News Archive
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HIGH-END RENTAL MARKETS ON DOWNWARD SLIDE Posted Friday, July 17, 2009 by realfacts
2Q09 Release – July 13th, 2009
A recent nationwide study of rents and occupancy, conducted by RealFacts for 2Q09, reveal that renters are showing resistance to paying a premium to rent an apartment in a high-end market.
Rents were in decline in every market nationwide in the current quarter with the exception of a few modest increases in Tampa-St Petersburg, FL at 1.2%; Kansas City, MO at 0.7% and San Antonio, TX at 0.6%. On average, asking rents are down nationwide in the second quarter of 2009 from $968/mo.over first quarter at $978/mo. The markets that were hit the hardest this quarter are high-end markets such as those found in the Golden State. The San Francisco Bay Area, usually ranked as the most expensive place to live in the country lost some of its luster this quarter. The current quarter’s decline comes upon the heels of similar losses sustained in 1Q09.
The San Jose MSA posted the greatest decline for the current quarter at -3.8%, followed by San Francisco at -2.7% and Austin, Texas at -2.4%. Other struggling markets are Oxnard-Thousand Oaks at -1.8%; Riverside-San Bernardino, CA at -1.8% and Los Angeles at -1.6%. With the exception of Austin, TX what these markets have in common is that they are located in California and their average rental rates are over $1,000.00/mo. The RealFacts survey demonstrates the effects of higher than average unemployment statistics in the state of California. According to a May 2009 survey released by the EDD, California’s unemployment now stands at 11.5%, compared to the National average of 9.4%. The San Francisco Business Times reported that the San Francisco Bay Area has lost 130,000 jobs from May 2008 to May 2009. Companies such as Yahoo! Inc., headquartered in Silicon Valley have had to make cuts of about 10% of its regular staffers.
On the brighter side of the rental markets are the current occupancy rates. The rate at which occupancy has been declining in the past two quarters has slowed down in the second quarter of 2009. This suggests that asking rents are beginning to reflect what the market can bear. For example, in Oxnard California, the average rent went from $1551/mo. down to $1,473/mo. But the occupancy rate actually increased by nearly 1.0% in this same quarter. Other markets that posted positive absorption this quarter were Orlando, FL, 0.6%, San Francisco, 0.4% and San Jose at 0.3%. All other markets were down. The highest drop in occupancy for the quarter was found in Boise, ID
at -3.2%, Oaklahoma City, OK at -2.1% and Indianapolis, IN at -1.4%.
It’s seems today’s renter is looking for a bargain. There aren’t enough high income renters with good credit to commit to premium rents prevalent in high-end markets. Many renters have been forced out of high markets due to lack of employment opportunities or sufficient income. In some cases these renters decide to move to a location where housing is less expensive and where they can rent the same quality apartment unit for less than half the price.
Sarah Bridge
sbridge@realfacts.com
RealFacts
372 Bel Marin Keys Blvd., Suite H
Novato, Ca 94949
415-844-2480
www.realfacts.com
THIRD CONSECUTIVE DECLINE IN APARTMENT RENTS & OCCUPANCY Posted Monday, April 27, 2009 by realfacts
RealFacts has just concluded its first study of rental market conditions in 2009. Rents and occupancy continue to go down, but there was no big drop this quarter as some people predicted. However the cumulative effect of the past three quarter decline is beginning to make itself felt.
Only three MSAs have shown any rent increase in the 1Q09; Houston at 0.8%, Oklahoma City at 0.3%, and Vallejo-Fairfield, CA at 0.2%. The annual rent trend shows 40% of the markets surveyed sustained an annual rent loss of more than 2%. Declines were found in Oxnard, CA at -5.3%, Phoenix and Orlando at -4.9% and Inland Empire at -4.5%. Average rents haven’t been this low since early 2007. What do these average percentages mean? The average rent for the entire database is
$978/mo. So, a 1% decline would be a loss of $9.78. Just to put this in perspective, the average renter in Marina Del Rey, CA pays $2,398/mo., so a reduction of $9.78 is no more than a check book balancing error. On the other hand, renters in Tulsa pay an average rent of $587/mo. The $9.78 is almost 2% off their rent.
