel good about where they live, and it’s up to the property to make sure that happens,” Sadovsky said. “While this is a business, it’s also a lifestyle for our residents. It is their home so encourage them to stay.”

That, my friends, is dancing with who brung ya.

Top Ten Apartment Market Rent Growth Leaders for Second Quarter 2013

by  - Property Management Insider

Earlier this month, MPF Research released highlights for the apartment market’s performance in the second quarter of 2013 and reported strong demand and accelerating rent growth.

When MPF releases these quarterly numbers I always look at the leader board to see which metro secures the top spot for rent growth. During the past few quarters, the top spot has been held by one of the Bay Area metros.

Did a Bay Area market once again claim the title as top annual rent growth leader? Did a metro from the Pacific Northwest challenge for the top spot? Let’s have a look.


Top Ten Apartment Market Rent Growth Leaders for Q2 2013

Click here to enlarge graphic.

 

Top 10 Rent Growth Leaders Analysis

Among large individual metros, San Francisco ranks as the country’s rent growth leader by a fairly large margin. Pricing there rose 7.8 percent during the past year, taking average monthly rent to $2,498. Annual rent growth came in at 6 percent to 6.9 percent in Oakland, Denver-Boulder and Seattle-Tacoma, and prices climbed 5 percent in San Jose.

Markets registering annual apartment rent growth of 4 percent or a little more were Portland, Houston, Austin and West Palm Beach. Fort Worth completed the top 10 list of the nation’s biggest metros with the fastest rent growth: rates there jumped 3.6 percent.

Metros that just missed the cut-off point for the best-performers list included Chicago, Raleigh-Durham, Columbus and Miami.

New York Apartment Market Curiously Absent

Notably missing from the top-performing group as of second quarter was New York. In fact, the metro registered slight rent cuts during the year-ending second quarter, with pricing down 0.6 percent. Still, New York’s average monthly rents are by far the highest in the country at $3,269, and its occupancy rate of 97.7 percent is the tightest anywhere. According to MPF Research, the metro is probably just getting a brief, minor correction in rent levels, after owners and operators got perhaps a little too aggressive when pushing prices throughout 2011 and the first half of 2012.

What’s your take? Are you surprised by the apartment markets appearing on this rent growth list? What about those that didn’t make the list? How was the rent growth on your apartment portfolio?

Bidding Wars are Back

By Aaron Y. Strauss, A.Y. Strauss – MultiHousingNews.com

Leverage has swung back in favor of sellers, especially within the multifamily sector. All too often these days, anxious buyers find themselves bidding on a great property and expect a draft contract from the seller shortly. But their broker mentions to them that the deal is strictly “as is,” that there is absolutely no due diligence and that there are other buyers actively competing for the same property.

While brokers may sometimes contribute to the feverish pitch around a deal by working buyers into a frenzy, the days of buyers squeezing sellers for healthy due diligence periods and having the luxury of time to fastidiously negotiate all their demands are gone.

Lawyers, too, may contribute to the drama. Sadly, it’s not uncommon to hear an owner or a buyer gripe about how their attorney is “over-lawyering” their deal—throwing as many obstacles in the way of the deal as possible in an effort to generate billable hours and drag out negotiations. And while that kind of counsel may traditionally be viewed as counterproductive, today, in the face of bidding wars, where timing is of the essence, this style of lawyering is often a major determinative factor in whether deals are won or lost and can have a negative impact on the overall strategy of a real estate owner or investor.

Given this particularly frenzied environment, here are some suggestions to help multifamily investors not only survive but thrive in the multifamily bidding wars:

View what the broker tells you with some healthy skepticism. 

For obvious reasons, brokers are incentivized for the parties to move ahead at lightning speed. This is often a good thing for everyone so that a deal does not get stalled. But brokers come in many shapes and sizes. Just as with attorneys, some are more ethical than others. Sometimes a buyer may be told it is a bidding war by a broker to provide that extra spark of anxiety, but you should ask your attorney to speak with the seller’s attorney to get a better feel for what is really happening. For example, the seller’s lawyer may reveal that “two other parties recently backed out,” which the seller’s broker may have positioned as “two other interested parties.”

Regardless of the competition for a property, all competing buyers including YOU need basic information to underwrite the deal. 

For example, a seller was refusing to provide leases for a property, leaving the buyer to question whether he should forego the requirement since there were other bidders. EVERY SINGLE OTHER BUYER would want a copy of the leases to verify the property’s income. Don’t forgo common sense just because your emotions are heightened in a bidding war.

