Multifamily brokers in Orlando are breathing a little easier this quarter. Officials certainly aren’t carefree, but the market is starting to gain traction and generate some forward momentum, which is a positive leap toward a recovery. Property occupancy levels have risen, and brokers have witnessed concessions getting smaller. Subtle rent growth is a present factor in the current market, which is more than anyone could say 6 months ago. “We feel a little better telling our story these days than we did at the beginning of the year,” says Shelton Granade of CB Richard Ellis’ Orlando office. “Over the last 90 to 120 days … we’ve been seeing and feeling some modest improvement.” During the summer, properties Granade took to market started getting attention from multiple buyers, a stark contrast to the lack of enthusiasm felt during the depths of the downturn. Most of the minimal sale activity is fueled by the private equity investment market because these firms have cash to pony up in a tight financial landscape. There has also been a bit of foreign investment, especially from Canadian and South American companies. “More people are entering the game,” he says. Tenants are looking to lease space and …
Multifamily
The abundance of completed units delivered to the market has had the biggest effect on the Dallas/Fort Worth multifamily sector. From September 2008 to September 2009, almost 15,000 units were completed in the Metroplex — nearly double the 7,600-unit annual average during the previous 5 years. Occupancy in the Dallas area dropped 0.2 percent to 89.8 percent during the third quarter of 2009, its lowest point since early 2005. However, occupancy for newer product held steady, while occupancy in older product tiers has suffered. The 1990s-era properties were the only product age category to achieve occupancy of more than 90 percent in the quarter, posting 92.4 percent occupancy. During the third quarter, 2000s-era product posted an 89.4 percent occupancy rate, and 1980s-era product posted an 89.8 percent occupancy rate. MPF Research forecasts that occupancy will drop 170 basis points to 88.1 percent in the next 12 months, given the huge stock of new deliveries expected to hit the market. New construction deliveries will also cause rents to drop further while rent concessions are expected to increase. One planned construction project is the redevelopment of the historic Continental Building downtown. The Dallas City Council approved $17 million in tax increment financing …
Several factors have contributed to the softness in the St. Louis apartment market and are expected to continue to present operational challenges in the near term. A spike in construction has been met with the weak demand caused by the slumping labor market. In fact, demand for rental housing contracted 2.2 percent year over year in the third quarter — the largest decline in more than 20 years — and will likely fall until payrolls begin to expand. As a result, owners have increased concessions to roughly 26 days of free rent. With vacancy on track to rise further this year, concessions will remain elevated, particularly in the Maryland Heights/Northwest County submarket. Area operators are currently offering renters nearly 40 days of free rent, the most of any submarket in the metro area. Nonetheless, many residents are opting to relocate out of the area and into St. Charles to capture lower rents or into Clayton to be near the metro’s healthiest employment corridors. As such, owners in the Clayton/Mid-County submarket have kept concessions relatively flat during the past 12 months. Turning to investment sales, transaction velocity has slowed in the St. Louis market due primarily to reduced pricing and increased …
The declining job market continues to take a toll on the Orange County multifamily sector. With unemployment reaching 9.6 percent in August, the market is showing little signs of life. Relief will not come until new jobs are created and the unemployment level begins to descend. Orange County’s apartment vacancy increased 36 percent during the 12 months following second quarter 2008, from 4.5 to 6.1 percent. Asking rents fell 1.9 percent since second quarter 2008, from $1,566 to $1,537, while effective rents during the same time frame decreased at a higher rate of 3.6 percent from $1,519 to $1,465. Despite the downturn in rental rates, tenants are vacating the apartment market in search of less expensive housing. Orange County residents are moving in with their parents, taking in roommates or seeking respite in neighboring markets or even out of state. Rising vacancies have led to a decline in values by more than 20 percent since 2007. According to CoStar’s year-to-date numbers, the average price per unit for buildings with 16 or more units is $129,704 with average cap rates at 7.83 percent, compared to 2007, when the average price per unit was $179,260 with average cap rates at 4.43 percent. …
Three significant Portland multifamily buildings delivered downtown in the first two quarters: Cyan/PDX (352 units developed by Gerding Edlen Development) and the Ladd (332 units developed by Opus Northwest) and the Riva on the Park (294 units developed by Trammell Crow). Downtown Portland has historically been a healthy submarket for multifamily, and much recent construction has been centered there, so the area is now becoming very competitive. All three of the aforementioned projects are also pursuing LEED certification, which appeals to Portland’s urban tenant. Vacancy is an important factor in Portland’s multifamily market as it is an indicator of the overall market’s health. The vacancy rate has been trending upward in recent quarters, which should continue in the second half of the year. It’s important to note that the increase in vacancy is due to economic pressure on tenants, not migration of people out of the metro area. Expect vacancy to regain its footing next summer or when economic conditions improve. Portland’s Urban Growth Boundary sets it apart from other multifamily markets in the West. The UGB has prevented overbuilding in both the single-family and multifamily markets in the last 5 years. This means that despite the recession, Portland’s apartment …
