Category: Development

High Level of New Construction Will Continue to Strain Apartment Demand in 2019

Developers plan to deliver 337,000 new apartment units this year, up from 320,000 in 2018, according to RealPage.

Developers will keep adding pressure on the apartment sector in 2019, with plans to open hundreds of thousands of new luxury units in 2019.

New renters filled most of the new apartments delivered to the market in 2018, but not all of them. The percentage of apartments that will be occupied in 2019 is likely to keep falling.

“Occupancy should backtrack slightly, but still prove healthy as the current occupancy performance is so strong,” says Greg Willett, chief economist for RealPage, a provider of property management data and services. Like most industry insiders, he predicts that multifamily occupancy in 2019 will hover around 95 percent, with almost no available apartments in class-B and class-C categories.

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Do Developers Ignore Mid-Tier Renters?

Why the potential over-development of luxury rental units adds to the shortage of affordable housing and what can be done about it.

Lately, every city skyline is laden with cranes and every boulevard crowded with billboards advertising new luxury apartments for rent. These complexes have flooded markets across every metropolitan area―large or small―around the country. Renting, it seems, is no longer the cheap alternative to home ownership it once was.

With demand as high as it is, multifamily construction continues to boom and that trend is expected to extend into 2019, when construction of this type will reach its peak.

Developers have been so focused on catering to a wealthy market with high-end finishes and over-the-top amenities that most have continued to overbuild in this category. This will soon lead to a flattening or a market correction. They’ve also ignored the needs of average citizens and contributed to a nationwide shortage of affordable housing that has reached a crisis level.

For the time being, demand for luxury housing remains high. Millennials and baby boomers are among the two fastest-growing groups of renters, and an increasing number of empty nesters, high-net-worth households and double-income-no-kids households are choosing to rent. Both generations are seeking mobility, convenience and community. And since most of these renters are discretionary, meaning that they don’t need to rent for monetary reasons, their tastes skew towards luxury, amenity-rich accommodations. Package storage, pools, high-end fitness centers, room service, concierge services and even full-service pet spas have become the norm rather than the exception.

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Rising Construction Materials Prices, Labor Shortages Tax Multifamily Developers

Many multifamily developers and contractors are fighting off price increases for construction materials.

“Lately we have seen a few knee-jerk reactions from manufacturers claiming upcoming price increases or possible increases due to tariffs,” says Marc Padgett, president of Summit Contracting, a multifamily general contractor based in Jacksonville, Fla. “Often, they can’t substantiate the claim because there isn’t an actual tariff, just the mention that there could be one.”

The administration of President Donald Trump has threatened to impose tariffs on a long list of construction materials imported from foreign countries, including lumber from Canada and steel from China. Many manufacturers have already responded by hiking up prices.

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Real Estate Trends: Developers Search for Business Efficiency & Profit Maximization

Whether you are an international real estate firm, a developer working on a joint venture or working on a particular development deal, building out your operations and infrastructure can be quite challenging. Hiring talent, managing office space and operations, technology and other management factors can be a significant burden on business and a drain on resources.

One trend that is gaining momentum, especially in the real estate industry, is outsourced accounting. The complexity of accounting and tax issues, technology needs, reporting and planning opportunities all factor into the equation. Tax planning and analytical financial reporting are essential to maximizing the success for real estate developers, so the outsourced model often provides significant value for owners and stakeholders.

“We continue to see significant activity here in New York, both by international and domestic developers and investors,” said Robert Gilman, Partner & Co-Leader of the Real Estate Group at Anchin. “New York is not just the financial capital of the world but the center of the real estate market as well. As developers get creative and look to maximize the limited space available—in the busiest city in the world—real estate companies are looking to drive efficiency and profit maximization, rewarding investors and stakeholders alike.”

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