Three quarters of the surveyed MSAs showed an annual occupancy decline of more than 1%. That compares to 30%-less than half the number-in the previous quarter. Only two MSAs showed occupancy gains in 1Q09: Boise, with a quarterly occupancy rate gain of 0.8% (and a similar rent loss), and Oklahoma City at 0.3%. More typical was a loss of about 1%. To be specific that means 32,833 units are vacant which were occupied in December of 2008.
The RealFacts survey corroborates other reports of a decline in apartment construction. In the first quarter 2009 a mere 1,737 new apartment units were added to the supply. If the present rate of construction continues that would add only 6,948 units for the entire
year. Compared to 13,560 in 2008, and 33,750 in 2007.
With this survey, RealFacts introduced its new coverage of the Raleigh-Durham market. (Guess the RealFacts staff was watching UNC win the basketball tournament earlier this month.) The RealFacts North Carolina database now includes 229 apartment communities or 63,076 total units. Highest average rents in the state are found in the city of Cary at $880/mo., and the best bargain in North Carolina can be found in Charlotte at $658/mo.
NATIONWIDE DECLINE IN RENTS Posted Monday, February 2, 2009 by realfacts
The release of the Realfacts 4Q08 data provides the first comprehensive assessment of the rental market in 2008.
Renters looking for an apartment at the beginning of 2009 will have more choice and be able to get a better value for their rent money. A study of nationwide rents just released by Realfacts, the Novato data specialists who are marking their 20th anniversary, shows that rents declined in nearly every MSA in the country between September and December of 2008. The year end survey found the highest rate of decline in Miami-Ft Lauderdale FL (2.4% in the 4th quarter), Riverside-San Bernardino CA (2.4%), San Jose CA (2.0%), Oxnard‐Thousand Oaks‐Ventura CA (1.8%). Rents also went down by 1.6% in Orlando, Phoenix, and Los Angeles. Nationally, the average rent for an apartment once again dropped below $1,000 declining from $1002 in September to $993 in December.
The decline in rents was matched by a decline in occupancy. The occupancy rate for apartments in the United States dropped to 92.2% in December, down from 92.9% in September. That decline in
occupancy meant that 10,000 apartment units were vacant as the year closed. The Realfacts survey covers an inventory of nearly 3.2 million units of rental housing in 60 MSAs. In 2008, only 9,248 units
were added to the supply. This compares to an average for the previous ten years of about 65,000 units per year of new construction
The decline in rents and occupancy is certainly good news for renters. For people who have invested in income property, the news is less welcome. In essence, while income from rental property remained
flat in 2008, inflation drove costs up by 3.85%. This gap is reflected in a smaller number of sales transactions during 2008. The Realfacts database shows just 386 sales of apartment complexes larger
than 100 units, which is about one third of the previous three year’s volume.
This data for 2008 indicates that the year’s widespread economic problems have finally affected the rental market by the end of the year. The choice to invest in income property for the last several
decades has been based on the assumption that rents would continue to growth. In 2009, investors are likely to evaluate rental properties based on current income alone.
APARTMENTS REMAIN STABLE IN TURBULENT HOUSING MARKET Posted Thursday, October 23, 2008 by realfacts
Apartment rents across the United States were virtually unchanged in the 3rd Quarter of 2008. According to Realfacts, the apartment data specialist, the average rent for an apartment in September was $1,002. In June, the figure was $1000. The data is based on a survey of more than 3 million apartments in complexes of 100 units or greater.
The average conceals a huge variety in rents in specific locations. The most expensive place to live in a large apartment complex is the greater New York area, where the average rent is $2,272 per month. Just behind that is Bridgeport-Stamford at $2,179. Number three on the list is greater Boston at 1,905. Numbers four and five are on the west coast, San Jose at $1,708 and Los Angeles at $1,661.
