The National Apartment Association recently published the results of their 2018 Income & Expense Survey, and offered some key takeaways in an Executive Summary:
Operating expenses increased by 2.1 percent, the slowest rate of growth since 2013.
Net Operating Income (NOI) grew by 5.8 percent, up 2 percentage points over 2016, impressive amid slowing rent growth.
Increases in payroll expenses were in line with wage growth in other private sector industries, averaging 2.4 percent.
The number of market-rent garden-style units per full-time employee increased for the third consecutive year to 44.3. The challenges of an ongoing labor shortage within the industry likely kept some communities understaffed throughout the year. Increased pressures on wages can be expected in 2018 and should be evident in next year’s survey results.
Once again, property taxes were responsible for the largest increase in expenses, up 5.3 percent year-over-year. The average property tax bill was $1,833 per unit and represented one-third of expenses. Fifteen years ago, property taxes comprised less than one-quarter of operating outlays. Contesting assessed values has become commonplace for many owners feeling the squeeze from skyrocketing taxes.
In a study commissioned by MFE, executive compensation research firm Equilar found that women are shut out of the boards of directors of four of the country’s top 16 multifamily REITs: Blue Rock, BRT Apartments, NexPoint Residential Trust, and Preferred Apartment Communities. The analysis also found that women account for 17.2% of all board members, slightly below the Equilar 500 average of 20.9% female and just above the Russell 3000 average of 16%.
A dive into the 16 REITs’ SEC filings reveals that females are more sparsely represented as named executive officers (NEOs), or the companies’ most highly compensated officers—11 of the 16 had no female NEOs. The same four REITs that have no women on their boards also have no female NEOs…
In addition, while women make almost as much as men when they start out in commercial real estate, their compensation falls well below their peers once they hit 40 and approach the C-suite. Overall, the industry median annual compensation is $115,000 for women and $150,000 for men, CREW found.
So what are the chances that significant progress will be made on gender equity in multifamily? Pretty good once the Boomers start retiring:
“We’ve made a modicum of progress,” says CREW CEO Wendy Mann. “And we still have a long way to go. Really.” She believes transformation is imminent, however, as baby boomers retire in the next five to 10 years, creating “a great departure in male leadership.” She predicts “a huge groundswell of women now in their late 40s and early 50s” will step into the void, pushing companies closer to parity. “Do I think it will be 50–50?” she says. “Maybe not. But I think we’ll see a difference.”
It would surprise no one to learn that there’s a tight job market in the rental housing world, but you might be surprised at exactly how many open positions there are in the industry. According to new research from the National Apartment Association, there are about 4,000 open positions nationwide. The largest number of open positions can be found in the “Property Management” category, and not far behind that is the “Maintenance Category.”
As you can see the largest number of openings by job title is for Maintenance Technicians – shocking right? – and the researchers were kind enough to dig a little deeper into that position’s data:
All of this data is derived from a new monthly NAAEI product called Apartment Jobs Snapshot. Here’s more info about it from NAA’s site:
The Apartment Jobs Snapshot is a new monthly product from NAAEI highlighting labor force trends in the rental housing industry. It examines the total job posting trends by position, category and geography, as well as providing fresh and detailed updates for industry employers. The snapshot will feature enhanced quarterly editions with more expansive data, starting in April 2018.
Last week we shared an article about the effect that Airbnb is potentially having on rents. This week we’ve found an item about potential new players in the short-term rental market, and their interest in working with property management firms. From the Wall Street Journal:
The short-term residential rental business, which got its start with people putting spare rooms on the lodging market, is knocking on the door of some of the country’s largest landlords.
A venture-capital group that includes hotelier Barry Sternlicht has invested in a startup that plans to add a new upscale and branded dimension to the short-term rental business pioneered by companies like Airbnb Inc. and HomeAway Inc…
“Consumers want short-term rentals and they want them at a scale that no one ever anticipated,” said Fifth Wall co-founder Brendan Wallace.
Numerous other startups are pushing into similar businesses, including Arlington, Va.-based WhyHotel and YouRent.com of Miami. Meanwhile, Airbnb in 2016 launched its own “Friendly Buildings Program” under which landlords put rental units on the website.
An Airbnb spokesman last week said there were 13,000 units in the program, up from 10,000 in July.
Many landlords are still skeptical about working with these companies, but that could change as property management firms become more familiar with the new short-term companies. And of course, if vacancies begin to rise then working with these firms could become a much more enticing option.
The National Apartment Association (NAA) and National Multifamily Housing Council (NMHC) recently commissioned a study by Hoyt Advisory Services on the housing market in the Piedmont Triad and concluded that almost 19,000 new apartment units will need to be constructed by 2030 in order to meet the region’s housing needs. The study also found that this new construction will require all types of apartments at all price points.
The study found that the Piedmont Triad currently has an estimated 101,020 apartments with residents of all ages and income levels. Of those units, 66% were built before the year 2000, which is a key factor in addressing housing affordability; as new housing units are built they free up older housing stock for workforce housing.
