Interviews conducted with industry executives at the MFE Conference 2011. This is a follow-up to a formal research survey we conducted in August 2011 analyzing how building product specification is being conducted in multifamily housing.
We tackle both renovation and new construction trends.
Showing posts with label research/data. Show all posts
Showing posts with label research/data. Show all posts
Thursday, January 19, 2012
Friday, November 14, 2008
Apartment Sector in Troubled Economy
Here is a report that NMHC brought to my attention that highlights the long-term fundamentals and opportunity in our markets. There is still plenty of pain ahead but multifamily and smart community development are well-positioned.
It is hard to imagine anything you would want to invest in these days but smart money usually places its bets when the environment looks the most grim.
APARTMENTS RATED BEST INVESTMENT OPPORTUNITY IN 2009
Our message about the long-term strength of the apartment sector was reinforced this week with the release of the annual Emerging Trends in Real Estate report by the Urban Land Institute and PricewaterhouseCoopers LLP. The report, which says that commercial real estate markets will bottom out in 2009 and flounder for much of 2010, singles out apartments as their number one “buy” recommendation. According to the industry experts surveyed for the research, commercial real estate faces its worst year since the 1991-1992 industry depression, with ongoing drops in property values, more delinquencies and foreclosures and crimped property cash flows.
However, the authors say that distress in the housing market is benefiting apartments and that moderate-income apartments in core urban markets near public transportation offer the best buy in the commercial real estate sector for the second year in a row. In its “Best Advice for 2009” section, the report recommends a return to basics approach in property management, staffing up asset managers and leasing pros, going green to cut energy expenses, buying or holding multifamily, purchasing distressed condos near public transportation and investing in Real Estate Investment Trusts, as they will lead the market’s recovery. More information is available at http://tinyurl.com/5gkssc
It is hard to imagine anything you would want to invest in these days but smart money usually places its bets when the environment looks the most grim.
APARTMENTS RATED BEST INVESTMENT OPPORTUNITY IN 2009
Our message about the long-term strength of the apartment sector was reinforced this week with the release of the annual Emerging Trends in Real Estate report by the Urban Land Institute and PricewaterhouseCoopers LLP. The report, which says that commercial real estate markets will bottom out in 2009 and flounder for much of 2010, singles out apartments as their number one “buy” recommendation. According to the industry experts surveyed for the research, commercial real estate faces its worst year since the 1991-1992 industry depression, with ongoing drops in property values, more delinquencies and foreclosures and crimped property cash flows.
However, the authors say that distress in the housing market is benefiting apartments and that moderate-income apartments in core urban markets near public transportation offer the best buy in the commercial real estate sector for the second year in a row. In its “Best Advice for 2009” section, the report recommends a return to basics approach in property management, staffing up asset managers and leasing pros, going green to cut energy expenses, buying or holding multifamily, purchasing distressed condos near public transportation and investing in Real Estate Investment Trusts, as they will lead the market’s recovery. More information is available at http://tinyurl.com/5gkssc
Thursday, September 11, 2008
Fannie, Freddie & Multifamily: Business As Usual
Yesterday I called into a Conference Call that was graciously hosted by Peter Donovan and his team at the CBRE Multi Housing Group.
According to Phil Weber, (Senior Vice President of Multifamily, Fannie Mae) it will be "business as usual" for the multifamily group at Fannie Mae. He classified Fannie's book of business in multifamily as being in excellent shape and that the newly formed conservatorship will not change the current business model.
Peter Donovan indicated that even some of the larger multifamily transactions will not be subject to regulator review. Fannie and Freddie (although Mike May was not on the call) will continue to manage the day to day operations on the multifamily side.
Peter Donovan believes that this move by the government removes the uncertainty from the market and will have a positive impact on a multifamily market with extremely solid fundamentals.
Click here for a recording of the call.
There is quite a bit of interesting information in the first 30 minutes or so; it is worth a listen.
According to Phil Weber, (Senior Vice President of Multifamily, Fannie Mae) it will be "business as usual" for the multifamily group at Fannie Mae. He classified Fannie's book of business in multifamily as being in excellent shape and that the newly formed conservatorship will not change the current business model.
Peter Donovan indicated that even some of the larger multifamily transactions will not be subject to regulator review. Fannie and Freddie (although Mike May was not on the call) will continue to manage the day to day operations on the multifamily side.
Peter Donovan believes that this move by the government removes the uncertainty from the market and will have a positive impact on a multifamily market with extremely solid fundamentals.
Click here for a recording of the call.
There is quite a bit of interesting information in the first 30 minutes or so; it is worth a listen.
Thursday, May 8, 2008
Home Builder Conference Observations
The Builder 100 Conference has just wrapped up down in Scottsdale, AZ and I stopped in briefly
yesterday to get a feel for what our single-family counterparts were facing. Rather than focus too much more on another set of predictions/guesses for the future, I wanted to call out some observations that were made in a couple sessions that are relevant to multifamily housing.
1. Conservative Journalist Tucker Carlson pointed out the 2 key issues that he thought would prevent Republicans from advancing in this year's elections: the continued rise of immigration and the rates of single, childless women. Both rates are the highest we have ever seen and have obvious ramifications for the housing markets that we need to note. After doing some cursory research on the latter topic it was interesting to find that fertility rates are still rising because women who are having children are having more.
2. One of the nation's largest homebuilders cited a stat that I found very interesting. Based on his own follow-up surveys, his firm was not following up with more than 40% of the folks who filled out registration cards at open houses. High quality leads. Sales training is a huge issue with homebuilders the same way it is with multifamily housing executives and service providers. When times are good no one focuses on training (order taking) and when times are bad the troubles are magnified and we have less time and resources to address them.
