Tag Archives: apartment industry

Marcus & Millichap Apartment Forecast January 2011

In a webinar presented on Jan. 11, 2011, the Marcus & Millichap team gave an upbeat report on the current state of the U.S. apartment industry.

As usual, Hessam Nadji began with an economic state of the union address. After acknowledging nine different problems the economy is now facing, he presented another nine positive indicators. Among them is the fact that retail sales are now higher than they were before the recession. The GDP is back to 2007 levels. The rate of job growth is higher than both of the last two recessions. Worker productivity is at an all-time high.

There are 2 million young adults living at home with their parents. Many of these will move out in the next few years. Their confidence is bolstered by the fact that 65% of all new jobs created in 2010 were filled by those in the 20-34 year old category. Most of these new households formed will be renters, not owners.

Apartments in St Leonards, New South Wales

Image via Wikipedia

On that note, he moved to a slide entitled, “Apartments Entering Rapid Recovery.” Here he mentioned that 2010 was a very good year for the industry. The vacancy rate plunged a full percentage point. He expects another full percentage point drop in 2011, followed by a strong 2012. This is because there is almost no building going on at a time when demand is coming back so strongly. Given the difficult environment for developers, he predicts a good 4 to 5 year run for apartments.

Next up was Bill Hughes, who spoke about the capital markets. Commercial real estate financing got better through 2010 with apartment fundamentals providing the boost. Apartment values went up, lenders started showing more confidence, and Fannie and Freddie continued to provide most of the funding to the industry.

Looking ahead to 2011, Marcus & Millichap believes that in addition to the current sources of capital, insurance companies will once again start to loan on apartments. Several new commercial banks will begin to lend, and the CMBS package will start to reappear.

10-Year Treasuries should stay in the 3.5%-4% range. As the economy starts to rebound, expectations of inflation will push the rates up.

Lastly, he listed sources of debt for three groups of investors. The smaller investor, working in the $1-10 million range, will rely on Fannie and Freddie, commercial banks and some life insurance companies. They will find LTVs in the 70-75% range. Some lenders are taking the DSCR as low as 1.15 to accommodate the smaller investor. Most of the loans will be recourse loans.

Medium investors, looking at deals in the $10-20 million range, will find a wider array of financing options. This is where finance companies come in with mezzanine and bridge financing, and CMBS starts to play a role as well. The debt service coverage ratio will be around 1.20 and the LTVs once again in the 70-75% zone.

Investors needing over $20 million will find the larger banks will work with them on both recourse and non-recourse loans. DSCR and LTV will match the medium group. With more data available in the marketplace now, lenders are growing in confidence. Continue reading

Investing in Apartments: 3 Reasons Why Now Is a Great Time

Everywhere one looks today there are growing signs that investing in apartments is a smart idea now and will be for the next several years.

The part of the American Dream that includes a white picket fence and your very own home is fading for many. In the second quarter of 2010, only 66.7% of households owned their own home. That’s the lowest number recorded since the last quarter of 1999. Many of those former homeowners are now renting their homes, and some have gone back to apartments.

In fact, when a Trulia survey recently asked, “Is home ownership a part of your American Dream?”, only 72% responded, “Yes”, compared to 77% just six months earlier.

In a May 2010 survey of over  2,000 U.S. adults, the National Apartment Association found that 76% of the respondents now believe that renting is a better option than owning. This is up from 71% in 2008. Half of the people cited financial reasons, while a full 64% enjoy having no maintenance responsibilities.

In addition to the positive signs from these surveys of American’s attitudes, current apartment owners are reporting improving conditions. The National Multi Housing Council performs a quarterly Survey of Apartment Market Conditions. One section measures “market tightness.” A Market Tightness Index reading above 50 indicates that, on balance, apartment markets around the country are getting tighter; a reading below 50 indicates that market conditions are getting looser; and a reading of 50 indicates that market conditions are unchanged. The July 2010 index stood at 83, up from 38 in January and 11 recorded in January 2009. This is a clear trend showing fewer vacancies in existing apartments.

SAN FRANCISCO - JULY 08:  A sign advertising a...
Image by Getty Images via @daylife

Greg Willett, VP of MPF Research claims that, “Demand is stunningly high in the first half of 2010.” The number of occupied units increased by 215,000 in the 64 largest U.S. markets through June. That’s almost twice as many as in all of 2009. The overall vacancy rate in the same markets declined to 6.6% from 8.2% in December. Closer to home, the Colorado Springs vacancy rate dropped to 5.8% in the second quarter, the lowest rate recorded since the 5.4% reported for the third quarter of 2001.

The third main reason smart money is moving into apartment investing is the tsunami of new renters coming of age in the next few years. These “echo boomers”, children of the original baby boomers, are now in their 20s and 30s, typically prime renting years.

The Baron’s cover story of July 26, 2010, entitled Renter Nation, claims that, “Roughly 10 million extra folks could be moving into rentals in the next five years.” In addition, the National Association of Home Builders chief economist believes the 83 million echo boomers entering the market over the next decade is a positive demographic trend for the apartment market.

Since improving apartment market conditions usually follow job growth, experts are speculating as to why this improvement is happening without it. Maybe the economy has stabilized to the point that young workers have enough confidence in their current job to move out of home or split up from their roommate, but not enough to put a down payment on a home (if that’s even a goal).

So, because of changing American attitudes about home ownership, decreasing vacancy rates, and the demographic bubble approaching, it’s looking like a great time to be investing in apartments.

Enhanced by Zemanta

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.

Reblog this post [with Zemanta]

Colorado Springs Has Third Highest Apartment Turnover Rate in Country

According to a recent survey conducted by the National Apartment Association, the apartment resident turnover rate is 74% in Colorado Springs, tying it for third place with Charleston, SC. In contrast, the metro area with the lowest rate is San Jose-Sunnyvale-Santa Clara, CA, with just 9% turnover. No other Colorado city made either the top or bottom 10 lists.

Garden apartments in Jackson Heights
Image by mkuhnert via Flickr

While dealing with a prolonged recession, declining rents, tax increases, and a rising cost of living, the apartment industry is placing greater emphasis on operations and management skills. One of the biggest factors in successful communities is the quality of the onsite personnel, who serve both the residents and the owners. They are dealing with declining NOIs and increasing expenses while dealing with a very competitive marketplace. They also have to be aware of the economic losses, which combine vacancies, net uncollected rent, and the value of rent concessions. Not an easy time to be an asset manager!

Here is where you can read the entire executive summary of this survey.

Reblog this post [with Zemanta]