3 When the deal is moving at much speed, your attorney’s job is to flag the serious issues and then get out of the way. 

I recently was involved in an off-market transaction that a client bought from an estate and then flipped within 90 days for a roughly $10 million profit. When the economic drivers of the deal are so compelling, many nuances of the contract that are ordinarily negotiated are sometimes plainly irrelevant given the deal value. You must still flag every issue for your client, but use common sense and don’t heavily negotiate a highly theoretical condemnation provision to the detriment of killing a deal.

4 In a competitive bid setting, if at all possible, try to set up a “sit down contract signing.” 

Although we live in a technological wonderland where efficiency is almost always facilitated by email and conference calls, this is a major exception. You simply cannot replace the dynamics of sitting down in a room with both the seller and buyer and their attorneys to quickly hammer out (and win) a deal.

Fight for your right to assign the contract. 

In a frothy market, if there are truly competitive bids on a property, a buyer may have actually made money by simply signing the contract if they’ve retained the right to assign it or “flip it.” While most sellers and their counsel will heavily resist the right to assign (and the request for the right to assign has to be marketed carefully so as not to appear as a “flipper”), in a rapidly moving and rising market, it is too valuable an option to leave on the table if at all possible.

Aaron Y. Strauss is the founder of, and a partner at, A.Y. Strauss, a commercial real estate law firm with offices in Roseland, N.J. and New York City.

Top Five Performing Secondary Apartment Markets

by  - Property Management Insider

Cap rate compression and price appreciation has led to more apartment investors seeking opportunities in smaller markets across the country. MPF Research examines which smaller markets have performed well of late, and which ones offer promise going forward.

Major markets, according to MPF Research, are the top 50 apartment markets according to the total number of apartment units. Secondary markets, as defined by MPF, are those markets outside the top 100 and typically have between 25,000 to 85,000 apartment units.

Looking at the apartment performance of secondary markets over the past year, there are five metros that clearly stood above the rest. These five markets all rank in the top five of annual revenue growth and annual rent change among secondary markets.

Rank Metro Annual
Revenue Growth
Occupancy Annual
Rent Change
1 Fort Myers/Naples, FL 9.5% 96.4% 7.0%
2 Santa Rosa/Petaluma, CA 7.5% 98.2% 6.8%
3 Corpus Christi, TX 6.9% 96.9% 6.3%
4 Sarasota/Bradenton. FL 6.6% 96.3% 5.8%
5 Honolulu, HI 6.1% 97.4% 6.2%

 

Top Secondary Markets Looking Forward

While this list of top performing secondary markets deals with past performance, here are some markets that MPF Research likes going forward:

  • Corpus Christi, TX
  • Santa Rosa/Petaluma, CA
  • Greenville, SC
  • Charleston, SC
  • Oklahoma City, OK
  • Madison, WI
  • Albany, NY

Zillow Reports Higher Home Values; Economic Activity Still Historically Low

By Dees Stribling, Contributing Editor – CommercialPropertyExecutive.com

Zillow reported on Tuesday that its Home Value Index was up 6 percent year over year in July, to a value of $161,600. That’s the first time, at least according to the home value data specialist, that home values have appreciated at an annual pace of 6 percent or higher since August 2006, and another bit of evidence that the U.S. residential market has indeed founds its legs.

July also marked the 14th straight monthly home value appreciation, according Zillow. Home values were up 0.4 percent in July compared with June.

“After three straight months of annual home value appreciation above 5 percent, the U.S. housing market recovery has proven it is on very sound footing,” Zillow chief economist Stan Humphries said in a statement. “We have entered a new phase in the recovery when we can begin to turn away from ugly recent history and turn toward what the housing market of the future will look like and how it will act.”

Economic Activity Still Historically Low 

The Chicago Federal Reserve said that its National Activity Index (CFNAI) edged up to –0.15 in July from –0.23 in June, which means that economic activity is still below its historic trend, but not quite as far below in July as the month before.

The index’s less jumpy three-month moving average, known as CFNAI-MA3, increased to –0.15 in July from –0.24 in June, marking its fifth consecutive reading below zero. Still, it was an improvement for the index, which has been hovering around zero since the recession ended. The all-time low for the CFNAI-MA3 was a little lower than –4 in early 2009. The only time it had even come close to that kind of trough before was during early 1975.

According to the Fed, the index is a weighted average of 85 indicators of national economic activity from four categories of data: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. Zero indicates that the national economy is expanding at its historical trend rate of growth, which negative values mean below-average growth, and positive values point to above-average growth.

Wall Street ended the day mixed on Tuesday, with the Dow Jones Industrial Average down 7.75 points, or 0.05 percent. The S&P 500 and the Nasdaq, however, were up to 0.38 percent and 0.68 percent, respectively.