“Workforce” Apartments Gaining Investors’ Interest

High-end apartments have attracted most investment dollars during the almost 10-year bull run that began at the end of the Great Recession, but now more affordable units are getting attention from investors. From the Wall Street Journal:

A venture led by Prudential Financial Inc. is spending nearly $600 million for 4,000 housing units aimed at lower-income workers, the latest sign that investors see bigger gains in lower-rent apartments than in the upscale ones that have led the recovery.

These so-called workforce housing units usually are in older buildings that cater to price-conscious renters, paying about $1,000 a month for a one-bedroom unit. Around 6.3 million units, or about 41% of all the rental apartments in the U.S., fall into the workforce category, according to CoStar Group Inc., which tracks buildings that are five units and greater…

Workforce housing rents are increasing at a faster rate than upscale units because of high demand and the dearth of new supply. Meanwhile, most of the 100,000 units that become obsolete annually fall into the workforce and affordable category, according to a report set to be released by commercial real-estate-services firm CBRE Group Inc. later this week.

Mr. Munk, of PGIM, pointed out that investing in relatively small improvements to workforce housing units —like a new carpet or a washer and dryer—can produce a big payoff in a higher rent. “If we can spend $10,000 to improve a particular unit, that could potentially bring in $200 a month more in rent,” he said.

Bell Partners Busy Going Into 2017

Two recent stories about Bell Partners show that the company is not resting on its laurels as it enters 2017. In the first story we learn that Bell rounded out an active 2016 by selling two properties for a total of $100 million:

Greensboro-based Bell Partners Inc. said Wednesday that it completed the sale of two properties in Asheville and Atlanta for a cumulative sale price of more than $100 million in December.

Bell’s sale of the two communities — Biltmore Park in Asheville and Bell Cheshire Bridge in Atlanta, Ga. — bring the total number of transactions made by Bell in 2016 to $1.3 billion. Last year, the company sold 12 properties for $475 million and acquired 12 apartment communities comprised of 3,575 units for $791 million. Bell Partners will retain property management responsibilities for Bell Biltmore Park.

The second story provides a hint at what Bell is looking to do in 2017:

Greensboro-based Bell Partners Inc., one of the nation’s largest apartment investment and management companies, has launched an effort to raise up to $465 million.

According to a Form D filed with the Securities and Exchange Commission, the company has thus far raised $285 million in equity financing from investors for its Bell Institutional Fund VI L.P., with $180 million left to raise. Company officials declined to disclose the reason behind why the firm was raising the funds. Bell Partners in the past has raised equity financing to invest in apartments and senior housing projects…

Bell Partners is raising the financing amid a flurry of recent acquisitions. The company recently completed an acquisition of an Atlanta-area apartment complex in December and two apartment projects in Texas in November.Including those deals, the company eclipsed more than $1.3 billion in transactions in 2016, including both acquisitions and dispositions. The company has completed more than $10 billion of apartment transactions since 2002.

Secondary Markets, Like the Triad’s, Are Hot

From the May 27, 2015 Wall Street Journal we learn that secondary and tertiary cities are the new belles of the ball in the multifamily sector:

As prices for multifamily properties in big cities escalate, some investors are setting their sights on smaller markets where prices are lower and yields are higher…

According to New York-based data firm Real Capital Analytics Inc., the average national cap rate for multifamily properties for the 12 months ended in March was 4.92% for the six primary markets such as New York or Chicago; 6.41% for secondary markets such as Houston and Philadelphia and 7.09% for tertiary markets such as Birmingham, Ala. or Buffalo, N.Y…

Large investors tend to favor primary markets in part because they have a firm employment base that expands during times of economic growth, boosting demand for rental housing. But as the economic recovery broadens, job growth is expanding to smaller markets.

That trend, in turn, is making investors more comfortable with the idea of entering less popular markets. According to brokerage Marcus & Millichap, three years ago over 60% of apartment acquisition capital was going to primary markets. Today, that share has fallen below 50%. Marcus & Millichap recently brokered the sale of 30 West Apartments, a 264-unit project in Bradenton, Fla., a tertiary market, for $25 million.

After watching our neighbors to the south (Charlotte) and east (Raleigh) getting most of the dances it looks like we here in the Piedmont Triad are finally going to get our share.