3. The need to understand workforce housing is "more important than Green." - Jeff Mezger, CEO of KB Home
4. Jeff also spoke a lot about the concept and implementation of sustainability. He doesn't spend much time pushing Green Marketing but does look intensively at the low hanging fruit where costs can be saved, from products to land plans. We have an entire magazine dedicated to this concept called Developer. So I was happy to hear that this topic is moving up the agenda for production builders.
These are just a few of many takeaways from this event. Stay tuned for the wrap up from our friends at Builder.
yesterday to get a feel for what our single-family counterparts were facing. Rather than focus too much more on another set of predictions/guesses for the future, I wanted to call out some observations that were made in a couple sessions that are relevant to multifamily housing.1. Conservative Journalist Tucker Carlson pointed out the 2 key issues that he thought would prevent Republicans from advancing in this year's elections: the continued rise of immigration and the rates of single, childless women. Both rates are the highest we have ever seen and have obvious ramifications for the housing markets that we need to note. After doing some cursory research on the latter topic it was interesting to find that fertility rates are still rising because women who are having children are having more.
2. One of the nation's largest homebuilders cited a stat that I found very interesting. Based on his own follow-up surveys, his firm was not following up with more than 40% of the folks who filled out registration cards at open houses. High quality leads. Sales training is a huge issue with homebuilders the same way it is with multifamily housing executives and service providers. When times are good no one focuses on training (order taking) and when times are bad the troubles are magnified and we have less time and resources to address them.
3. The need to understand workforce housing is "more important than Green." - Jeff Mezger, CEO of KB Home
4. Jeff also spoke a lot about the concept and implementation of sustainability. He doesn't spend much time pushing Green Marketing but does look intensively at the low hanging fruit where costs can be saved, from products to land plans. We have an entire magazine dedicated to this concept called Developer. So I was happy to hear that this topic is moving up the agenda for production builders.
These are just a few of many takeaways from this event. Stay tuned for the wrap up from our friends at Builder.
Monday, April 28, 2008
Glossary of Lending Terms
Here is a list of some "basic" lending terms from the AFT Conference. Don't be afraid to ask questions that may seem basic, chances are that at least 50% of the folks in the room have the same one.
Amortization: The way that debt is reduced by installments over a given period of time. Amortization is the calculation of equal monthly payments that pay off the debt and interest charged on a loan. It is expressed in years: a loan with a 30-year amortization would have 360 payments.
Debt Service Coverage Ratio (DSCR): DSCR is an underwriting formula that measures whether an income-producing property can sustain its debt based on cash flow. The calculation is Net Operating Income/Total Debt Service. For lenders, the higher the DSCR, the less risk it is taking on the loan. Freddie Mac and Fannie Mae lenders typically underwrite to a 1.20 DSCR, meaning that for every dollar spent on debt payments, the property generates $1.20.
Government-sponsored Enterprises (GSEs): GSEs are financial institutions that were created by the U.S. Congress to provide liquidity in a given market segment. Fannie Mae, Freddie Mac, and the Federal Home Loan Banks are GSEs. While these institutions have a public charter, they are privately owned.
Loan to Value (LTV): An underwriting calculation that measures the amount of a loan against the property’s appraised value. A borrower seeking a $1 million loan for a property worth $2 million will have an LTV of 50 percent, for instance.
Mezzanine Financing: A form of capital that fills the gap between a first mortgage and equity to achieve 100 percent financing on a deal. Mezzanine financing can be structured to emphasize debt or equity characteristics—it can work like a standard loan or allow the mezzanine provider to share in profits.
Non-Recourse Debt: A type of debt wherein the borrower does not have personal liability for the loan. Non-recourse debt is secured by collateral, usually in the form of property. If the borrower defaults, the lender can seize the collateral, but can’t seek further compensation, regardless of whether that collateral covers the full value of the defaulted amount.
Senior Debt: A form of debt that has priority over other types of debt in a given deal. If a borrower defaults, the senior debt must be repaid before other creditors receive payment.
Spread: The amount charged by a lender for issuing a loan. The spread is one component of the all-in interest rate. The spread is expressed in basis points: 100 basis points equals 1 percent.
Subordinate Debt: A form of debt that ranks below other loans in a given deal. If a borrower defaults, subordinate debt providers would get paid only after the senior debt is paid off in full.
Capital Markets 101, Apartment Finance Today Conference, April 8, 2008
Amortization: The way that debt is reduced by installments over a given period of time. Amortization is the calculation of equal monthly payments that pay off the debt and interest charged on a loan. It is expressed in years: a loan with a 30-year amortization would have 360 payments.
Debt Service Coverage Ratio (DSCR): DSCR is an underwriting formula that measures whether an income-producing property can sustain its debt based on cash flow. The calculation is Net Operating Income/Total Debt Service. For lenders, the higher the DSCR, the less risk it is taking on the loan. Freddie Mac and Fannie Mae lenders typically underwrite to a 1.20 DSCR, meaning that for every dollar spent on debt payments, the property generates $1.20.
Government-sponsored Enterprises (GSEs): GSEs are financial institutions that were created by the U.S. Congress to provide liquidity in a given market segment. Fannie Mae, Freddie Mac, and the Federal Home Loan Banks are GSEs. While these institutions have a public charter, they are privately owned.
Loan to Value (LTV): An underwriting calculation that measures the amount of a loan against the property’s appraised value. A borrower seeking a $1 million loan for a property worth $2 million will have an LTV of 50 percent, for instance.
