Category: Multifamily

Apartment Rents Expected to Rise Faster Than Inflation in 2019

Rents are likely to rise the most for class-B apartments, and the least for class-C and -D units.

Rents are likely to rise faster for older, class-B apartments in 2019 than for any other class of apartment property.

“We expect Class-B to continue to have the strongest average rent growth, as it has through recent history,” says Andrew Rybczynski, senior consultant at research firm the CoStar Group.

Rents continue to rise for new class-A luxury apartments as well. Strong demand is quickly filling new units as they open and, as a result, rents are rising faster than inflation. At the same time, rent growth is finally slowing down for class-C and class-D apartments—simply because many of those renters are already paying as much as they can afford.

“While occupancy is sky high in class-C product, rent growth in that sector is beginning to slow a little,” says Ron Willett, chief economist for MPF Research, a RealPage company.

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Why A Re-Think of Leasing Should Be Your 2019 Resolution

In the closing weeks of 2018 I had the pleasure of interviewing 20 leaders in multifamily operations and technology about the outlook for 2019 and beyond. The content of those conversations will be discussed in detail on this site in a few weeks’ time, but in the meantime, one theme emerged that seems to be a 2019 priority for everybody: leasing.

That’s right folks, as the hangovers wear off and the post-holiday diets wear on, it’s normal to think about new year’s resolutions. And for many in multifamily, plans to re-vamp, re-focus and in many cases re-think their companies’ sales processes are top of the list. There are several different reasons for this. The now seemingly perennial question mark over whether the bull market on rents will add yet another year to its already historic trend provides a natural motivation for operators to get better at converting leads.

How technology is changing multifamily sales

One of the more interesting perspectives that I kept hearing was the influence of new technology on the leasing process. It’s influencing our methods in a couple of different ways: through the increasingly tech-savvy behavior of prospects and through the rise of Artificial Intelligence (AI).

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Despite Fears of Overbuilding, Lenders Remain Willing to Fund Multifamily Development

Apartment developers are paying more interest on their construction loans—but that isn’t keeping developers from planning and financing new projects.

Despite rising interest rates and the nagging anxiety that developers are already building too many apartments in some markets, banks remain active lenders for multifamily construction projects.

“There is certainly no shortage of capital,” says Danny Kaufman, managing director in the Chicago office of HFF.

Interest rates rise

Apartment developers are paying more interest on their construction loans—but that isn’t keeping developers from planning and financing new projects.

“People have been predicting rates rising for 10 years—now it is finally happening,” says John Kelly, senior vice president and partner in the Boston office of CBRE. “But the cost of capital has not become an inhibitor of overall development.”

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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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Five Things You Should Know Before Investing In Multifamily

As a multifamily broker, I’m asked a lot of questions by first-time investors. Here are five things every new investor should know before getting started with multifamily properties.

1. Don’t confuse where you would live personally with where you should invest in apartments.

It’s not about what feels comfortable to you — it’s about the quality of housing you can provide the market and at what rate that determines whether or not it’s a good investment. Too many people new to investing in apartments say, “But I wouldn’t want to live here.” My response is usually, “That has nothing to do with it. What matters is who would want to live here?”

2. Find upside in rents.

It’s not all about the current rent price. Sometimes a unit is very outdated and simple renovations (kitchen cabinet replacement, new appliances, new tile in the bathroom) can have a significant impact on rent. Other times, the building is in good shape but owned by the same landlord for 30 years who never wanted to make waves (if they have long-term tenants, that’s a tell-tale sign their rents are too low). Look at the investment for what you can turn it into — not necessarily what it currently is. There are lots of new tools out there for helping investors determine optimal rent. I’m an investor in Enodo, an algorithm created to determine not only optimal rent but also the incremental rent you can charge for each individual improvement to the building or unit.

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Freddie Mac set all-time record for multifamily security issuance in 2018

GSE issued more multifamily securities than ever before

Freddie Mac continued its record-setting ways in the multifamily business in 2018, establishing a new record for multifamily security issuance for the second year in a row.