At the other end of the spectrum, the cheapest place to live in a large apartment complex is Flint, Mi at $459 per month, about 20% of the cost of an apartment in the New York area. Number two and three are in Georgia, with Albany at $521, and Macon at $533. Number four on the list of inexpensive places to live is Columbia NC at $542. And number five is Wichita, KS at $548.
Compared to the volatility of the stock market, the world of rental apartments is the epitome of stability. Not only were rents virtually unchanged over the past quarter, so was occupancy. In June the average occupancy rate for apartments in all areas, was 92.7%, and in September it was 92.9%. This level occupancy suggests that in the future rents will also remain level.
Today’s headlines are about the troubles on Wall Street that were triggered by the sub-prime mortgage crisis. How has this loan crisis affected large apartment complexes? To date there have been almost no foreclosures on apartment buildings thanks to the stability of rents and occupancy. However, the landscape of active multifamily lenders has definitely shifted. Starting in the late 1960’s FNMA and Freddie Mac were the dominant lender for apartments. But over the past five years, they have all but disappeared from the market. Looking at the 311 sales of 100+ unit apartment complexes so far recorded in the RealFacts database for 2008, only 10 apartment complexes were financed by FNMA or Freddie Mac.
The lenders who are currently active in financing apartments are local banks, which still have the funds to lend and are expressing renewed interest in transactions by borrowers with a long term relationship. For example Bank of the Ozarks was the lender for the 476 unit Kings Landing at Collins Pointe in Arlington, TX, lending 75% of the purchase price for that sale.
Also active in today’s lending market are the institutional real estate specialists such as CBRE Melody who financed the sale of the 300 unit Collier Ridge in Atlanta at 75% Loan to Value or $24.9 million, and Capmark whose recent transactions include financing the sale of the 296 unit, Cimarron Ridge in Aurora, Co. These institutions draw funds from a wide variety of sources, national and international, and can simply switch products as the market fluctuates.
An investment in an apartment building is looking like a better and better choice, when each day’s news headlines scream financial catastrophe. The RealFacts database contains about 12,500 complexes with more than 100 units. The average size of the complexes is 255 units. At the average sales price per unit in 2008 of $92,833, that makes the average apartment complex is an asset worth $23,672,415. Suppose you invested the same amount in the stock market a year ago, your investment would be worth 30% less. If you invested 23 million in a portfolio of single family homes, that portfolio would have lost 20% of its value. The good news is that your investment in an average apartment complex would be worth exactly what you put into it a year ago.
RealFacts Newsletter #201: What’s Happened To Concessions? Posted Thursday, October 9, 2008 by realfacts
September 22, 2008
RealFacts Newsletter #201
What’s Happened To Concessions?
As we work on our third quarter 2008 survey, we have taken time out to do a study of concessions at a client’s request. In the past, many users of RealFacts data have asked about concessions and tried hard to monetize the value of concessions in the market. The difference between asking and effective rents has been an issue important to investors, lenders, and property managers. Current trends in the marketplace, however, suggest that there is less of a gap between asking and effective rents.
It used to be that management would set a rent and not change it until market conditions were so altered that they were forced to change. Concessions or “specials” were the way management adjusted asking rents to reflect current market conditions, but in today’s current market, management uses the latest in marketed intelligence and computer technology to adjust rents in immediate response to changes in the market. We find many property managers are using yield management software—for example YieldStar – which suggests changing rents weekly or even daily in accordance to demand and traffic. This type of software was introduced nearly a decade ago, but it was slow to be adopted because many managers feared the result of residents comparing notes around the pool at the rent they pay. However, today pricing according to when and where you buy something is accepted in almost every market.
It is become a point of pride with some owner/managers to set their rents accurately and reject the notion of “specials.” For example, the largest owner of 100+ units, Equity Residential, never offers concessions. Instead, they have sharp research department that uses all the latest market intelligence to set rents every month for each unit type for each apartment complex. Some smaller companies are following suit by making their asking rents very sensitive to the market.
Thus the days where effective rents were much lower than asking rents seem to be gone. This is the result of a market that is staying well informed and setting asking rents pro-actively.
