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Portland, Oregon Multifamily Fundamentals Wobble, but Remain Healthy Overall in June

by Sarah Daniels July 30, 2020

Five months into the pandemic, fissures are beginning to form in the foundation of the multifamily market. Through the spring leasing season, liquidity from enhanced unemployment insurance benefits and a yearning for stability in uncertain times were enough to maintain occupancy near pre-coronavirus levels and to provide something of a buttress for rents. As spring turned to summer, however, winds seemed to change direction, tenant patience began to fray and property performance waned. West Coast cities with high technology exposure were the first to exhibit material revenue attrition. Reduced employment and income prospects led many renters to reconsider the efficacy of paying the highest rents in the country. Many tenants chose instead to relocate to more affordable areas when leases expired (as many do during the spring leasing season) or simply vacated and broke existing leases. Rents in the San Francisco Bay Area have declined by about 4 percent since the beginning of the year, and as much as 9 percent over the last 12 months. More affordable markets, including Portland, also experienced softening, but to a lesser degree. While fleeing tenants apparently generated a “renter’s market” in San Francisco, absorption in a sample of 919 Portland properties surveyed by …

July 30, 2020

Content Partner Features Lument Multifamily RED Capital Group Washington Western

Seattle Could Provide Template for National Multifamily Recovery

by Sarah Daniels July 21, 2020

In the realm of apartment market research, Seattle represents a bellwether of sorts these days, where broader trends and themes can be parsed. Seattle’s economy, population and real estate landscape have grown at rates previously considered impossible in a primary market. The city stands at the veritable intersection of technological and generational change — the corner of Large Cap Tech Boulevard and Millennial Street — and it has developed into the avatar of the infill, wood-frame mid-rise design touchpoint that defines so much of today’s urban apartment architecture. What happens here will reveal some of the trends likely to follow in similar markets — from Raleigh to Portland. Seattle was also the first major U.S. metropolitan market to grapple with the novel coronavirus, so the path that it follows will provide some insight into how the American multifamily market will mutate as we adjust to “life in the time of COVID,” to borrow a note from Garcia Marquez. By the same token, the Jet City faces the prospect of digesting an enormous multifamily supply pipeline that was, for the most part, conceived for the pre-COVID-19 world. The manner in which this supply is absorbed will speak volumes about how the …

July 21, 2020

Content Partner Features Lument Multifamily RED Capital Group Texas Texas & Oklahoma Feature Archive

Revenue Volatility: Friend or Foe to San Antonio Multifamily Investors?

by Sarah Daniels July 14, 2020

During the great multifamily bull market of this passing decade, investors became increasingly comfortable with exposure to highly volatile metropolitan markets. In an era when it was difficult to make a bad investment decision, the most lucrative were, in most cases, located in areas of the country known for their roller-coaster real estate cycles. Indeed, it seemed as though a purchase capitalization rate could never be too low if an asset was located in one of the primary markets. Volatility was an ally, not a foe — an investment feature, not a bug. With the onset of the COVID-19 pandemic and its attendant recession, however, volatility appears to have switched allegiances. The winds now favor, perhaps, the stable, predictable tortoises over the high-flying hares. In high-cost markets, the number of renters considering relocating to more affordable area codes has skyrocketed, and in the work-from-home era, this has become more of an achievable goal than an inchoate urge. For example, the San Francisco Apartment Association reported that 7.5 percent of tenants in the city — where rents increased at a 6.1 percent compound annual rate since 2010 — simply broke their leases in the three months that ended in May, moving …

July 14, 2020

Austin multifamily occupancy rent growth

Content Partner Features Lument Multifamily RED Capital Group Texas Texas & Oklahoma Feature Archive

