Your Top 5 Building Systems Can Be a Source of Major Liability

Managing residents is only one aspect of profitability for today’s real estate owners and operators. Another is preserving base building systems. Systems upkeep, from the building envelope to the mechanical, electrical and plumbing infrastructure, maintenance and systems, is critical to minimizing exposure. Here’s a look at the top five building systems and the potential liability they carry if not property maintained.

Building Skin

The building’s envelope—its roof, windows, cladding and doors—can all be susceptible to leaks. The envelope is a building’s first line of defense when faced with a weather event, like a hurricane, strong winds or a heavy storm. Wind can break windows or water can leak into a punctured roof.  Extreme heat and cold can also create damage when the building envelope is deficient.

Insurance Coverage: Damage to a building will be covered by the building’s property policy. If caused by a third party or adjacent building, the property insurer may then seek reimbursement from those responsible.

Tip: Do regular, routine building inspections across the envelope. Secure all roof equipment properly.

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Florida’s population, economy are growing

As this annual Economic Yearbook shows, Florida’s population now tops 21 million — 21,162,207 to be exact. That’s 430,000 more people in just one year, a gain in excess of 2.0%.

Per capita income grew 5.6% to $48,515, and unemployment fell a whole percentage point to end the year at 3.7%. Median age, of course, grew as 91,000 more residents now are in the over-65 age group. We don’t present the data here, but the over-80 crowd grew the fastest.

This is a crazy pace. You can witness the growth all over the state as construction cranes dot the sky with condos, apartments and single-family homes going gangbusters.

Is it sustainable? Even if there’s a recession, even if there’s no net domestic in-migration, even if there’s no net international in-migration, Florida will keep growing because births outnumber deaths (so-called “natural growth”).

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Banks Get More Generous with Construction Loans for New Apartments

It’s getting a little easier to find a construction loan to build a new apartment property, compared to the end of 2017.

Banks are getting more aggressive,” says David Webb, vice chairman of debt and structured finance with CBRE Capital Markets, based in Washington, D.C. “It is getting easier to get deals done.”

Last year, many banks cut back on how much they were willing to lend on new apartment projects. Now, many larger banksare once again taking on new customers for construction loans. The size of these loans remains relatively small compared to the total cost to develop a project—but the loan amounts have stopped shrinking. And other lenders, including private equity debt funds, have rushed in to fill the gap in developers’ budgets with products like mezzanine financing.

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Changing the Perception of Affordable Housing

Although there is a severe need for more affordable housing across the U.S., many neighborhoods are skeptical of having these communities built. Without educating the area’s residents on the positive affects of affordable housing, many jump to stereotypes of what they think these properties will bring. A few of the most common misconceptions of affordable developments include:

  • unsightly buildings
  • lowered property values
  • higher crime rates
  • no tax contribution
  • available only to those given government assistance
  • bringing larger families, causing burdens to schools and roads

At the National Apartment Association’s Apartmentalize conference, in San Diego, Ken Szymanski, executive director for the Greater Charlotte Apartment Association, moderated a panel with Nicholas Dunlap, senior vice president of property management for Avanath Capital Management; Lori Trainer, transitions and acquisitions specialist at Pinnacle; and Tami Fossum, executive director of GEM Management, on how to change the perception of affordable housing.

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Home Equity Lines of Credit Increase 14 Percent in Q1 2018

IRVINE, Calif. – June 14, 2018 — ATTOM Data Solutions, curator of the nation’s premier property database, today released its Q1 2018 U.S. Residential Property Loan Origination Report, which shows that more than 1.8 million (1,813,691) loans secured by residential property (1 to 4 units) were originated in Q1 2018, down 5 percent from the previous quarter and down 3 percent from a year ago.

  • 665,887 of the residential loans originated in Q1 2018 were purchase loans, down 16 percent from the previous quarter but still up 2 percent from a year ago.
  • 799,939 of the residential loans originated in Q1 2018 were refinance loans, down 2 percent from the previous quarter and down 11 percent from a year ago.
  • 347,875 Home Equity Lines of Credit (HELOCs) were originated on residential properties in Q1 2018, up 18 percent from the previous quarter and up 14 percent from a year ago

The loan origination report is derived from publicly recorded mortgages and deeds of trust collected by ATTOM Data Solutions in more than 1,700 counties accounting for more than 87 percent of the U.S. population. Counts and dollar volumes for the two most recent quarters are projected based on available data at the time of the report (see full methodology below).

“Putting home equity to work is the name of the game in the 2018 housing market — both for current homeowners as well as homebuyers,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “With interest rates rising and home price appreciation accelerating, current homeowners are increasingly turning to home equity lines of credit rather than refinances to tap their home’s equity. And given that median down payments rose more than four times as fast as median home prices over the past year, it’s not surprising that homebuyers are increasingly getting help from co-buyers — often in exchange for a share of their home’s future equity.”

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The Shortage of Affordable Rental Housing in the U.S. Continues Unabated, Study Shows

The U.S. continues to have a very bifurcated apartment sector.

