Multifamily News & Notes, July 2008

Most are familiar with both ends of the Fannie/Freddie news spectrum these days but the negativity is still far outweighing the bright spots. Here is some perspective on lending activity in multifamily housing right now. Pretty solid YOY growth:

HALF MOON BAY, CA. -- Fannie Mae (FNM/NYSE) today announced that its DUS lenders delivered $18.2 billion of the company's total investment in multifamily rental housing, representing the strongest first-half ever for DUS lenders and an increase of 30 percent over mid-year 2007 production. Fannie Mae's investment in multifamily housing totaled $20 billion in the first half of 2008. Primary multifamily financing solutions include debt financing through lender partners and multifamily bond purchases (from the Fannie Mae Website).

Here is an excerpt from the WSJ. Last year I posted on this topic using some statistics provided by Red Capital. The "20.4 MM by 2016" referenced below is pretty staggering.

Campus Living, and Even a Theater - Specialized Developers Helping More Colleges To Meet Housing Needs
By DAWN WOTAPKA - July 23, 2008; Page C12As the population swells and the majority of high-school graduates seek degrees, enrollment is projected to climb to 20.4 million in 2016, up nearly 42% in 25 years. By 2020, Arizona State expects its student count to jump nearly 60% to 100,000 competing for just 22,500 beds on campus. "The market is huge," said Jim Arbury, senior vice president of government affairs for the National Multi Housing Council.

There are also strong growth opportunities for companies interested in expanding through acquisitions. Plenty of student housing remains in the hands of mom-and-pop operators; the top eight players in the industry own less than 5% of total off-campus demand.

"We have not begun to corner the market," said Paul O. Bower, chief executive of Memphis, Tenn.-based Education Realty, which owns and manages 41,500 beds in 70 properties.

Here is some anecdotal evidence that there is some strategic thinking getting behind the green movement. It seems obvious but all of us get caught up in launching a new product because we are in love with the idea and fail to solicit input from the end-user.

Builder taps focus groups for green condominiums
Washington Business Journal - by Vandana Sinha Staff Reporter
Taurus Development Group plans to enlist a different type of consulting group to help shape its next green condominium building: everyday people.
The D.C. developer is turning to a concept called “crowd sourcing,” which creates communities of interested people, in Facebook fashion, to get their opinions, from initial designs to final sales, and help determine how a multimillion-dollar project should be developed. Call it Focus Group 2.0.

Construction Trends: For Sale Market

At our sales meeting this past week I had the pleasure of spending an hour with the President of London Bay Homes, Mark Wilson. They are a Luxury Homebuilder based in Naples, FL and offer some extremely high-end single family product.

In light of this fact two interesting topics came up in the discussion that I wasn't expecting: multifamily housing and density. London Bay is diversifying into multifamily and one of the primary drivers is the accessibility of land and how municipalities are designating the uses of this land (density requirements). Another key factor for his firm is price point diversity.

Mark's message to industry vendors focused on three key areas: price, service and on time delivery. He recognizes that we are in an inflationary environment but will reconsider vendor relationships more quickly where service and support is not superior.

Here were some other key points he highlighted that might be of interest to building product manufacturers in our space:

• Specification - he (builder exec) gets directly involved with many key building product decisions
  
• Developer influence - in certain projects there are arrangements where the developer requires certain products and brands (even on appliances and energy sources). An example is Lakewood Ranch which is a master planned community near Sarasota.
• Green - there has been limited consumer interest at the high end. The consumer defines "green" in a variety of ways and until you find that out you are just stabbing in the dark. Air quality and energy efficiency are the top 2 areas. There are also legal issues cropping up around Green Marketing that need to be considered.
  
• Information - magazines are still the most favored source of info. He prefers the portability and ability to read on weekends and during air travel. He uses the internet to do research.
  

Mark was also rather bullish on the short-term construction market in both single and multifamily housing. As a relatively small, niche player he certainly challenged these days but is not under the same type of pressure as some of the larger players. He reminded us that this country is a tremendous generator of wealth when you compare to Europe and other nations. That stimulous leverage should not be underestimated.