Austin: The Right Place at the Right Time for Multifamily Sector

by Sarah Daniels July 8, 2020

“After COVID-19, nothing ever will be the same,” has become a common refrain these days. Perhaps for the next decade or so, every important life choice will be made with public health and safety concerns in mind — and the most commonly chosen solutions will be meaningfully different than before. Among the most fundamental life choices subject to this new scrutiny will be where to live, how to make a living and how to safely move about. Many Americans will opt for less densely populated neighborhoods, increased work-from-home opportunities and private transportation options. When the time arrives to put plans into action, however, most will elect to take small steps rather than a giant leap. Perhaps the high-rise apartment and subway ride to a co-working space can be sacrificed, but not at the expense of convenience, access to nightlife and entertainment and career prospects. Urbanity isn’t out of style, but its form will mutate. Some U.S. metros will struggle to adapt, including a few primary markets. Others seem to be attuned to the times, blessed with all of the now prized attributes already in place. None is more perfectly positioned than Austin. Austin checks all the boxes. It is less …

July 8, 2020

Content Partner Features Heartland Feature Archive Lee & Associates Office Restaurant Retail

Facility Management Will Require Changes Under New COVID-19 Regulations

by Sarah Daniels July 1, 2020

Facility managers across the nation are sorting through information about the coronavirus and looking at building modifications that can prevent the spread. Owners and tenants alike in the office and retail sectors have turned to facility management professionals to help their businesses thrive under rapidly evolving circumstances. REBusinessOnline recently spoke with three facility management professionals from Lee & Associates via video conference about their company’s approach to facility management during the coronavirus pandemic. Teresa Gascho, Director of Management Services, Indianapolis; Frances Smith, Senior Vice President, Property Manager, Cincinnati; and John Rickert, President-Executive Managing Director, Cincinnati, spoke about how facility managers communicate with tenants, encourage healthy behaviors and support businesses in compassionate and creative ways. Communicating with Tenants About COVID-19 Regulations Early in the pandemic, facility managers were charged with limiting access to properties as buildings shut down. Now that occupants are returning to retail and office buildings, the team at Lee & Associates sees themselves as “facilitators and accommodators” for their tenants. Working to reopen buildings under the guidance and recommendations from state health departments and the Centers for Disease Control & Prevention (CDC) is a lot more involved than closing buildings — and it can be frustrating for all involved. However, Rickert notes, “We’re …

July 1, 2020

Houston multifamily rent & occupancy_rev345tall

Content Partner Features Lument Multifamily RED Capital Group Texas

Weak Oil Price Outlook Puts Houston Multifamily Sector Back on Its Heels

by Sarah Daniels June 23, 2020

Houston is less reliant on the oil and gas industry than it once was, and considerable strides have been made to diversify the economy away from the oil patch. Still, the hard reality remains: Houston’s prosperity and hydrocarbons are intrinsically linked. Decoupling one from the other will be devilishly difficult. The world will derive the preponderance of its energy from oil and gas for decades to come, but market share will continue to diminish, and oil and gas revenue inevitably will stagnate and decline. Developing alternative economic drivers will be challenging, but Houston has the benefit of time on its side. However, the current coronavirus crisis is negatively impacting oil prices and therefore the Houston economy in the near term. Following the shutdown of the global economy to fight COVID-19, the price of a barrel of crude plunged from over $60 — well above the marginal replacement cost from East Texas fields — to less than $20. Although prices recovered to the mid-$30 range recently, they remain below the marginal cost of discovering and extracting a replacement barrel, annulling the incentive to prospect for new reserves or build additional refining and transportation capacity. Indeed, the Houston economy was impacted more …

June 23, 2020

Content Partner Features Multifamily Walker & Dunlop

The Impact of COVID-19 on the Multifamily Appraisal Industry

by Sarah Daniels June 19, 2020

The spread of COVID-19 is impacting all industries and markets — including the appraisal space. That said, appraisers should avoid making long-term assumptions about the impact the virus will have on real estate values. According to the Appraisal Institute, the current environment is fluid: An important part of any appraisal assignment is an analysis of market conditions. The coronavirus threat may be impacting market conditions. However, in most markets, it is not yet clear to what extent, if any, market conditions are affected. Related, complicating factors include fluctuations in the stock market and changes in mortgage interest rates. Market analysis includes observing market reactions. This analysis becomes more complicated when market participants themselves are facing uncertainty. Appraisal reports should include a discussion of market conditions and should mention the coronavirus outbreak and its possible impact. However, it is not appropriate to include a disclaimer or extraordinary assumption that suggests the appraiser is not taking responsibility for the analysis of market conditions. While it is important that multifamily appraisers do not jump to conclusions and make long-term predictions, we must understand the different ways in which COVID-19 is currently impacting the commercial real estate market. It is also important that we …

