More on the strength of the apartment market:
“The multifamily sector continued its marathon-like recovery in 2011, and has entered full expansion mode in virtually every market,” says Hessam Nadji, the firm’s managing director of research and advisory services.
Marcus & Millichap expects the vacancy rate to dip to 5% by the end of the year, a 40-basis-point decline since 2011. (Reis Inc. puts the current vacancy rate at 5.2%.) With so few apartments up for grabs, rents could grow by a 4.8%.
Because the amount of distressed property remains large, large equity firms and other institutional players are moving to enter the market of distressed real estate. And it’s not just large commercial properties attracting attention.
“On the residential side, GI Partners recently invested in Waypoint Real Estate Group, an acquirer of distressed single-family rental homes. The investment will initially be used to acquire more than $250 million in properties and may support the acquisition of up to $1 billion of properties.
The Wall Street Journal elaborates on the possibilities seen by private equity firms in the single family rental market…
More articles are coming online describing the improving condition – and future – of the apartment market. Here, the Wall Street Journal notes a report from Property & Portfolio Research, claiming both incomes and rents are set to increase over the next five years.
These are heady days for apartment owners: Demand is growing and supply of new rentals continues to lag. But are landlords getting ahead of themselves? Will a recovery take hold that allows people to afford heftier rents?
The Interest Rate Indices chart below shows the last ten+- years for each of the major interest rate indices used by apartment lenders. Most adjustable rate apartment loans are based on these indices:
In my firm, we track each of these indices and report to our clients what their underlying mortgage rate index is for their loan and how it is trending, i.e., whether their mortgage rate is headed up or down.
Interest Rate Indices
With another new year comes another round of new legislation affecting California’s apartment owners and managers.
1. California Landlords May Ban Smoking in Rental Units and/or Common Areas:
Beginning January 1, 2012, a residential landlord can prohibit the smoking of cigarettes and other tobacco products on the property, including any dwelling unit, building, other interior or exterior area, or the premises on which the property is located.
For new tenants on or after January 1, 2012, the areas where smoking is prohibited must be stated in the lease or rental agreement. For preexisting tenants before 2012, a new provision prohibiting smoking is a change in the terms of tenancy that requires adequate written notice, depending on whether the tenancy is month-to-month or for a fixed term.
Not surprising for those of us in the trenches of the SF Bay Area apartment market, but the local apartment markets of San Francisco and San Jose led the nation in rent growth for 2011.
“Holding its lead as the best performing commercial sector, the U.S. apartment’s overall revenue climbed 5.8 percent in 2011 with effective rents rising 4.7 percent, according to market watchdog, MPF Research Inc.
“While apartment demand has cooled off a bit from 2010′s incredibly large volume, it remains very strong,” said Greg Willett, vice president of MPF Research, a division of RealPage Inc. Occupancy nationwide rose 1.1 percent to 94.6 percent for the year.
“Like any other kind of real estate, the apartment market is a game of numbers, and throughout 2011, the numbers have been on the side of owners, developers and investors. After a turnaround year in 2010—everyone took a licking from the Great Recession, after all—apartments were suddenly in demand in 2011 both by renters and investors, and there’s little doubt that the year will be remembered as one in which the apartment industry fully bounced back not only from the tough recession years, but also the hard times (for the industry) of the mid-2000s, when everyone who could (and many who couldn’t) bought a house.
“Powerful demographic trends, along with changing attitudes about homeownership and tighter mortgage underwriting, continue to drive a shift toward renting,” notes Mark Obrinsky, chief economist at the National Multi Housing Council (NMHC), adding that the industry has responded, after some lag because of tight credit for everyone, with an increase in development.” Read more…
“Multifamily real estate has outperformed most other real estate segments of late, and that is unlikely to change in the short term. With increasing rents and occupancy rates, things are still looking good for multifamily properties. Analyst Victor Calanog suggests, however, that investors focus on Class A property, as he believes Class A properties will significantly outperform Class B & C ones. For more on this, continue reading the following article from National Real Estate Investor.
Multifamily properties have outperformed other commercial property types in the past two years, benefiting directly from the continuing travails of the for-sale housing market.
Occupancies and rents have improved consistently, in seeming defiance of slow economic growth and the lethargic pace of job creation. Signs of weakness have begun to appear, however, for certain segments of the apartment market, suggesting that even the best performing property type in real estate nowadays is still subject to fundamental economic rules.”
From the New York Times comes a story of one landlord’s fight to ease rent restrictions on the apartment building where he grew up. James D. Harmon Jr.’s fight has gone to the US Supreme Court.
“James D. Harmon Jr. learned the value of a house as a child, shoveling coal into the furnace of one of two Upper West Side buildings owned by his grandfather, a French immigrant who worked as a waiter. “Jimmy, you take care of your building and your building will take care of you,” his grandfather told him.