People who live in luxury, class-A apartments can often afford to pay more for their housing, but many property managers don’t dare hike the rents. That’s because residents often have lots of choices when it comes to where they could live, thanks to all the new class-A product now opening across the country.

The people who live in class-C apartments, on the other hand, have far fewer relocation choices—and they often can’t afford to pay much more in rent.

“We need strategies to help the private sector produce more moderately-priced housing,” says Chris Herbert, managing director of the Harvard Joint Center for Housing Studies, which released its “2018 State of the Nation’s Housing” report on June 19.

Class-C renters can’t pay much more

The average apartment rent has grown a lot faster than paychecks for many households.

As a result, nearly half (47 percent) of the households—20.8 million—who rent their housing in the U.S. spent more than 30 percent of their income on rent in 2016, the most recent period for which data is available. More than a quarter (25.2 percent, 11 million) of renter households pay more than half of their income for housing, according to the Harvard Joint Center study.

The strain on these renters has steadily increased since 1990, when 38.9 percent of renters spent more than 30 percent of their income on rent, and 19.3 percent spent more than half.

Those numbers show severe financial stress on a growing piece of the rental housing market in the U.S., including both apartments and rental houses. Most of the renters faced with these cost burdens have relatively low household incomes. Of rental households that earn less than $30,000 a year, fully 80 percent are housing cost-burdened, according to the Joint Center.

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Pension Funds Hunt for Higher Yields in CRE

Pension funds still have a healthy appetite for commercial real estate, with firms raising allocations even as industry returns decline.

“Institutions with large portfolios don’t turn on a dime, but there has definitely been a trend upwards in terms of allocations to real estate over the last five, six, seven years,” says Greg MacKinnon, director of research at the Pension Real Estate Association (PREA).

Results from the global Investment Intentions Survey 2018 co-published by PREA show that 56 percent of global investors plan to increase their exposure to real estate over the next 24 months, targeting an average 10.2 percent of total capital allocation.

The survey, which included responses from 320 investors and fund managers from 27 countries, estimates that institutional investors intended to commit at least $60 billion to real estate globally in 2018. Europe is expected to attract the greatest volume of institutional capital at 41percent, followed by North America at 35 percent and Asia-Pacific at 17 percent.

One of the simple reasons that allocations have been creeping higher is that commercial real estate continues to perform well compared to other asset classes, such as fixed income, stocks or venture capital alternatives, notes Mike McMenomy, global head of investor services for CBRE Global Investors. “In the pension fund CIO office, it’s all about relative value risk return,” he says.

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Fannie-Freddie Overhaul Plan Is Dead for This Year, Senators Say

(Bloomberg)—Two U.S. senators who have played key roles in trying to advance housing-finance reform are acknowledging the legislative efforts to end government control of Fannie Mae and Freddie Mac are dead, at least for now.

Republican Bob Corker of Tennessee and Democrat Mark Warner of Virginia commented on the status of the two companies Wednesday at a Senate Banking Committee hearing with Federal Housing Finance Agency Director Mel Watt.

Corker and Warner tried to develop a bill that would have largely preserved the operations of Fannie and Freddie while opening the market to new competition. That effort foundered after failing to win support from progressives, who wanted to preserve the companies’ affordable-housing mandates, and Congress has little time left to consider major legislation before November’s mid-term elections.

“My sense is that these institutions may well stay in conservatorship for some time,” Corker said, adding that he believed President Donald Trump’s administration might take some sort of action on Fannie and Freddie.

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Millions of U.S. Homeowners Still Under Water on Mortgages

(Bloomberg)—A staggering number of American homeowners remain under water on their mortgages a decade after the housing bubble burst.

Almost 4.5 million households — or 9.1 percent — owed more than their homes are worth in the fourth quarter of 2017, according to data firm Zillow, with an estimated 713,000 owing at least twice as much as their property’s value.

While the percentage is declining, families in communities with stagnant property values are “trapped in their homes with no easy options to regain equity other than waiting,” said Aaron Terrazas, a senior economist at Zillow.

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Multifamily Rent Growth Stalls in Top Markets

While apartment rents are still growing nationally, in a few cities and submarkets rents are growing more slowly or even beginning to shrink.

“The only spots where you might find effective rents dropping are in locations affected by a large number of new developments leasing up,” says Ron Witten, founder of data firm Witten Advisors, based in Dallas. “The concessions which these projects offer during initial lease-up sometimes spread to nearby properties.”

The number of new apartments scheduled to open in the U.S. totals 274,700 units, up from 235,300 units added in 2017 and 220,800 units added in 2016, according to research firm Reis Inc. Strong demand for apartments is likely to absorb most of these new units, keeping rents growing overall. However, rent growth is seriously slowing down in a handful of markets.

“We expect total completions by year-end to reach a new cyclical high. Markets such as Nashville and Charlotte, leaders in new apartment construction, will face more pressure at the top end of the market,” notes an analysis by CoStar Portfolio Strategies.

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