June 19, 2020

Content Partner Features Lument Multifamily RED Capital Group Texas

Recession Pays an Unwelcome Visit to Dallas Multifamily Sector

by Sarah Daniels June 10, 2020

Some places in America are painfully accustomed to economic setbacks. Dallas isn’t among them. This growth market prototype has elevated expansion to an art form and won’t suffer recession gladly. But happily or not, Dallas must share with the rest of the nation the unanticipated discomfort of our pandemic disaster. How is it likely to respond, and what are the ramifications for multifamily investors? It is said that everything is bigger in Texas, and Dallas job losses in the first months of the COVID-19 lockdown definitely were “on brand.” Payroll employment declined nearly 300,000 jobs in March and April, and the unemployment rate, which never before surpassed 9 percent, soared to 12.8 percent in April. The night is darkest before the dawn, however, and the latest national job numbers suggest the sun is near the eastern horizon. If recent history is any guide Dallas will be one of the first to recover and among the quickest to return to pre-coronavirus strength. Indeed, the metro labor market recovered about six months before the nation following both the 1992 and 2009 recessions, and job growth returned to pre-recession levels about 12 months later, a process that took the nation nearly two years …

June 10, 2020

Content Partner Features Florida Lument Multifamily RED Capital Group Southeast

How Will Tampa’s Multifamily Market Compare to Other Growth Markets Post-COVID-19?

by Sarah Daniels May 28, 2020

It may be premature for multifamily investors to come off the sidelines and back into the acquisition fray. Still, the outlines of the post-pandemic landscape are growing clearer, and the hour draws near when owners and buyers must consider the buy/sell/hold mathematics of the future. Tampa presents a model for the unique economic factors likely to influence the nationwide multifamily sector. The initial phase of the post-pandemic analysis is likely to focus on the anticipated performance of “growth markets.” This category of metropolitan areas is characterized by a relative dearth of spatial and regulatory barriers to entry, lower land costs and lower business operating costs than the primary markets, as well as a demonstrated ability to support faster sustained employment and population growth than the national average. Historically, growth markets (e.g., Atlanta, Dallas, Phoenix, Tampa) have facilitated volatile real estate cycles, featuring rapid growth during boom times, followed by often painful supply-driven corrections during periods of economic weakness. Apartment capitalization rates discounted the relative riskiness of their NOI streams accordingly, pricing growth market assets to going-in yields 75 basis points or more above comparable assets in the primary markets. The long multifamily bull market of the passing decade altered this …

May 28, 2020

Arizona Content Partner Development Features Multifamily Walker & Dunlop

Focus on Phoenix: Multifamily Sector Shows Promise Despite Turbulence

by Sarah Daniels May 20, 2020

Just over a decade ago, a booming Phoenix market experienced a confluence of trends — rampant overbuilding, followed by a national economic crisis that meant a spike in unemployment and a near halt in population growth. One of the biggest commercial real estate downturns in the region’s history soon followed. Ten years later, however, the picture was quite different. Prior to the COVID-19 outbreak, Phoenix multifamily metrics were solid through the first quarter of 2020 and supported by some of the strongest employment and household growth in the nation. In 2019, Phoenix added more than 82,000 new jobs — a 3.3 percent increase, the second highest job growth in the country.1 The economy today is much more diverse than it was 10 years ago during the last downturn. Workers can now choose among a variety of corporate, financial, education-based and tech employers while enjoying a lower cost of living than their peers in other metropolitan areas. Ultimately, Phoenix is better positioned than it was a decade ago; the Phoenix of today is grounded in a broader and more sustainable mix of favorable long-term market conditions. These characteristics, coupled with the region’s year-round sunshine, have made Phoenix an attractive place to …

May 20, 2020

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