Mezzanine Financing: A form of capital that fills the gap between a first mortgage and equity to achieve 100 percent financing on a deal. Mezzanine financing can be structured to emphasize debt or equity characteristics—it can work like a standard loan or allow the mezzanine provider to share in profits.
Non-Recourse Debt: A type of debt wherein the borrower does not have personal liability for the loan. Non-recourse debt is secured by collateral, usually in the form of property. If the borrower defaults, the lender can seize the collateral, but can’t seek further compensation, regardless of whether that collateral covers the full value of the defaulted amount.
Senior Debt: A form of debt that has priority over other types of debt in a given deal. If a borrower defaults, the senior debt must be repaid before other creditors receive payment.
Spread: The amount charged by a lender for issuing a loan. The spread is one component of the all-in interest rate. The spread is expressed in basis points: 100 basis points equals 1 percent.
Subordinate Debt: A form of debt that ranks below other loans in a given deal. If a borrower defaults, subordinate debt providers would get paid only after the senior debt is paid off in full.
Tuesday, April 22, 2008
Multifamily Market Buzz: New Construction Trend?
Here is more anecdotal evidence of strong renter demand and rising rents in the urban core. Today's edition of USA Today.
Renters can't escape housing foreclosure crisis, By Stephanie Armour, USA TODAY
"The health of the rental market is critical for several reasons. Rising demand for rentals can spur construction of apartment buildings, a trend that's already occurring in some metro markets. And the need for more rental properties can energize urban development, because higher commuting costs have translated into growing demand for rentals that are near urban employment centers rather than in outlying suburbs."
Another key takeaway: The shadow market is overly hyped in most markets. Banks do not want to be landlords. And renters are going to be cautious of renting in homes where they might soon be displaced.
Don't miss the boat on renovation and construction opportunities. The ability to raise rents drives both of these trends.
Want to learn more on this urban living trend? Check out the latest issue of MFE and the article entitled Class Dismissed along with the cover story, The Transformer featuring Kevin McGowan of Blue Urban.
Renters can't escape housing foreclosure crisis, By Stephanie Armour, USA TODAY
"The health of the rental market is critical for several reasons. Rising demand for rentals can spur construction of apartment buildings, a trend that's already occurring in some metro markets. And the need for more rental properties can energize urban development, because higher commuting costs have translated into growing demand for rentals that are near urban employment centers rather than in outlying suburbs."
Another key takeaway: The shadow market is overly hyped in most markets. Banks do not want to be landlords. And renters are going to be cautious of renting in homes where they might soon be displaced.
Don't miss the boat on renovation and construction opportunities. The ability to raise rents drives both of these trends.
Want to learn more on this urban living trend? Check out the latest issue of MFE and the article entitled Class Dismissed along with the cover story, The Transformer featuring Kevin McGowan of Blue Urban.
Monday, April 21, 2008
Multifamily Market Buzz: Seattle
Here is market enthusiasm that is supported by solid anecdotal evidence. This approach is much preferred in my opinion.
The April 20th edition of the Seattle P-I.
Rent at an all-time high -- if you can find a place
Key quotes:
A new report affirms that apartments are about as hard to find now as they have been any time in the past three decades and rents are on the rise.
"As far as tenant demand, we haven't seen that huge increase that we thought we would have, given the slowdown in the sales market," he (Dean Foggitt, a broker at Brink Property Management) said. "What we've seen more is people staying put, less tenants giving notice."
Traffic and high gas prices have driven up the desirability of areas closer to people's jobs, he said. "As you get further out, the responses drop dramatically."
The April 20th edition of the Seattle P-I.
Rent at an all-time high -- if you can find a place
Key quotes:
A new report affirms that apartments are about as hard to find now as they have been any time in the past three decades and rents are on the rise.
"As far as tenant demand, we haven't seen that huge increase that we thought we would have, given the slowdown in the sales market," he (Dean Foggitt, a broker at Brink Property Management) said. "What we've seen more is people staying put, less tenants giving notice."
Traffic and high gas prices have driven up the desirability of areas closer to people's jobs, he said. "As you get further out, the responses drop dramatically."
Thursday, April 17, 2008
Multifamily Market Buzz
The business press (Wall Street Journal, New York Times, etc) has certainly been generating more content buzz on the multifamily industry these days. Most of these articles lead with a positive headline and then spend 300 words hedging against the bold outlook that brought you in. Analysts try to reconcile REIT earnings reports with market trends, economists flip-flop on the impact of the shadow market and job growth uncertainties are always tossed in to leave you more confused then when you started.
If you are a service provider it is hard to use any of these findings to chart a course. When speaking with firms looking to enter the market (and there are many these days due to the bold headlines) I always try to caution against following these broad strokes and look at the day to day business of owners, operators and developers.
Core market fundamentals haven't changed much since we were bumping up against a 70% homeownership rate in 2005. I would assert that this is the most attractive attribute of multifamily housing: steady growth and sound fundamentals.
New construction will always be somewhat constrained, renovation will be a steady and growing activity, fragmentation of the market allows for huge operational efficiency spreads and investors will continue to view this market as a relatively stable performer. We read about the REITs daily but they control a small percentage of the market activity whether the news is good or bad.
So I encourage providers to come and consider the market opportunity, but remember that multifamily is not the new, new thing. There is no easy money and showing up doesn't deliver the payoff. There is plenty of room for providers committed to understanding and serving the market for the long haul.
Enough of my opinions, here is a viewpoint from the former editor of MFE, Alison Rice. She still does project work for Hanley Wood and represents clients in the multifamily industry. She sends me many of these headlines and I asked for her take on them.
