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.

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.

Student Housing Application

A recent transaction once again brings the importance of student housing to the forefront. In this deal one of the leaders in leasing systems for student housing, WebRoomz, meets one of the pioneers of multifamily property management systems, RealPage, Inc.

Both of these firms are connected to an extremely active provider/developer of student and military housing, Place Properties, who was profiled in the August 2006 Issue of MFE.

Did Steve pull the trigger on the deal because of my last post? OK, probably not, but I do like what this play offers to customers who are trying to differentiate themselves as a student housing provider, or more importantly an operator who is trying to attract clients in this high-growth market.

We will be watching to see how this application is leveraged against the brand and how the industry responds to this once proprietary web-based system.

Again this is just meant to be another general observation on how vendors in our space are following key trends and serving customers. The transaction is only the beginning but these deals grab our attention and force us to think of the possibilities.

As a sales person I like to think about how I would utilize a new offering like this to serve a customer or re-visit a prospect. As a marketer the story is compelling and would allow for some extremely creative programs. And as a product provider I see the opportunity to build, innovate and integrate. All of this is exciting material to ponder for our own businesses.

Student Housing

Niche market opportunities have been a growing area of attention lately. LIHTC, military and student housing development are all subsets of multifamily housing that have been consistenly active and somewhat immune to fears of being impacted by general economic conditions.

Homeownership rates can influence demand in rental housing but have little impact on student housing.

I came across some interesting statistics in a recent student housing market study produced by Daniel Hogan at Red Capital. Here are some general findings:

• The US Student Housing market consists of 7.5mm beds, 2.2mm are on campus.
• Between 2006 and 2011 college enrollment will increase by 1.3mm students.
• Few colleges are prepared to house these new students on campus since most of their limited resources are spent renovating existing structures that date back to the 60's.
• Parents and students will pay the premium for security and technology.
• Occupancy rates are higher than traditional market-rate housing (97 to 100% at institutional grade assets).
• NOI, appreciation rates and overall investor return in student housing are significantly higher than market-rate.
  

Many of these developers and operators are not on the MFE50 list and may not be on the radar of your sales team. This is another example of the opportunities that can get lost behind broad market statistics.