Author Archives: Les

Colorado Springs Apartment Vacancy Rate Plummets

According to a report released last week by the Apartment Association of Southern Colorado and the Colorado Department of Local Affairs’ Division of Housing, the first quarter’s rate of 6.9% is the lowest vacancy rate recorded since the third quarter of 2001 when vacancies were 5.4%. The very next quarter of 2001 saw the vacancy rate jump to 8.9%, and it’s been above 8% ever since.

FORT CARSON, CO - JANUARY 28:  Children embrac...
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Most of the credit for the improved stats goes to the influx of soldiers into Fort Carson. We’ve been hearing about this troop consolidation for several years now, but it appears to be finally happening. Although, interestingly enough, the lowest vacancy rates of 4.5% to 5.1% are found in the northern part of town, far from Fort Carson on the southern edge. In fact, the areas nearest the Post still have a vacancy rate of 14.2%, although this is a considerable improvement, since it has been over 20% in recent years.

In spite of the good news on the vacancy front, new jobs are still scarce, so rents are staying put, averaging about $710 for the first quarter of this year.

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Technology Trends in Multifamily Housing

Multifamily executives must constantly evaluate new technology hardware and software products at the same time they are integrating current tools, upgrading legacy systems and training staff to take advantage of underutilized components of programs they already have in place. As quickly as things are changing in this area, it can be a real challenge to keep up.

Social Media

It can be difficult to know exactly how social media like Facebook and Twitter contribute to the bottom line in apartment communities. Many apartment managers and owners feel obligated to maintain Facebook fan pages simply because all their competitors have one. But is it as critical as a clean pool, nice landscaping and a friendly, knowledgeable staff? According to a large survey of apartment residents conducted by J. Turner Research, only 8% had ever visited a community’s fan page.

Facebook, Inc.
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On the other hand, many apartment managers are using social media to improve their rankings in the search engines at the same time they’re slashing their print advertising budgets. Plus, the only cost associated with a Facebook page is the staff time to create it, and occasionally update it. A small price to pay for an online presence that never goes away.

Mobile Phones

There are now more Americans with cell phones than either internet access or cable TV, and an estimated 70 million of us regularly use mobile web browsers. Google recently released Android, a software package for mobile devices, and on Feb 16, 2010 they announced that 60,000 cell phones with Android are shipping every day. Apple recently marked their 4 billionth app download, so as you can see, mobile devices are here to stay.

UDR, a Colorado-based REIT that owns 45,000 apartment units nationally, says that 9% of its web visitors in 2009 used phones for access, viewed over 400,000 pages and created 97 mobile leases. No doubt these numbers will continue to grow.

UDR was also the first to create an “augmented reality” app for multifamily. A potential renter can point their phone’s camera at an apartment and see pricing and availability data superimposed over the live picture. After launching in September 2009, UDR had over 125,000 downloads by the end of the year. Other firms have already created similar proprietary apps and more are sure to follow.

Web Portals

Another large and growing trend among apartment communities is the development of integrated websites that serve tenants and free up staff for other duties. Already, residents can pay rent online and submit work orders. Some properties even send out lease renewals with incentives for renewing early online. Freed from these mundane and time-consuming tasks, onsite personnel can spend more time showing apartments and performing  other duties that increase resident satisfaction.

As you can see, technology is beginning to rapidly change the world of apartment management. I’m sure that apps for the iPad are already in development that will continue to accelerate this trend for the foreseeable future.

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Demand for Apartments Growing in U.S.

In spite of relatively low housing prices and near-record low mortgage rates, many people in the United States still can’t afford to buy a new home. According to the Center for Housing Policy, the income needed to buy a median-priced home dropped in 93% of the 200 housing markets they studied. Unfortunately for the would-be homebuyers, that still was too high a barrier for them.

The Center further reports that in response to these conditions, more people are choosing to rent homes. However, in 89% of those same markets, the demand has driven up the home-rental costs. The greatest contrast was found in Florida, where in 12 markets the income needed to buy a median-priced home dropped 20% at the same time the average rent for a two-bedroom home rose by 6%.