Q: What do you make of all the multifamily housing headlines in the business press?
AR: Because no one can write about foreclosures and the subprime situation all the time. Plus, the crash in the single-family market has reminded people that renting is a perfectly acceptable and, in some cases, financially wiser, choice than homeownership, especially if buying that house requires overextending oneself financially and agreeing to a too-good-to-be-true mortgage that you don’t really understand. At the same time, there have been some big changes among top multifamily players (i.e., Archstone merging with Tishman and UDR moving upscale) that could affect both the composition and the priorities of the industry, so real estate reporters are watching to see what happens.
Q: Are current clients, and other industry players, truly spending more energy on refining operations these days?
AR: I think they have to, because the shadow market of condo and single-family home rentals has proved much larger than anyone expected. Apartment firms truly need to live up to the expectations they set with their residents, because renters today have their pick of living situations.
Q: Where do you see opportunities for service providers under current conditions?
AR: This is a sad observation to make, but given the volume of foreclosures, I see business opportunity for apartment firms and vendors who can serve families looking for a rental apartment, either because they lost their own home or their landlord lost the house that they rented. I see other opportunities in the broken condo arena, where apartment companies are getting deals on failed condos and reverting them to rentals. These deals are complicated and always vary from property to property, so I would think a service provider who could streamline any or all of the process for their multifamily clients (perhaps by finishing a renovation, communicating with individual unit owners, or re-educating the market about this again-rental property) would offer value.
Other thoughts out there?
If you are a service provider it is hard to use any of these findings to chart a course. When speaking with firms looking to enter the market (and there are many these days due to the bold headlines) I always try to caution against following these broad strokes and look at the day to day business of owners, operators and developers.
Core market fundamentals haven't changed much since we were bumping up against a 70% homeownership rate in 2005. I would assert that this is the most attractive attribute of multifamily housing: steady growth and sound fundamentals.
New construction will always be somewhat constrained, renovation will be a steady and growing activity, fragmentation of the market allows for huge operational efficiency spreads and investors will continue to view this market as a relatively stable performer. We read about the REITs daily but they control a small percentage of the market activity whether the news is good or bad.
So I encourage providers to come and consider the market opportunity, but remember that multifamily is not the new, new thing. There is no easy money and showing up doesn't deliver the payoff. There is plenty of room for providers committed to understanding and serving the market for the long haul.
Enough of my opinions, here is a viewpoint from the former editor of MFE, Alison Rice. She still does project work for Hanley Wood and represents clients in the multifamily industry. She sends me many of these headlines and I asked for her take on them.
Q: What do you make of all the multifamily housing headlines in the business press?
AR: Because no one can write about foreclosures and the subprime situation all the time. Plus, the crash in the single-family market has reminded people that renting is a perfectly acceptable and, in some cases, financially wiser, choice than homeownership, especially if buying that house requires overextending oneself financially and agreeing to a too-good-to-be-true mortgage that you don’t really understand. At the same time, there have been some big changes among top multifamily players (i.e., Archstone merging with Tishman and UDR moving upscale) that could affect both the composition and the priorities of the industry, so real estate reporters are watching to see what happens.
Q: Are current clients, and other industry players, truly spending more energy on refining operations these days?
AR: I think they have to, because the shadow market of condo and single-family home rentals has proved much larger than anyone expected. Apartment firms truly need to live up to the expectations they set with their residents, because renters today have their pick of living situations.
Q: Where do you see opportunities for service providers under current conditions?
AR: This is a sad observation to make, but given the volume of foreclosures, I see business opportunity for apartment firms and vendors who can serve families looking for a rental apartment, either because they lost their own home or their landlord lost the house that they rented. I see other opportunities in the broken condo arena, where apartment companies are getting deals on failed condos and reverting them to rentals. These deals are complicated and always vary from property to property, so I would think a service provider who could streamline any or all of the process for their multifamily clients (perhaps by finishing a renovation, communicating with individual unit owners, or re-educating the market about this again-rental property) would offer value.
Other thoughts out there?
Friday, April 11, 2008
Forecast for Rental Housing Demand 2008
Linwood Thompson from Marcus & Millichap's National Multi Housing Group put on another enlightening presentation that took attendees on a walk through of where the industry has been, the current state of the market for investors and where the current economic environment may lead us. This took place on Day 3 of the Apartment Finance Today Conference.Here are some of the key takeaways from my perspective:
- Although transaction volume has suffered due to the capital markets fallout, the negative rhetoric in the press (lumping multifamily with other assets) is a misleading assessment of our marketplace right now.
- The key components of solid fundamentals that will drive multifamily success: Delinquency rates are still less than 1% in multifamily, demographics and immigration trends are extremely compelling going forward and the lack of new supply over the past 10 years keeps rent growth on a solid foundation.
- Many overlook the fact that investors are getting high yields on distressed paper right now. Once that opportunity is gone they will return to traditional deals and multifamily will be a core asset class for investment.
Monday, April 7, 2008
Multifamily looks for long ideas
Day one of the Apartment Finance Today Conference exceeded expectations for me. I anticipated a mixed-bag of murky, market forecasts but overall I found the group to be extremely optimistic and aggressively in search of market opportunities.
AFT attendees feel that we are not out of the woods on the national economy, and don't have confidence in our government's ability to help the matter, but I certainly got the sense that owners and developers have a confident mindset. "Access to capital is challenging, cap rates remain low and more product is on the market now, but we could have big positions in office, industrial or retail right now and be far worse off."
