Tag Archives: multifamily industry

The Apartment Market Forecast in Headlines

Multifamily Industry Expects Strong 2011

Multi Housing News (MHNonline) 11-29-2010

Apartment Market at Tipping Point

Colorado Springs Business Journal 2-4-2011

Distressed Debt Investors Prefer Real Estate in 2011

Forbes.com 1-7-2011

CRE Sales Deal Volume Returning to “Normal Levels”

CoStar Group 1-5-2011

Colorado Exceeded Only by Texas as 2010 Relocation Target

denverpost.com 1-4-11

Apartment Operators Regain Pricing Power as Vacancy Recedes to 10-Year Low

Marcus & Millichap 2011 Annual Report (Denver)

As you can see, apartments are the current darling of the commercial real estate world in the United States. The major factors in this trend include a huge number of 18-34 year olds forming their own households, continued high number of residential foreclosures, general population growth via births and immigration, and a lack of any significant apartment developments completed recently or in the pipeline.

In addition, REITs have apparently stopped waiting for the predicted wave of distressed deals and are scooping up Class A properties in high-barrier-to-entry markets such as Washington, D.C., New York City and San Francisco. Since they’re buying in the 5-5.5 cap rate range, it’s apparent they believe in these purchases as long-term holds. Insurance companies, dormant in the field for the last few years, are also returning to the market as both buyers and lenders.

All this has combined to make the next few years perhaps the best time to buy apartments we will see in our lifetimes.

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

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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

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.

Your Multifamily Energy Costs May Soon Be Made Public

It won’t be long before potential new residents will be able to see the energy costs of your property on a unit-by-unit basis on the web. This could become another marketing angle by green communities to sell themselves to new and renewing tenants.

The Hyperion Tower in Seoul, South Korea. Unde...
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Mike Radice is President and CEO of NWP Services Corp., a multifamily utility management services company. His firm is working with a prototype software package currently using the name Viastar. “We are developing an analytical database to benchmark energy performance in apartment communities to the degree that owners can boldly proclaim that they are tracking, managing, and communicating energy costs to the consumer,” Radice says of the Viastar program. He believes that the multifamily industry is moving toward greater energy conservation at the same time residents are becoming more desirous of information about energy and carbon footprints. A certification program with full transparency might become part of a community’s marketing edge.

In a related note, HUD is considering a program that “analyzes transportation, energy, and costs of living metrics for specific for-sale and for-rent housing units and displays that cost to consumers via a sticker visible somewhere on the property.” Read more about this here.

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