While the recession has impacted NOIs in the Washington area, the local apartment market has weathered the economic downturn better than in most metros. The 60 basis point year-to-date rise in vacancy to 6 percent is the most glaring effect of the recession. Although rents remain resilient, asking rents inched up 0.4 percent in the most recent 3-month period, while effective rents declined for only the second quarter since 2004. Job losses have weighed the most on Class A asking rents, particularly in areas where rent gains were sizable recently, such as Pentagon City/Crystal City, the Connecticut Avenue Corridor and Rockville. The district’s Dupont Circle, Logan Circle and Columbia Heights neighborhoods, however, are notable exceptions to this trend, as these areas remain desirable to renters. Lower-tier asking rents have managed to push higher in many locations, although softer rents and vacancy rents have been recorded in the Anacostia/Northeast D.C. and Stafford County submarkets. Development completions are accelerating this year, and the construction pipeline is expected to remain relatively full through 2010, posing a further threat of concession increases. A metro-leading 9,000 units are under consideration in Virginia, while there are 6,600 units planned in the district and 3,900 units proposed …
The Kansas City apartment market continues to hold its own despite economic challenges and uncertainties. While occupancy and rental rates have remained steady, development has been tempered by a tight lending environment. The pace of planned construction has slowed dramatically as a result of market fundamentals. The first half of 2009 showed the lowest level of permits, a mere 78, in the past 20 years. The lack of liquidity and tougher underwriting standards are halting development. The uncertainty in asset values plays a part in this as well as lenders underwriting deals more conservatively. As a result, banks are requiring developers to contribute a greater amount of equity, thus decreasing project risk for both parties Market fundamentals have remained steady. Rents are averaging $0.79 per square foot, unchanged from the start of the year. Rates vary widely from $1.14 per square foot at the Country Club Plaza, which has 95 percent occupancy, to as low as $0.64 per square foot for Class C apartments in the Northland submarket. These rates, though, are offset by concessions. At the end of June, nearly three-fourths of the area’s multifamily properties offered concessions, up noticeably from the 56 percent that used concessions to attract …
Cincinnati-area multifamily developers are watching expenses, right-sizing and, if they have a management arm, expanding their third-party management operations to increase potential income streams. Buyers are seeking short sales and loan assumptions, allowing buyers to put very little money down to invest and continue to leverage their cash for future purchases. Of course, cash is still king. There are many new buyers in the market, but developers have been extremely quiet, as they shore up their portfolios by trimming overhead, cut costs, and become more lean and efficient. Also, developers have a limited supply of cash that may be needed elsewhere to shore up the company, which prevents them from pouring any money into new endeavors. Their resources are stretched, which limits their ability or desire to purchase land holdings for future development. As the recession recedes and demand grows, the downtown, north (Union Center and Liberty Township) and northeast (Mason and South Lebanon) submarkets will be in need of further multifamily development. In Northern Kentucky, outlying markets in close proximity to downtown that feature good access to the Interstate 75 or Interstate 275 corridors, will continue to need multifamily development. The central Cincinnati submarket, an area north of downtown …
While the national economy and commercial real estate in general look to have a tough year ahead of them, Houston and multifamily real estate have a little more room for comfort, although not enough for complacency. Houston is projected by some to have the strongest job growth in the United States for 2009, and multifamily is the only commercial property class to maintain some semblance of normalcy. Houston benefits from the diversity of its economy. Houston has also greatly benefited by one sector in particular, oil and gas, which saw its greatest rally in history just as the financial sector saw its darkest days. Houston continues to maintain an unemployment rate almost 3 percent below the national average and is ranked 18 of 392 U.S. MSAs by Moody’s Economy.com for employment growth between now and 2013. Unlike other commercial real estate (CRE) asset classes, multifamily has been more successful fighting off the financial crisis that shut down the CMBS market and essentially froze CRE transactions across the country. Steve Duplantis, senior managing director of CBRE in Houston, is only aware of one investment grade retail transaction and one investment grade office transaction in the past year. So far this year …
Demosthenes G. Mekras of Marcus & Millichap gives his take on the multifamily market in Miami-Dade County. • What trends do you see presently in multifamily development in your area? Multifamily development for rental projects has been limited to non-existent. Builders are expected to complete 380 units in 2009. This is a drop in the bucket in terms of supply, so one would expect for the fundamentals to be advancing on that metric alone. Unfortunately, continued local job loss and the shadow market have depressed rents and increased vacancies across the board. No class of building or size of project has escaped this downturn, and that is true for every submarket in Miami-Dade County. • Who are the active multifamily developers in your area? Affordable housing developers, such as Pinnacle Housing Group, have clearly been the most active, but they are not entirely sheltered from the turn in the market. In the market-rate arena, the most notable developer has been J. Milton & Associates, a local multifamily developer, owner and operator that is arguably the largest private owner in Miami-Dade County. They have a 97-unit tower under construction in the Fontainebleau submarket west of Miami International Airport, which is slated …