"NOI is slowing but still growing in many markets, GSEs (Fannie and Freddie) are supporting the market's capital needs in a big way, foreign and institutional money has not been frightened off and even 'well-documented' horror stories by the mainstream media, like Phoenix, still have strong fundamentals and growth upside for savvy long term investors."
Make no mistake, not all was cheerful and rosy. Pressing issues like the lack of tax credit investment, job growth and the bulge of multifamily CMBS refinancing needing attention in the next few years were touched on as significant challenges that can create an even more hostile environment for business.
Obviously the folks who attend industry conferences and share best practices with peers are doing the necessary homework to be successful...so maybe I should expect this type of positive inspiration here. Nevertheless it was exciting to watch this very open and engaging dialogue take place. More tomorrow...
AFT attendees feel that we are not out of the woods on the national economy, and don't have confidence in our government's ability to help the matter, but I certainly got the sense that owners and developers have a confident mindset. "Access to capital is challenging, cap rates remain low and more product is on the market now, but we could have big positions in office, industrial or retail right now and be far worse off."
"NOI is slowing but still growing in many markets, GSEs (Fannie and Freddie) are supporting the market's capital needs in a big way, foreign and institutional money has not been frightened off and even 'well-documented' horror stories by the mainstream media, like Phoenix, still have strong fundamentals and growth upside for savvy long term investors."
Make no mistake, not all was cheerful and rosy. Pressing issues like the lack of tax credit investment, job growth and the bulge of multifamily CMBS refinancing needing attention in the next few years were touched on as significant challenges that can create an even more hostile environment for business.
Obviously the folks who attend industry conferences and share best practices with peers are doing the necessary homework to be successful...so maybe I should expect this type of positive inspiration here. Nevertheless it was exciting to watch this very open and engaging dialogue take place. More tomorrow...
Friday, January 25, 2008
Rent & Vacancy Data
There is an interesting new source of aggregated leasing data that is being offered by Realty DataTrust called PadZing.com. I haven't had the opportunity to preview all of the data, and it looks like the official launch is a month or two away, but I really like the business premise and how it adds value to the core business.Real-time, aggregated data on 900,000 units and you don't have to be a customer to access the information. Getting information direct from the property management systems is also a critical piece that would appear to make this data extremely relevant to users.
Given the fragmentation of our market it is always difficult for one firm to get a representative sample at the local and national level so I will be paying close attention to what Mike Mueller and his team bring to market in the coming months. Compared to other industries we are still far behind in this area and more quality sources can only be helpful to all who do business in multifamily housing.
Regardless of the firm's success at selling subscriptions, I think this public data offering will build value for the Realty DataTrust business model. There is definitely something to be studied here for other multifamily vendors.
Monday, December 17, 2007
Pacific Northwest: Multifamily and Mixed-Use
There are a couple more markets making the news with some solid headlines. Both Portland and Seattle experts are optimistic about multifamily and mixed-use fundamentals going forward.Vacancies are down, rents are on the rise and investors/lenders feel strongly about long term prospects for the market.
The return of the renters: Upended housing market spurs Portland's apartment market
Jitters send the developers running to rentals
Once again, the national trends we are hearing all seem to be well-supported on a regional basis.
Monday, December 10, 2007
Return of Renters?
The multifamily bandwagon is filling up these days, but as I mentioned before, it can be very misleading to take a few national statistics or headlines and blow them out of proportion.That said, these two recent articles from the Atlanta Business Chronicle showcase some interesting anecdotal evidence on apartment activity and investment.
"Atlanta-based Pollack Partners LLC, in partnership with New York-based investment firm The Goldman Sachs Group Inc., has raised $56 million to acquire and develop apartments in the metro area and the Southeast. With additional investment from third parties and debt, Pollack Partners hopes to leverage the fund into $800 million to $1 billion worth of multifamily projects."
Mixed-use momentum also continues to build in Atlanta and in other major markets.
"Now Coro is planning a $55 million 20-story, 155-unit luxury apartment tower, which will include 9,100 square feet of office/retail space."
Return of renters: Money pours into apartments
Developers ditch condos in favor of apartments
The piece quotes several area developers who are placing some large bets on the strong industry fundamentals. Some of these firms include: Pollack Partners, Williams Realty Advisors, Lane Company, Coro Realty Advisors, Wood Partners and Julian LeCaw.
These projects will not come online into the Atlanta market overnight but is exactly what keeps multifamily fundamentals consistently favorable for investors and a relatively predictable market to serve versus other segments of real estate.
Saturday, December 1, 2007
New Take on the "Shadow Rental Market?"
There has been much discussion about how the rise in single-family foreclosures will impact vacancy rates in rental housing nationwide, but not much press has been given to the fact that renters are actually being evicted from foreclosures these days.
Until the New York Times article that was published on November 18th.
According to a Mortgage Bankers Survey Association survey, 1 in 7 foreclosures are non-owner occupied and 1MM foreclosures are expected this year alone. This is a major dilemma for renters who are living in these homes but maybe there is a silver lining in this otherwise bad news for apartment owners: an increase in demand (renters looking for a new home) without an increase in supply (foreclosures remaining empty).
As the article points out: “Banks don’t want to be landlords, They’re in the business of making mortgages. You need to recoup the money to keep the process moving.”
It is also important to realize that many homeowners also do not want to be landlords. And there are many speculators who are just flat out abandoning the homes that they can no longer afford. In some cases these owners are selling the toilets and cabinets before they leave town.
Until the New York Times article that was published on November 18th.
