RED Capital Group

San Francisco Multifamily Trends: The Downside of Demand Inelasticity

by Sarah Daniels August 13, 2020

In economics, the sensitivity of aggregate demand for a product or service to changes in price is defined as its “elasticity.” The elasticity of demand for nonessential goods or goods with a number of ready substitutes is high. Even a small increase in price will produce a large decrease in demand. Conversely, a relatively large price change in the cost of an essential or prized luxury good for which few substitutes exist may have little effect on demand for it. San Francisco real estate is a highly inelastic good. The Bay Area’s potent combination of natural beauty, sublime climate and unique culture make it one of the most coveted destinations in the world. By the same token, its compact size, high population density, seismic risks and antipathy to development constrain supply. For all practical purposes, housing prices are limited by the income that residents can expect to earn rather than the normal interplay of producers and consumers. The innovation and wealth creation generated by the high tech industry added a complex new variable to the equation. More wealth was created during the last 10 years in the 40 miles that lie between the Golden Gate and San Jose than in …

August 13, 2020

Portland Multifamily Rent Occupancy460x345

Content Partner Features Lument Multifamily Oregon RED Capital Group Western

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

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 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

Loans Lument Midwest Multifamily Ohio RED Capital Group

RED Mortgage Capital Provides $11.4M Refinancing for Multifamily Community Near Columbus, Ohio

by Kristin Harlow June 9, 2020

REYNOLDSBURG, OHIO — RED Mortgage Capital, a division of ORIX Real Estate Capital, has provided an $11.4 million Freddie Mac loan for the refinancing of Redwood Reynoldsburg in suburban Columbus. Formerly known as Blacklick Pointe, the 89-unit multifamily community consists of 20 one-story buildings. Each residence has an attached two-car garage. Built in 2018, the property is 94.4 percent occupied. Reynoldsburg One LLC was the borrower. The 10-year loan features a 30-year amortization schedule.

June 9, 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

Miami Red Capital Rent and Occupancy RED Capital

Content Partner Features Florida Lument Multifamily RED Capital Group Southeast

Cresting Wave of Job Losses Upends Miami Multifamily Sector

by Sarah Daniels May 5, 2020

How will the COVID-19 fallout impact the Miami multifamily market? Although many investors are approaching markets known for leisure travel and cruise industries with caution these days, RED Mortgage Capital research posted last week indicates Fort Lauderdale/Broward County may offer a more attractive risk and reward profile than is commonly understood in the intermediate term, even under severe recessionary stress. Can the same be said of Miami as many of the same arguments apply? Let us stipulate that coronavirus has struck Magic City a particularly sharp blow. Miami relies on international tourism to a larger degree than most other domestic travel destinations and has experienced greater tourism revenue and job losses as a result. Travel industry consultants STR analyzed the top 25 tourist destinations in America and noted that Miami hotels recorded the largest decline in average daily hotel room rates in April (-56.8 percent from 2019), while the metro area’s hotel occupancy plunged to 20 percent from 95 percent in 2019. Employment data are available only through March at this writing, but even at this early stage, job losses were severe. The Miami-Miami Beach metropolitan division employed population fell 86,000 in March, a one-month decline of 6.5 percent. Job …

May 5, 2020

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