According to the government-sponsored enterprise, it issued $72.8 billion in multifamily securities in 2018, breaking its 2017 record of $68 billion.

“With our diverse array of securities, including our flagship K Deals, we continue pioneering efforts to meet private sector demand for investment products while shifting risk away from taxpayers,” said Debby Jenkins, executive vice president and head of Freddie Mac Multifamily.

“Our broad issuance platform had another outstanding year,” Jenkins said. “As we look to the future, we’re going to continue pushing for more innovations that can lower capital cost for borrowers, making rental housing more affordable.”

According to the GSE, it issued the following securities in 2018:

  • $61.6 billion in K Deal
  • $7 billion in SB Deals
  • $4.2 billion in KT Deals, PCs, Q Deals, M Deals, and ML Deals

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5 Inexpensive Makeover Tips to Put Your Leasing Space on Top of the List

Having property is a good way of having an excellent income for the long-run, but sometimes that same leasing space won’t get you much unless you renovate from time to time.

Properties that don’t receive a makeover regularly will be less attractive and will be more difficult to lease, and you’ll thus lose money.

You can avoid this by doing some renovations or making changes that will cause the space to become more desirable. However, this can be quite costly, which is why we have prepared a list of tips for you to avoid unnecessary costs, and manage to make some effective makeovers for very little money.

  • Clean Everything
  • Give it a Paint Job
  • Improve the Front Area
  • Change the Lights
  • Change the Lights

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Multifamily Borrowers Will Continue to Have Access to Multiple Capital Sources in 2019

Capital sources ranging from banks to private equity funds still find multifamily lending attractive.

Multifamily borrowers will have lots of choices on where to get permanent loans in the new year—despite worries about rising interest rates, high property prices and overbuilding.

“There is nothing out there that is going to create a lack of liquidity,” says Gerard Sansosti, executive managing director with capital markets services provider HFF.

Multifamily investors can get permanent loans from a growing list of lenders, including Freddie Mac and Fannie Mae lenders, banks and life companies. Many private equity fund managers have also created debt funds to provide loans on apartment properties.

“Rising rates aside, 2019 should feel the same as 2018 in terms of liquidity,” says Peter Donovan, executive managing director with CBRE’s capital markets multifamily group.

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How To Differentiate Your Property In A Tight Market With Three Modern Amenity Types

When it comes to real estate, it can be very difficult to get an edge on the competition in a tight market. One of the best ways to differentiate is through amenity offerings. It’s the extra “bang for your buck” factor that prospective tenants seek out, and it gives current tenants a reason to stay. The beauty of modern amenities is that the definition is very broad, meaning that property managers have a bit of wiggle room in determining the amenities that make most sense for their tenants.

While types of amenities can run the gamut, they all tend to fall under three umbrellas: physical internal amenities, external amenities and community branding amenities. While all are different, it’s a good idea to try to account for at least two of these types in your offerings to tenants.

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Austin Apartment Rent Rising Faster than National Average

Rents in Austin grew by an average of $57 a month, according to RentCafe.

Apartment rent in Austin during 2018 grew an average of $57 a month, or 4.4 percent, to yield an average monthly rent of $1,361, according to RentCafe.

Nationwide, apartment rent grew about $42, or 3.1 percent, to $1,419, the report found. Los Angeles saw rents increase by 6.6 percent while Chicago saw rents bump up 4.9 percent. The average monthly rent in Los Angeles comes out to $2,461 while Chicago’s average landed at $1,889. Small cities saw the most fluctuation, with double-digit growth in cities such as Midland and Odessa.

Around Texas, Dallas rents grew 2.7 percent, or about $31, to $1,182 and Houston saw rents grow 1.7 percent year-over-year, or about $18, to an average rent of $1,093 per month.

Large cities with the fastest-growing rents:

Las Vegas: 7.9 percent growth
Phoenix: 7.7 percent growth
Los Angeles: 6.6 percent growth
Jacksonville, Florida: 6.3 percent growth
Nashville: 5.8 percent growth

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