According to a Mortgage Bankers Survey Association survey, 1 in 7 foreclosures are non-owner occupied and 1MM foreclosures are expected this year alone. This is a major dilemma for renters who are living in these homes but maybe there is a silver lining in this otherwise bad news for apartment owners: an increase in demand (renters looking for a new home) without an increase in supply (foreclosures remaining empty).
As the article points out: “Banks don’t want to be landlords, They’re in the business of making mortgages. You need to recoup the money to keep the process moving.”
It is also important to realize that many homeowners also do not want to be landlords. And there are many speculators who are just flat out abandoning the homes that they can no longer afford. In some cases these owners are selling the toilets and cabinets before they leave town.
When they are forced into foreclosure, Butera says some owners trash their homes before they are repossessed. "They are selling everything inside — their kitchen cabinets, their toilets, their AC units … and it's hurting the neighborhood," Butera said. "The house now looks like a crack house — it's missing all its windows."
Monday, October 8, 2007
MFE Conference Wrap, National Market Overview
There is a tremendous amount of activity to cover from last week's MFE Conference. I will work backwards and start with the National Market Overview presented by Marcus & Millichap.
Throughout the event there seemed to be more caution than optimism with regards to the short-term outlook for multifamily. Executives are not buying into the fact that single-family's loss will be multifamily's gain...and rightfully so.
Hessam Nadji and Linwood Thompson presented the facts, highlighted the fundamentals and made clear that the long term outlook is extremely optimistic for those looking to invest.
Here are a few key takeaways:
* Future demand will remain strong due to a demographic tailwind
* The markets are, and will continue to be, supply constrained
* Urban demand is more reliable but continues to be costly
* Operations will remain healthy and support current investor demand and pricing
* Commercial Mortgage Delinquency Rate Remains Near Historic Lows
* Transaction velocity will resume in Q1 of 2008 and be up 10% for the year
* Economy/Job Market will remain slow through Q1 & Q2 of 2008 but avoid recession
* Excess of for sale product will be a problem concentrated in very specific markets
For more information please contact me and I can connect you with Linwood or Hessam from Marcus & Millichap. I also have a copy of their complete presentation from Thursday, October 4th.
Monday, August 20, 2007
Trends: Hotel Industry
The front page of yesterday's New York Times Business Section had an interesting juxtaposition of news items.
At the top of the page was the story of another couple who didn't realize that the terms of their interest only loan would eventually change, leaving them on the verge of bankruptcy. Greedy lenders sold them a bill of goods and now they have determined that the American Dream is dead (Loan by Loan, the Making of a Credit Squeeze). I guess people still read this stuff but I don't find it interesting or helpful from a business perspective.
Down below was a profile of Ian Schrager's latest venture
with Marriott. Schrager is known for inventing the concept of the Boutique Hotel, an idea that has transformed the lodging industry. He now hopes to take this concept mainstream with the help of Marriott's marketing prowess and strong network of development expertise. Schrager's passion and commitment for the industry is inspiring. Pondering how this concept might translate to the multifamily industry is intriguing.
These are the types of stories that offer valuable lessons for real estate professionals. They keep us thinking creatively about how we will shape our business, regardless of the economic conditions that the market presents to us.
Schrager himself once portrayed the greed and financial despair that we see in today's housing market headlines. He was convicted of Tax Evasion in the Late 1970's and filed for bankruptcy in 2005 due to a hotel deal gone south.
Perhaps this marriage of Marriott and Schrager is exactly what every industry and corporation needs. Sound fundamental business values, an uwavering commitment to customer service and marketing genius coupled with a passionate, creative and driving entrepreneurial spirit. A healthy check and balance on a variety of levels.
The ultimate outcome is still a long way off but I will be rooting for the success story. And more profiles in the business section with a positive takeaway.
At the top of the page was the story of another couple who didn't realize that the terms of their interest only loan would eventually change, leaving them on the verge of bankruptcy. Greedy lenders sold them a bill of goods and now they have determined that the American Dream is dead (Loan by Loan, the Making of a Credit Squeeze). I guess people still read this stuff but I don't find it interesting or helpful from a business perspective.
Down below was a profile of Ian Schrager's latest venture
with Marriott. Schrager is known for inventing the concept of the Boutique Hotel, an idea that has transformed the lodging industry. He now hopes to take this concept mainstream with the help of Marriott's marketing prowess and strong network of development expertise. Schrager's passion and commitment for the industry is inspiring. Pondering how this concept might translate to the multifamily industry is intriguing.These are the types of stories that offer valuable lessons for real estate professionals. They keep us thinking creatively about how we will shape our business, regardless of the economic conditions that the market presents to us.
Schrager himself once portrayed the greed and financial despair that we see in today's housing market headlines. He was convicted of Tax Evasion in the Late 1970's and filed for bankruptcy in 2005 due to a hotel deal gone south.
Perhaps this marriage of Marriott and Schrager is exactly what every industry and corporation needs. Sound fundamental business values, an uwavering commitment to customer service and marketing genius coupled with a passionate, creative and driving entrepreneurial spirit. A healthy check and balance on a variety of levels.
The ultimate outcome is still a long way off but I will be rooting for the success story. And more profiles in the business section with a positive takeaway.
Wednesday, August 1, 2007
Multifamily Loan Survey
In recent discussions with various commercial real estate lenders I have been assured that the residential mortgage meltdown is not having a residual impact on the commercial side. This anecdotal evidence has been confirmed by a survey just released by the California Mortgage Bankers Association.
"California Commercial Loan Delinquency Ratio hits 5-Year Low at .03%. Only 3 loans delinquent out of over 10,000 surveyed."*
Furthermore, none of these delinquent loans are multifamily.