With foreclosures still near record levels and even rental homes becoming unaffordable, many people are turning to multifamily homes. This is causing some housing experts to warn Congress that help may be needed to insure funding is available to create additional units. Recently, Bob DeWitt, CEO of GID Investment Advisers, testified to Congress on behalf of the National Multi Housing Council (NMHC), that government support is needed for the apartment industry. He warned lawmakers not to create a capital shortage for the lower-income sector as they consider ways to reduce taxpayer exposure to the secondary market.

He noted that housing expert Professor Arthur Nelson of the University of Utah projects that “half of all housing built over the next 10 years will need to be rental housing to meet the dramatically changing landscape of demand.”

This is further evidence that now is a good time for multifamily developers to start doing their due diligence on location and funding.

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Huge Boom in Multifamily Construction Coming in 2010

According to a recent report in the Wall Street Journal, multifamily housing starts will increase significantly in 2010. Green Street Advisors, a real estate research firm, says that REITs (real estate investment trusts) plan to put almost $1 billion into new apartment construction this year, a whopping 10 fold increase over the $100 million invested in 2009.

Construction on a building in Kansas City
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Even though apartment vacancies are at a record high and unemployment remains a serious concern, the prospects for 2011 and 2012 are proving too inviting to pass by. Since construction has lagged for several years, the supply of new housing has greatly diminished. This fact, along with an improving economy are the two main reasons stated for the increased optimism about the next few years.

From 2012 through 2015, “apartment REITs may generate the best property net operating income growth that they’ve seen in a very long time, maybe ever,” said Haendel St. Juste, a REIT analyst with Keefe, Bruyette & Woods Inc.

Landlords also are excited about the potential for increased demand. The 20-to-34 age group, prime renting age, is expected to increase by five million in the next decade, according to Hessam Nadji, managing director of Marcus & Millichap, the nation’s second largest real-estate-investment brokerage firm. In addition, people who moved home or who moved in with roommates during the downturn also might look for their own apartments as the economy improves.

As an added incentive to developers, costs for lumber, concrete and labor have all dropped at least 10% in the last two years. Another sign of optimism came from the Commerce Department, which announced multifamily housing starts rose by over 9% in January of this year. And architects are finally getting calls again after a year of pretty quiet phones.

This all bodes well for the timing of our development in an emerging market on the coast in North Carolina.

What Happened to the Huge Wave of Distressed Apartment Sales?

A year ago, many were predicting that 2009 would be the year when there would be a large rush of apartments coming to market at killer prices. Since that failed to materialize, the question remains: Why?

After all, the financial news was pretty bleak. Banks were closing at a rate of more than two per week. Both rents and occupancy rates fell to record lows. Large numbers of properties were defaulting on their loans. Surely, 2009 would be the best buyers market since the RTC days of the late ’80s.

NEW YORK - DECEMBER 20:  People walk past the ...
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The main reason for the lack of deals is that lenders decided to extend the loans that were coming due on properties that were cash-flowing. Apartments that were put on the market didn’t attract much attention because they weren’t at the distressed pricing buyers had expected. There are a lot of private funds out there representing hundreds of millions of dollars, but it’s been hard to find a deal worth investing in, and those that were properly priced attracted multiple offers.

Still, many experts think that 2010 will be the leading edge of defaults that banks won’t be able to overlook. The years 2005-2007 were when a lot of 5-year mortgages were placed based on overly-rosy projections. Now those are starting to come due, with a huge number right behind them. According to Real Capital Analytics, at the end of 2009 there were almost $31 billion in distressed multifamily properties, compared to just $10 billion at the end of 2008.

Since only a fool will try to time the exact bottom of a market, a lot of those private funds, as well as larger REITs, are expected to start picking up assets this year. Also, many people who previously had invested in office and retail are entering the multifamily arena now, since many of the assets in that class are at least cash-flowing.

As always, some smaller investors will put together groups to buy distressed properties locally that the larger groups wouldn’t touch. They know the submarkets and have the local knowledge and contacts to realize which apartments are salvagable with an infusion of rehab capital and better management. At least that’s one of the strategies we plan to implement this year.

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