WSJ: Big Developers Dabble in Apartment Market

You’ve probably heard the saying that “misery loves company.”  Well, if misery loves company then success attracts company and according to the Wall Street Journal the recent strength of the apartment market is drawing in some large commercial property companies that haven’t traditionally been involved with apartments:

Fueled by the decline in home ownership, the boom in apartment building is attracting commercial-property companies such as Boston Properties Inc., Mack-Cali Realty Corp., SL Green Realty Corp.,Simon Property Group Inc. and MacerichCo. They all have either acquired, completed or broken ground on apartment buildings in recent months, or plan to do so next year.

The companies’ moves are helping fuel a boom in rental apartment development and investment. The Commerce Department said Tuesday that construction starts in the multifamily sector in November spurted 25.3% from the previous month. Single-family housing starts rose just 2.3%.

Many of the nation’s biggest office and retail developers are getting in the apartment game for the first time. For example, Macerich, a mall giant whose holdings include Scottsdale Fashion Square in Arizona and Queens Center, in New York, is building a 430-unit apartment tower at its Tysons Corner Mall in Virginia. The company says it also is exploring building apartment units at its Broadway Plaza mall in Walnut Creek, Calif.

As our members know managing apartments requires a unique skill set and that fact isn’t lost on some of the developers sticking their toes in apartment waters:

Apartments require a far different skill set than retail or offices. Turnover is high, so landlords constantly have to adjust prices to fill empty units. Tenants can easily be lured away by something newer, better located or offering more modern amenities. Landlords also have to worry about the economy worsening—plenty of apartment owners had to reduce rents after the financial crisis—and the for-sale market making a comeback.

Mr. Linde at Boston Properties said that because apartments aren’t the company’s expertise it has hired outside companies to be responsible for the leasing and day-to-day management of the properties. That will likely reduce profits, but the company won’t have to take on additional overhead, he pointed out.

Sounds like there might be some opportunities for third party management deals.

WSJ: Apartment Values on Rise, and Rents Up With Them

From an article in the October 26, 2011 Wall Street Journal:

At the end of the third quarter, 5.6% of the nation’s apartments were vacant, down from 5.9% in the second quarter, and the lowest level since 2006, according to Reis Inc., a real-estate data service…

Effective rents, which include landlord discounts in some markets, rose to $1,004 a month in the third quarter, up 2.3% from a year earlier, according to Reis. Of the 82 major markets that Reis tracks, only Las Vegas saw rents decline compared with a year earlier.

Forecasters say rent increases could slow or stop if the economy weakens further. But for now, these trends are producing outsized returns for real-estate companies, compared with other commercial-property classes…

The apartment sector has been insulated from high unemployment because it continues to inhabit a sweet spot in the economy created by demographic factors and the anemic home sales market. The U.S. is expected to see 1.5 million rental household formations in 2011, a record year, according to Green Street. (emphasis editor’s)

The main reason for the rental increase is a faster-than-expected decline in the home ownership rate, according to Green Street. The nation’s rate came in at 66% in the second quarter, down from 66.4% in the first quarter and 66.9% in the second quarter a year ago, according to the Census Bureau.

Some industry watchers say the rate could fall to as low as 60%. Each 1% decline in the home-ownership rate represents the movement of one million households to rentals…

If another recession hits and unemployment rises, millions of renters could likely double up or move home with their parents, putting a crimp in demand. “People just aren’t going to write bigger and bigger rent checks into infinity,” warns Andrew McCulloch a Green Street analyst.

The high rents are also being supported by a lack of new supply. Developers have scrambled to launch new projects, but most of them won’t start hitting the market until late 2012. Roughly 8,200 new apartments hit the market in the third quarter, the second lowest number since Reis began tracking data in 1999.

Associated Estates Realty Corp. Bullish on Apartment Biz

In a Wall Street Journal story on Associated Estates Realty Corp.’s aggressive moves in the apartment sector, it’s CEO was quoted as saying:

“I don’t recall ever being more optimistic about the apartment sector,” said Jeffrey Friedman, longtime chief executive of the company, based in suburban Cleveland.

From the same story we find a note of caution from industry analysts:

Analysts caution that, if the economy takes a nose-dive, the apartment sector will suffer with falling rents and occupancy levels.

That would likely depress the share price of Associated and other apartment-building owners.

But the apartment sector so far has been one of the strongest in commercial real estate, thanks in part to the millions of would-be homeowners deciding to rent.

In the third quarter, the national vacancy rate fell to 5.6% from 7.1% a year earlier, according to Reis Inc. That is the lowest rate since 2006.