Of the $88 billion of total servicing by the 17 mortgage banking firms participating, $27 billion is multifamily...multifamily represents the segment with the highest volume (31%) of any commercial property type in the state of CA.
That's not to say that delinquent residential mortgages won't have an impact on our industry but I think it is a strong indicator of sound industry fundamentals.
* June 30, 2007 quarterly commercial loan delinquency survey (CMBA).
"California Commercial Loan Delinquency Ratio hits 5-Year Low at .03%. Only 3 loans delinquent out of over 10,000 surveyed."*
Furthermore, none of these delinquent loans are multifamily.
Of the $88 billion of total servicing by the 17 mortgage banking firms participating, $27 billion is multifamily...multifamily represents the segment with the highest volume (31%) of any commercial property type in the state of CA.
That's not to say that delinquent residential mortgages won't have an impact on our industry but I think it is a strong indicator of sound industry fundamentals.
* June 30, 2007 quarterly commercial loan delinquency survey (CMBA).
Wednesday, June 20, 2007
Multifamily Market Trends
The past week has been spent pouring over data from Harvard's Joint Center for Housing Studies, NMHC, PPR, US Census Bureau, NCREIF and many others. With the housing market in a state of chaos I was hoping to find more detailed market data that indicates where the rental market might be headed. Here are some of the notable statistics:
* Only rental markets and remodeling activity expanded in 2006. Improvement spending set a record for the 5th consecutive year. (State of the Nation's Housing 2007)
*Demand for affordable rental housing is not being met; 200,000 units are being removed from the rental stock annually (State of the Nation's Housing 2007). When you combine this stat with the fact that the median age of the country's rental stock is 37 (US Census) supply numbers look rather healthy.
* Strong property valuations have continued to encourage property owners to reinvest in properties. At last check Harvard's JCHS put this spending level number at $50 billion+ for rentals alone. Investment grade apartment prices increased 8.4% year over year in Q1 2007 according to NCREIF.
* Household growth is expected to accelerate to 14.6MM from 2005 to 2015 due to immigration, echo boomers entering the pool and the extended longevity of the baby boomers (State of the Nation's Housing 2007). Most anticipate that rentals will benefit most from this trend going forward.
There is no clear indicator that multifamily rental starts will replace the activity in the condo market this year but anecdotally the major players all seem rather bullish on where things are headed. Here are some quotes from the May Issue of MFE that are much more telling than the macro views and demographic analyses.
Campo on demand:
Just look at these numbers: At the peak of the for-sale boom in the beginning of '05, about 24 percent of Camden Property Trust's residents moved out to purchase homes. But in the last quarter of '06, only 19 percent left to buy a home. “That's a big drop,” says Ric Campo, chairman and CEO of Houston-based Camden. “We have 70,000 units roughly, so that's 3,500 fewer leases that we have to replace annually.”
Tuomi on land costs:
“Land is much more competitive now for apartment developers, whereas a few years ago it was out of sight,” says Fred Tuomi, executive vice president and president of property management for Chicago-based Equity Residential. “We would bid a certain price, and a condo or for-sale user for that land could bid double or sometimes up to the three times as much. At least we now have an opportunity to compete acquire these sites, whereas the last 24 months a lot of sites just weren't even possible.”
Linneman on opportunity:
“In early 2006, the opportunity was to sell your land that you bought six months earlier at a big profit to someone who was going to be a big condo developer or to sell your apartments at a 3 [percent] cap [rate] to some-who was going to be a converter,” says Peter Linneman, Albert Sussman professor of real estate at the University of Pennsylvania's Wharton School. “The opportunity in late '07 is going to be buying back your apartments from the failed conversion or buying back your land because the guy never got the deal off the ground, and you'll buy it back at a discount to what you sold it at.”
Leupold on the shadow market:
“Condo reversions is a topic on most investors' minds, but we believe the issue has been over-hyped,” says Craig Leupold, principal of Green Street Advisors, a Newport Beach, Calif.-based consulting and research firm. “There may be pockets of weakness in certain submarkets that experience a large number of reversions, but overall we expect reversions to have little impact on the U.S. apartment market.”
The bottom line: it is easy to get caught up in national statistics that mask dangers or opportunities in specific markets. I attended the Builder 100 conference several weeks back and was amazed at how optimistic many of the speakers were about their business in light of such negative headlines. The speakers that were most bullish had a specific strategy to take advantage of the changing dynamics in their market.
Here is how some of multifamily's strongest firms handle the uncertainty:
Harrelson's Strategy:
To compensate for pricing pressure and cap rate compression, Pinnacle increased ownership in the affordable and military housing areas. Harrelson says his company amassed nearly 20,000 units of military housing and increased its low-income and tax-credit portfolios as well.
Ward's Strategy?
“The baby and echo-boomers are really going to be driving multifamily in general,” Alliance Residential President Bruce Ward predicts. “What seems to be happening is that both demographics are looking to be in more high-density urban housing.”
Micheals Strategy:
Michaels Development of Marlton, N.J., also moved up on the list through a strategy of capitalizing on niche markets such as military and affordable housing. “We find that the demand for affordable, workforce housing is just incredible and getting bigger and bigger every year,” says Michaels Development President Bob Greer, who credits that demand for the company's surge in management business.
The case studies are much more interesting than the stats. Check out the May Issue for more.
* Only rental markets and remodeling activity expanded in 2006. Improvement spending set a record for the 5th consecutive year. (State of the Nation's Housing 2007)
*Demand for affordable rental housing is not being met; 200,000 units are being removed from the rental stock annually (State of the Nation's Housing 2007). When you combine this stat with the fact that the median age of the country's rental stock is 37 (US Census) supply numbers look rather healthy.