If you have any comments or suggestions regarding this newsletter please e-mail: denisec@realfacts.com or call 415.884.2480
SERENE APARTMENT MARKET REMAINS STABLE Posted Wednesday, April 23, 2008 by realfacts
In a period of turmoil for condos and single family homes, the rental apartment market is a model of stability. According to statistics released this week by RealFacts, the multifamily data specialists, rents are growing modestly, occupancy is unchanged, and the rental apartment segment appears to be immune to the problems occurring in other housing sectors.
This first look at the market in 2008 finds rents growing at a rate of 0.4% per quarter. The increase since March 2007 adds up to 3.0%, 0.6% below the year-over-year rate for 2007, which was 3.6%. Although this rate is lower than the underwriters' ideal growth rate of 5% per year, it is still likely to be the happiest news financial institutions have seen this year. The RealFacts database includes more than 3,160,000 rental units in 15 states, and the survey conducted in March indicates that the average rent for all locations was $993. That means the average apartment resident pays almost $12,000 a year for housing. The highest quarterly rent growth was seen in the Oklahoma City OK MSA, (2.2%), Seattle-Tacoma-Bellevue WA MSA (2.1%), Salt Lake City UT MSA (2.0%) and the San Francisco-Oakland-Fremont CA MSA (1.2%). .
RealFacts found that occupancy rates stabilized in the first quarter of 2008. In marked contrast to the last three months of 2007, when occupancy fell a full percentage point for the entire database, there was no change in early 2008. While roughly half the Metropolitan Statistical Areas (MSAs) showed a continued decline in occupancy, the other half showed an occupancy increase. The bad news last December was that at least 31,000 apartments that were occupied in September had become vacant. The bad news from March 2008 is that all of these apartment units are still empty; the good news is that the number of empty apartments has not grown. The current average occupancy rate for all units is 92.6%, well below the ideal 95%. This factor favors renters over landlords, and thus exerts a check on rent growth, which favors landlords over renters. Thus the market remains in good balance.
Analysts of the troubled single family home market, with its sub-prime loans and increasing number of foreclosures, have asked what happens to the people who have lost their houses. Some have speculated that they would move into apartments, but the evidence from the RealFacts survey suggests that this is not happening. There has been no increase in demand for apartments, as would be the case if former home owners were turning into apartment renters. In fact, in MSAs that lead the nation in foreclosures, there has also been a decrease in demand for apartments. So where did these people go? One answer may be that they are renting houses rather than apartments, and are thus part of a shadow market that is not currently being measured. Another possible explanation is that the loss of their house was part of a larger financial collapse, and that they have become eligible for affordable housing, and have thus left the market-rate housing market
A closer look at the RealFacts survey indicates that while demand for rental apartments has slightly decreased over the past year, supply of rental housing has also slightly decreased. The database covers apartment units in complexes of 100 or more units, and in the past two years, more than 100,000 units have been removed from the rental supply as the buildings were purchased by condo converters and moved into the For Sale market. (About the same number of units were planned to go condo but have not yet been sold.) In that same time period, only about 60,000 new units of rental housing have been built. That's a loss of about 40,000 rental units in 2006-2007, or a little more than 1% of the total. Development remains at a lower level than average, but there are plenty of developers who have the skill and the money to enter the market and are just waiting for the timing to be right.
Caroline S Latham
CEO
RealFacts
WHAT’S UP IN OKLAHOMA? Posted Monday, April 7, 2008 by realfacts
The short answer is … everything. Rents are up, occupancy is up, and construction is up. Apartment managers say traffic is up, and brokers say rental property sales are up. Here at RealFacts, we were so startled when we first looked at the fourth quarter survey results for Oklahoma City that we assumed there must be some data e! ntry error. Then we looked at the Tulsa MSA and discovered the same upward trend.
