Daily Archives: February 1, 2014

Oversupply Not an Option In These Markets

By Sule Aygoren - GlobeSt.com

BOCA RATON, FL—Too many apartments, not enough renters? Will an oversupply of development saturate newly recovering markets? How much is too much? Those are the questions that still hit home for multifamily investors in 2014. But are the worries legitimate? For some markets, perhaps. But Jones Lang LaSalle predicts 14 cities will overcome oversupply issues, with Sunbelt markets such as Tampa, Jacksonville and Phoenix shining brightly in the year ahead.

The markets JLL expects to shine into 2017 include: Phoenix, Atlanta, Jacksonville, Tampa, San Diego, Dallas-Fort Worth, San Antonio, Houston, Philadelphia, Orange County, the Inland Empire, Palm Beach, Las Vegas and Memphis.

“Besides construction levels, it’s all about job growth and household growth—those are the two critical demand factors that will determine how metros will perform through the current development cycle,” said Jubeen Vaghefi, international director and leader of the firm’s Multifamily Capital Markets group. “The surprising news to many will be the resurgence of the sunbelt markets over the tech-heavy regions. After some very tough years, that’s where we’re seeing a significant rise in new households as a result of improving economic conditions.”

According to JLL’s Multifamily Outlook report, released last week at the National Multi Housing Council’s Annual Meeting here, the national apartment sector expansion continued in 2013 as occupancy reached a 10-year high of 95.8% and gains averaged 13 basis points a quarter. In addition, as expected, 2013 turned out to be a record-breaking year for multifamily sales as volumes totaled more than $100 billion—outpacing 2012’s velocity by nearly 30% and surpassing the 2007 record by nearly $6 billion. New York, the greater Washington, DC area and Los Angeles led in sales volumes with a combined total of more than $30 billion. Dallas and Houston rounded out the top five, followed by San Francisco, Atlanta and Phoenix.

“A large component of these record volumes was needle-moving portfolio sales, ownership entity transfers and mergers of major apartment operators,” explained Brady Titcomb, vice president and director of US Multifamily Research at JLL. “In addition, the US recovery over the past 12 months, rising consumer confidence and still historically low interest rates played a critical role in aiding growth by propelling the housing market recovery.”

The JLL report showed that the housing recovery is causing expansion nationwide. In addition, tightening market conditions brought US quarterly rent increases for 2013, averaging 75 basis points a quarter with high-tech and STEM employment centric markets driving the most notable rent growth.

On a year-over-year basis, the JLL report showed that Seattle, Nashville, San Francisco, Denver and Houston have led in annual rental growth averaging between 4.5% and 7%.

The report also showed that since 2012, uncertainty overseas has driven demand for US multifamily product back to pre-recessionary levels. While international capital has found its way to nearly all of the major metros, Dallas, New York, Chicago, Houston and South Florida each saw more than $300 million in cross-border capital since the start of 2012.

According to the NMHC’s quarterly survey of apartment market conditions released in October, following four years of almost continuous growth, apartment markets have begun to slow. NMHC’s vice president of research and chief economist, Mark Obrinsky, says, “Conditions cannot continue to improve indefinitely and new development is at least somewhat constrained by available capital, though more on the equity than the debt side.”

But overall, the strength of the fundamentals will continue to propel the sector, according to Vaghefi, “We expect multifamily performance to remain strong for the foreseeable future. While there are some supply concerns that will slow the pace of occupancy and rent growth, overall the anticipated increase in job growth and household formation will help to mitigate the threat of oversupply and keep conditions balanced across the country.”

With continued improving economic conditions nationally, JLL anticipates US occupancy gains to average 40-60 basis points annually over the next three years. Assets located in secondary markets and value-add opportunities will be in higher demand as the search for yield becomes increasingly difficult.

With Problems Come Lessons

by Vic Johnson

“As a progressive and evolving being, man is where he is that he may learn that he may grow; and as he learns the spiritual lesson which any circumstance contains for him, it passes away and gives place to other circumstances.” –As A Man Thinketh

It has taken me a long time to be able to look at a problem I’m having as a necessary spiritual lesson. To be frank, I’m still not always really excited to be enduring the pain and frustration that negative circumstances usually cause. Some days I’d like to “play hooky” and skip the lesson.

But as I look back at my life, it is easy to see that the times when my wisdom and understanding grew to new levels; those times when I approached becoming the person I long to be; it was always the times that followed negative circumstances. The greatest growth you’re going to have is going to come from the negative circumstance you have today that sometimes seems too overwhelming, too big to scale.

Writing in Byways of Blessedness, James Allen is strong in his call for us to embrace our circumstances. “Let a person rejoice when he is confronted with obstacles, for it means that he has reached the end of some particular line of indifference or folly, and is now called upon to summon up all his energy and intelligence in order to extricate himself, and to find a better way; that the powers within him are crying out for greater freedom, for enlarged exercise and scope.

“No situation can be difficult of itself; it is the lack of insight into its intricacies, and the want of wisdom in dealing with it, which give rise to the difficulty. Immeasurable, therefore, is the gain of a difficulty transcended.”

Maybe that explains why it sometimes seems that I can’t shake a particular problem, or I have one that keeps rearing its ugly head. Instead of fighting it, I need to jump in and gain the insight and wisdom to handle it. Then it would be gone, and I would be ready for the next lesson—only stronger, both in spirit and in wisdom!

And that’s worth thinking about.