* Strong property valuations have continued to encourage property owners to reinvest in properties. At last check Harvard's JCHS put this spending level number at $50 billion+ for rentals alone. Investment grade apartment prices increased 8.4% year over year in Q1 2007 according to NCREIF.
* Household growth is expected to accelerate to 14.6MM from 2005 to 2015 due to immigration, echo boomers entering the pool and the extended longevity of the baby boomers (State of the Nation's Housing 2007). Most anticipate that rentals will benefit most from this trend going forward.
There is no clear indicator that multifamily rental starts will replace the activity in the condo market this year but anecdotally the major players all seem rather bullish on where things are headed. Here are some quotes from the May Issue of MFE that are much more telling than the macro views and demographic analyses.
Campo on demand:
Just look at these numbers: At the peak of the for-sale boom in the beginning of '05, about 24 percent of Camden Property Trust's residents moved out to purchase homes. But in the last quarter of '06, only 19 percent left to buy a home. “That's a big drop,” says Ric Campo, chairman and CEO of Houston-based Camden. “We have 70,000 units roughly, so that's 3,500 fewer leases that we have to replace annually.”
Tuomi on land costs:
“Land is much more competitive now for apartment developers, whereas a few years ago it was out of sight,” says Fred Tuomi, executive vice president and president of property management for Chicago-based Equity Residential. “We would bid a certain price, and a condo or for-sale user for that land could bid double or sometimes up to the three times as much. At least we now have an opportunity to compete acquire these sites, whereas the last 24 months a lot of sites just weren't even possible.”
Linneman on opportunity:
“In early 2006, the opportunity was to sell your land that you bought six months earlier at a big profit to someone who was going to be a big condo developer or to sell your apartments at a 3 [percent] cap [rate] to some-who was going to be a converter,” says Peter Linneman, Albert Sussman professor of real estate at the University of Pennsylvania's Wharton School. “The opportunity in late '07 is going to be buying back your apartments from the failed conversion or buying back your land because the guy never got the deal off the ground, and you'll buy it back at a discount to what you sold it at.”
Leupold on the shadow market:
“Condo reversions is a topic on most investors' minds, but we believe the issue has been over-hyped,” says Craig Leupold, principal of Green Street Advisors, a Newport Beach, Calif.-based consulting and research firm. “There may be pockets of weakness in certain submarkets that experience a large number of reversions, but overall we expect reversions to have little impact on the U.S. apartment market.”
The bottom line: it is easy to get caught up in national statistics that mask dangers or opportunities in specific markets. I attended the Builder 100 conference several weeks back and was amazed at how optimistic many of the speakers were about their business in light of such negative headlines. The speakers that were most bullish had a specific strategy to take advantage of the changing dynamics in their market.
Here is how some of multifamily's strongest firms handle the uncertainty:
Harrelson's Strategy:
To compensate for pricing pressure and cap rate compression, Pinnacle increased ownership in the affordable and military housing areas. Harrelson says his company amassed nearly 20,000 units of military housing and increased its low-income and tax-credit portfolios as well.
Ward's Strategy?
“The baby and echo-boomers are really going to be driving multifamily in general,” Alliance Residential President Bruce Ward predicts. “What seems to be happening is that both demographics are looking to be in more high-density urban housing.”
Micheals Strategy:
Michaels Development of Marlton, N.J., also moved up on the list through a strategy of capitalizing on niche markets such as military and affordable housing. “We find that the demand for affordable, workforce housing is just incredible and getting bigger and bigger every year,” says Michaels Development President Bob Greer, who credits that demand for the company's surge in management business.
The case studies are much more interesting than the stats. Check out the May Issue for more.
Friday, June 15, 2007
Trends: Modern Communities
While we are all trying to figure out what the housing market shakedown means for multifamily rentals there is some interesting consumer research out there that links social networking and online communities with real estate trends. It is proven that people want to be a part of a community but some argue that communities created by technology have actually alienated many of us in some ways.
Have a look at what a leading consumer research firm, Gfk Roper has observed about American values these days. The study is called "Modern Communities" and the link takes you to a Denver Post Article from earlier this year. Given the population growth this country is expecting over the next 20 years this study might lead you to some interesting conclusions about how the landscape will change.
The jury is still out on how the concept of New Urbanism will be embraced by municipalities in the near future, but we intend to follow it closely in the pages of Developer and at our upcoming Developer Conference in Washington, DC on September 11-12.
Judging from the turnout at last year's event, and the early success of the publication, we are betting that smart growth is going to be a force to be reckoned with in the coming months. The end-user certainly seems to be on board with the concept and we expect to see the convergence of production builders, leading multifamily players and retail developers try to figure out a successful go forward strategy.
Have a look at what a leading consumer research firm, Gfk Roper has observed about American values these days. The study is called "Modern Communities" and the link takes you to a Denver Post Article from earlier this year. Given the population growth this country is expecting over the next 20 years this study might lead you to some interesting conclusions about how the landscape will change.
The jury is still out on how the concept of New Urbanism will be embraced by municipalities in the near future, but we intend to follow it closely in the pages of Developer and at our upcoming Developer Conference in Washington, DC on September 11-12.
Judging from the turnout at last year's event, and the early success of the publication, we are betting that smart growth is going to be a force to be reckoned with in the coming months. The end-user certainly seems to be on board with the concept and we expect to see the convergence of production builders, leading multifamily players and retail developers try to figure out a successful go forward strategy.
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