Just how well is the Oklahoma apartment market doing? As of December, the year-over-year rent growth in Oklahoma City was 5.2%, a level equaled in only a few prosperous West Coast markets. In Tulsa, which for years was at the bottom of the list of asking rents as well as rent growth, rents grew at an annual rate of 6.9%, and 2.5% of that growth came in the last quarter of the year. The average rent for all unit types in the Tulsa MSA was $570, and $580 in the Oklahoma City MSA.
In a quarter when most markets were experiencing a slowdown in the rate of rent growth, the news from Oklahoma seemed remarkable, and we wondered if it was going to be sustained in 2008. So we decided to do a quick resurvey of the apartment complexes in our Oklahoma database last week, and fond that rents are still being raised aggressively. Increases of $10-$25 a month were common in February --- and remember that where rents are generally in the $500 range, that is a large percentage increase. We asked managers to give us their take on the strength of the market, and many mentioned evidence of strong demand, especially increased traffic when vacant units were advertised. A factor frequently cited was the existence of new projects. Although the conventional wisdom is that new construction puts older units under economic stress, we have often noticed the opposite effect; when a new apartment complex is able to fill its units at a higher price than managers formerly believed possible, older complexes then achieve rent increases that put them just under the new units, and therefore still a bargain in the eyes of prospective residents.
Demographics tell us that Oklahoma is still growing in population, and that its household income is going up. In 2006 Oklahoma added nearly 35,800 residents, a 1.01% annual population growth. "Only once since Oklahoma's oil boom and bust has the state had a one percent increase in population over the span of one year," said Jeff Wallace, Director of the Oklahoma Census Data Center at the Oklahoma Department of Commerce. "This shows that Oklahoma's economy is becoming more diverse and continues to attract additional growth to our state." And the latest figures for median household income shows Tulsa at $40,204, an increase of 6% from the previous year and the Oklahoma City MSA as $37,967 an increase of 4.9%.
So Oklahoma, OK!
Caroline S. Latham
CEO
RealFacts
APARTMENT SALES IN 2007 Posted Monday, April 7, 2008 by realfacts
Although 2007 has ended, we are still researching apartment sales transactions for that year. As of early March, we had found details of 1017 sales. Chances are we will find some more in the coming months, but we certainly have enough to spot some trends.
The first conclusion we can draw is that sales volume is more or less unchanged from the previous year. We have 1027 sales of complexes in the database for 2006, strikingly similar to the number of sales for 2007. Since our database covers 12.200 complexes, that suggests that 1% of apartment complexes change hands in a year.
Generalizing about a database that covers so many different MSAs is dangerous, because it blurs the details of individual markets. But let’s live dangerously and say that prices per unit and per square foot have gone up in 2007 while cap rates have gone down. The following table summarizes the changes state by state,
| | 2007 | | 2006 | | State | Av.CapRate | Av.PPU | Av.CapRate | Av.PPU | | AZ | 5.8% | $93,025 | 5.9% | $79,223 | | CA | 5.3% | $181,161 | 5.1% | $177,043 | | FL | 6.0% | $93,997 | 6.5% | $109,401 | | CO | 5.0% | $92,605 | 4.9% | $90,587 | | IN | 6.8% | $53,891 | 7.3% | $58,243 | | KS | 6.5% | $74,709 | 6.8% | $86,192 | | MO | 6.5% | $53,066 | 6.9% | $53,475 | | NV | 5.3% | $123,987 | 6.0% | $123,386 | | NM | 6.5% | $90,159 | 6.8% | $60,907 | | OK | 6.4% | $33,879 | 7.2% | $39,309 | | OR | 5.0% | $102,440 | 5.8% | $87,500 | | TX | 6.8% | $62,379 | 7.3% | $60,268 |
UT | 6.2% | $89,394 | 7.0% | $50,436 | | WA | 6.0% | $122,720 | 5.2% | $110,528 |
To continue with this dangerous act of generalization, we can say that prices have been going up and cap rates down in the twenty-first century. The exception to the trend came in 2005, when prices went up so fast due to sales to condo converters that they fell in 2006. In future newsletters, we’ll look in more depth at sales in some specific markers, where there have been high numbers of transactions.
Caroline S. Latham
CEO
RealFacts
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