“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.

PTAA Leaders Meet with High Point City Council Candidates

On Wednesday, September 27, PTAA hosted a “Coffee with the Candidates” at Palladium Park in High Point. This was an opportunity for leaders from PTAA to get to know the folks running for High Point’s City Council and to share with them the economic impact that PTAA’s members have in the city.

Special thanks to the team at Palladium Park for hosting us, and to all the volunteer leaders who made it out first thing in the morning to meet with the candidates.

 

Here is a link to a copy of the data sheet we shared about the impact our members have in the city:

Economic Impact of PTAA’s Members in High Point

 

Work Begins on Luxury Downtown Apartments in Winston-Salem

Site work has begun on a $35 million, 229-unit luxury apartment building in Winston-Salem’s West End. From the Triad Business Journal:

West End Station, a 229-unit building with modern amenities, including enclosed parking, saltwater swimming pool, fitness center, elevated and landscaped courtyards, is scheduled to open in about two years, according to developers DPJ Residential and Chaucer Creek Capital.

Porter Jones, principal of DPJ, estimated the project cost at $35 million. He said one-bedroom apartments would rent for about $1,200, with two-bedroom units at around $1,600.

Porter said demolition started this week. He said he expected the units to open in about two years. The address is 206 N. Green St…

The two-story clubhouse will include a fitness center, a yoga and spin bike room, a full demonstration kitchen, a resident lounge, business center, an elevated terrace looking out over the pool and two elevated landscaped courtyards with gas grills, outdoor TVs and lounge seating.

Parking will be accessible by three elevators. The 121-car single-story, secured deck will run under a portion of the building. The surface lot will have 173 spaces. Units along Green Street will have direct pedestrian access to the sidewalk as well as unobstructed downtown skyline views.

Vacancy Rates Lower Than Expected

According to a recent report the apartment vacancy rate has remained lower than was projected at the beginning of 2016:

Industry experts predicted that with apartment supply set to peak this year, the vacancy rates would experience a noticeable increase. But a mix of continued strong demand and construction delays has forestalled a spike in the vacancy rate, though it has been inching up this year.

In the third quarter of 2016, the vacancy rate was 4.4 percent, up from 4.2 percent in the second quarter of 2015, according to Reis data. Reis researchers expect the vacancy rate to hit 4.6 percent by the end of 2016. When broken down by building types, Class A units have a slightly higher vacancy rate than more affordable Class C units.

The report goes on to say that rates are expected to rise again in 2017. You can read the full report here.

Episode 4: Interview With Apartment Industry’s Top Government Affairs Expert; Upcoming Events

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In his role as the Senior Vice President of Government Affairs for the National Apartment Association, Greg Brown is one of the apartment industry’s most visible advocates in Washington, DC. This episode of Not a Complex podcast features an interview with Greg, during which he talks about the most pressing issues facing the industry, the potential impact this year’s election will have on the industry, and his favorite movie.

Before the interview we also provide a quick update on upcoming PTAA events. So sit back, relax and hopefully learn a little something.

Subscribe via: iTunesStitcher

Show Notes:

NAA’s Government Affairs Website Section

NAA’s Advocacy Website Section

IMDB Page for Greg’s Favorite Movie

PTAA’s Upcoming Events Calendar

Two Major Home Builders Bullish on Apartments

Toll Brothers and Lennar, two of the largest US home builders, are digging deeper into apartment development:

Upscale builder Toll Brothers Inc. has said it intends to expand its apartment-development division, a three-year-old venture that so far has focused on the Boston-to-Washington, D.C., corridor, to build projects across the U.S. In all, Toll plans to double its equity investment in the division to up to $300 million.

Rival Lennar Corp. in July said it has recruited sovereign-wealth funds and institutional investors to create a $1.1 billion fund for building and holding apartments in up to 25 major U.S. markets. Lennar, which will build the fund’s apartments, intends to expand the fund’s equity to $2 billion within a year, executives said.

The apartment market has been a boon for developers and investors so far this decade. Vacancies are hovering near 15-year lows at 4.2%, according to market-research firm Reis Inc., as young adults stay in rentals longer than earlier generations did. Meanwhile, apartment asking rents have steadily risen to a 15-year-high of $1,194 a month in 79 U.S. markets in the second quarter, according to Reis.

“Today we see great fundamentals in the business,” said Rick Beckwitt, Lennar’s president, in an interview. “You have 3 million-plus young adults living at home who want housing, and most of them will rent.

Other researchers quoted in the article are less optimistic about how long the apartment party might go on, but the fundamentals continue to look strong and it appears that the party isn’t set to end any time in the immediate future.

Why Having More Toddlers In Apartments Is a Good Thing

From an article about the best rent growth in 15 years comes this gem:

Demand for apartments is even stronger than experts anticipated. Younger Millennials in their early-to-mid-20s still make up the biggest block of new renters. But older Millennial renters in their early-to-mid-30s are staying in their rental apartments longer—even after they have coupled up and had children.

“There are a lot more toddlers in apartments today than was the case a few years ago … traditionally, those in that age segment have tended to leave the apartment market for single-family housing,” says Willet. “That young urban family segment is becoming more and more important to the apartment industry’s health.”

So how good is the US apartment market right now? Very good indeed:

New resident rents rose 5.2 percent over the 12 months that ended in the second quarter. That’s the biggest rent hike since 1999-2000, according to the latest data from MPF Research, based in Carrollton, Texas.

Obviously it’s not just families with toddlers that are responsible for the good times. The article explores many of the factors that are contributing to the good times – including construction delays that are helping prevent a glut of new units coming on line all at once – and it’s definitely worth a read.

Apartment Industry Trends Over Dinner with Lisa Trosien

Have you signed up for the PTAA dinner meeting tomorrow night, April 15, 2014? You really should, because we have renowned apartment industry speaker and educator Lisa Trosien as our keynote, and she’ll be talking about emerging trends in the industry. Below you’ll find a YouTube video of a webinar Lisa did a couple of years ago, and while it’s a different topic it should give you a great feel for the kind of speaker she is. We hope you’ll join us tomorrow evening for a nice dinner and some great education.

[youtube=http://youtu.be/papk5UDOiIg]

Reversion

According to this Wall Street Journal article, many condos that were rented out during the recent housing crash are now for sale:

Many condominium developers who rode out the real-estate downturn by renting out their units are reverting to for-sale housing, in another sign of the market’s continued recovery over the past year…

Last year, some 2,080 apartments were converted to condos from rentals. That is a pittance from the 152,206 conversions that took place in 2005 when the real-estate bubble was inflating, but it was the highest total since 2008, according to property researcher Reis Inc., which tracks only those buildings with 40 or more units.

The numbers are muted because the apartment market remains strong and because the bulk of today’s conversions are different from the boom years and should probably be called “reversions.” That is, the developers had always planned to sell the units as condominiums but were unable to find takers during the real-estate bust…

Reversions are being driven by a supply shortage in the single-family-home market, which has sent prices upward. There were 2.07 million existing homes for sale at the end of August, up 5.1% from January but still down about 6% from a year ago, according data from the National Association of Realtors and Trulia, a real-estate listings site. The data include both condos and single-family homes.

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.