His growth goals center around buying distressed property and diversifying by price and geography.

New Construction: Austin, Charlotte & New York

It is hard to draw any conclusions about new apartment construction trends on a national basis since there is such a mixed-bag of nonsense going on these days. Tax credit development has left a gaping hole in the national activity and while there are tons of folks who want to get some deals done it has been somewhat slow going in spite of strong fundamentals and long-term optimism for the rental market as a whole.

One state on everyone's radar seems to be Texas. Here is an interesting town just south of Austin that seems to be ramping up the activity.

Buda to get 1,000 apartments

Town has less than 10 apartments now
Austin Business Journal - by Kate Harrington ABJ Staff

"Ask Warren Ketteman, president of the Buda Economic Development Corp., how many apartments exist in the city, and his answer comes quickly -- fewer than 10.
But with five apartment complexes breaking ground or being planned, the small city 15 miles south of Austin could see close to 1,000 units in the next two years."

We also spotted nice activity outside of Charlotte, NC (Salisbury).

Campus draws more residential projects. Apartments become next development wave near Kannapolis

The N.C. Research Campus is spinning off its next wave of development — apartments built to support the expected influx of workers to Kannapolis. A Greensboro-area developer is the first to target research workers with a $23 million luxury apartment complex in Salisbury, 15 miles north of the bioscience center, which is expected to employ 5,000 workers by 2013."

Similarly, a recent AP release published on www.CNNmoney.com outlined the following national activity trends due to some favorable legislation in New York.

"WASHINGTON (AP) -- Construction of single-family homes fell in June to the slowest pace in 17 years although a change in New York laws helped give a big boost to apartment building.
The Commerce Department reported Thursday that construction of single-family homes dropped by 5.3% in June to a seasonally adjusted annual rate of 647,000 units, the weakest performance since January 1991, another period when the housing industry was going through a severe downturn.
However, construction of multifamily units surged by 42.5% last month, thanks to a change in New York City building codes that spurred a wave of apartment construction in that area. Taken together, single and apartment construction rose by 9.1% to an annual rate of 1.066 million units. But the total increase was viewed as an aberration that did not give a true picture of the continued weak state for the housing industry because it was skewed by the huge jump in apartment building in New York."

So keep an eye out on the local activity and players who will be responsible for the next wave of growth in the market.

Sustainable Community Development, Walkability Factor

The case for sustainable communities is being made daily which brightens my day. The editor's at HW have been talking about the practical application of sustainable development for the past couple of years in the pages of Developer.

"With gas prices sky-high, the pedestrian friendliness of your city or neighborhood becomes a pocketbook issue. A new survey by Walk Score has ranked the largest U.S. cities by their walkability."
By Christopher Solomon, MSN Real Estate

Walkability is a legitimate and critical factor these days. The article above points out web resource that has bound to be killing it these days. Check it out here: walkscore.com

We vacationed in Lake Tahoe last week and our primary criteria for selecting a vacation rental was walkability. My in-laws recently purchased a home in Sonoma County because of its walkability features. In the Bay Area property values in walkable communities have definitely remained the most well-insulated from the recent economic rout.

My opinion: The combination of preference change and population boom will dramatically shift the built environment over the next 20 years. The green movement will evolve into common discussions of sustainability. Even the most closed-minded will be enthusiastic about participating because it will make sense economically.

Laramar Recruiting

Our friend Dave Woodward over at Laramar Communities continues to be in high-growth mode. In the wake of all of the economic turmoil this is refreshing to see. Here are some of the positions he is looking for:

· Washington, DC based Regional Property Manager
· Chicago based Regional Property Manager
· Denver based Regional Property Manager
· Northern California based Construction Project Manager
· Director of Construction (reporting to VP of Construction and overseeing half of the portfolio)

Apparently there are several more positions to come in the coming months. If you have interest please feel free to contact Dave directly and tell him that we sent you. Otherwise drop me a line here in SF at 415-315-1241 x 323 and I will connect you.

Dave is on the right in the photo above taken in Vail, CO (Steve Heimler on the left).