While multiple factors contribute to the need for new apartments, including shifting lifestyle preferences, such as delayed homebuying, as well as the aging American population, a critical component to increased demand for all housing in the Triad is an influx of 25,000 new residents from other parts of the country.
New York developer Tishman Speyer is making a bet on voice-activated smart-home devices at each of the 1,871 apartments there, in what it sees as a blueprint for the future of rental housing…
In the 120 apartments in the “Penthouse Collection,” which consists of luxury units on the top four floors at Jackson Park, home-automation features will be built directly into outlets, light switches and a smart thermostat that could be used to raise and lower the heat or air conditioning through word commands…
The smart appliances would be connected through a hub to Amazon.com’s Echo Show, a device with a video screen, activated by calling out to “Alexa.”…
The other apartments, now on the market, will get a scaled-down version with the Echo Show and an outlet that can plug into an existing receptacle and be used to turn on a coffee maker or a lamp. Renters would be able to add features as well.
The article goes on to point out that the “smart home” devices might currently focus on managing the lights and appliances, but in the near future they could incorporate information on services provided by the property manager – office hours, dates and times of upcoming events, reserving space at the gym, etc. – or even services and events in the surrounding area.
While this is confined to the extreme high end right now – the penthouses in Jackson Park rent for $10,000 a month – this is something that is likely to become an expectation at most market rate communities for increasingly tech dependant renters.
Apartment construction continues to steam along, but it is set to decline despite a continued demand for more units in cities across the US. From the Wall Street Journal:
Overall U.S. housing starts declined for the fourth time in five months in July, the Commerce Department reported Wednesday. Total housing starts decreased 4.8% from the previous month to a seasonally adjusted annual rate of 1.155 million.
While starts edged 0.5% lower for single-family construction, they plummeted 17.1% for construction on buildings with five or more units. Apartment construction is tapering off because of an oversupply of units, especially at the top end of the market that is causing rents to flatten in many major cities.
“I’m optimistic that single-family will catch up,“ Mr. McLaughlin said. ”It’s not going to happen this year and it’s probably not going to happen next year.”
There are immediate consequences to a pullback in multifamily buildings if single-family doesn’t immediately catch up. It could exacerbate a shortage of homes. While there is a surplus of luxury apartments in most major metropolitan areas, housing overall remains scarce.
A question not addressed in the article: where are all the construction workers going to come from to build those single family homes?
The national vacancy rate climbed to 4.4% for the quarter from 4.2% a year earlier, according to data released by Reis Inc. Nonetheless, average rents across the U.S. increased 3% year-over-year in the second quarter to $1,335 a month. That was the smallest year-over-year increase since 2011.
Rents increased or remained flat in all but two of 79 metro areas. That is in contrast to the first quarter, when rents declined in 23 metro areas…
Landlords got a boost from weaker-than-expected deliveries of new apartment units, which might postpone more pain until later this year. Roughly 36,500 units were built during the second quarter, down almost 37% from a year earlier, as labor shortages took a toll on construction. Those units might end up hitting the market later this year, putting additional pressure on landlords.
The Triad Business Journal has a story about Greensboro’s newest downtown apartment community, Carroll at Bellemeade, and how it is attracting more Baby Boomers than you’d expect. From the article:
Carroll at Bellemeade tenants all won’t be millennials, a.k.a. young professionals. In fact, millennials might be in the minority, according to Carroll, who told Triad Business Journal that baby boomers have shown more interest as the project approaches an anticipated early 2018 opening.
The apartments at Carroll at Bellemeade will range from 679 square feet to 1,403 square feet with monthly rent ranging from about $1,000 to about $1,800.
“Seventy percent of the people who have inquired about Carroll at Bellemeade are older than me,” the 54-year-old Carroll told Triad Business Journal. “They like the idea that it’s going to be gated parking and convenient to things downtown. It’s a rental. When they get to the end of the lease term, they can do whatever.”
That supports a trend that’s been developing in the apartment world over the past couple of years: empty nesters opting for the convenience (or necessity) of apartment rental living, and living shoulder to shoulder with folks their kids’ age or younger.
Mr. Carroll ends with this observation: “We love the empty-nesters,” he said. “They’ll stay there as long as they enjoy it and as long as we treat them right — they won’t leave for a $10-a-month rent increase.”
A report recently released by the National Apartment Association explores which amenities are most widely offered at both the community-wide and unit level and the impact those amenities have on rent and occupancy rates. Titled Adding Value in the Age of Amenities Wars the report details which amenities are most commonly offered and explores which are most effective in raising average rents.
Here’s a sample of some of the findings:
Top community-wide amenity: Fitness Centers
Top unit-level amenity: Washer/Dryer in unit
Percent of residents willing to pay a premium ($75) for hardwood floors: 49%
Percent of residents willing to pay a premium ($30) for granite countertops: 39%
Percent of residents willing to pay a premium for fitness classes: 46%
Finally, towards the end of the report is a graphic showing the impact of renovations on occupancy, broken down by apartment class:
Class A – Occupancy increased from 92.0% to 92.8%
Class B – Occupancy increased from 92.7% to 94.3%
Class C – Occupancy increased from 88.6% to 91.0%