Category: Multifamily

Hazard Zone: The Slow Move Toward Multifamily-Friendly Rules

The shift may seem glacial, but market forces are pushing denser housing.

Rarely has the phrase “push comes to shove” been more appropriate. Steady population growth in America’s most attractive metro areas is starting to push aside long-held notions in some cities about the sanctity of single-family homes. But so far that movement hasn’t been wide or deep enough. A necessary shoving phase could come soon.

Multifamily developers can welcome zoning changes in Minnesota, Oregon, and other places that make it possible to put multiple dwelling units in neighborhoods previously designated solely for single-family homes. Those benefits are limited mainly to the creation of duplexes and triplexes, however. For developers who think bigger, it’s going to take a lot of creative thinking and patient adjustments by all involved before they can fully do their part to lessen the affordable housing crisis.

Take California, for instance. According to Forest Economic Advisors, California accounts for 17% of all new jobs created in the past five years but only 6.8% of the single-family housing starts and 11.8% of the nation’s multifamily starts. With numbers like that, it’s no wonder that the Golden State has sky-high housing costs that are forcing people onto the streets: According to Rolling Stone magazine, California’s homeless rate has increased to the point where 25% of the nation’s homeless live in the state, even though it accounts for only 12% of the U.S. population.

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One Firm’s Simple Idea to Make Rents More Affordable: No Deposit

One start-up is allowing renters to pay a small monthly insurance policy in lie of a security deposit.

(Bloomberg)—How do you make rental housing more affordable?

As policy makers nationwide search for an answer — tinkering with proposals ranging from comprehensive rent control to rezoning — one start-up has put to work an idea that makes things cheaper immediately: eliminate the security deposit.

Entrepreneur Ankur Jain, a millennial whose venture capital firm aims to alleviate the financial crunches saddling his generation, is the co-founder of Rhino, a company that allows renters to pay as little as $2 a month for an insurance policy that can be used in lieu of a security deposit.

Landlords including Starwood Capital Group, UDR Inc. and Moinian Group have already signed on to use the insurance, offering the option to tenants in major metros such as New York City. Nationwide, about 300,000 tenants are currently using a Rhino policy instead of a deposit, Jain said.

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Here are the most expensive ZIP codes for renters

Is your ZIP code on the list?

Recently, we took a look at the zip codes with the most mortgage debt, which could conceivably be looked at as some of the most expensive places to live in the country.

But what about the most expensive ZIP codes to rent in?

Well, a new report from Yardi Matrix looks at the most expensive rents in more than 130 major U.S. rental markets.

Overall, 28 of the 50 ZIP codes with the highest rents are located in New York City. There are 12 located in the San Francisco Bay Area, six in Southern California and four in Boston.

ZIP code 10282 in Manhattan, New York is No. 1 for most expensive apartment rent, with the average price per month $6,211. This is the third year this ZIP code has been in the No. 1. RENTCafe says it is most likely due to the increase in demand after high-end restaurants and big-name luxury dealers have made that ZIP their home, too.

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Foreign Investors Ramp Up Multifamily Acquisitions

Even as the overall volume of cross-border investment in U.S. real estate slows down, apartment properties remain popular with foreign buyers.

Foreign investors continue to spend money on apartment properties in the U.S., even while they may be slowing down on purchases of assets in other sectors. In the second quarter, cross-border investors became net sellers of U.S. commercial real estate overall for the first time in seven years, according to Jim Costello, senior vice president with research firm Real Capital Analytics (RCA).

But “we are not seeing any slowdown from global capital into multifamily,” says Brian McAuliffe, president of capital markets with real estate services firm CBRE, based in Chicago.

These investors are lured by the ongoing strong demand for apartments that has shrunk vacancy in the sector. In addition, because apartment buildings rely on their income on dozens or sometimes hundreds of different tenants, their incomes are viewed as less volatile than, for example, a single-tenant office building, according to McAuliffe.

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Apartment supply exceeds demand in only 3 U.S. markets

There are half a million more renters than units

The nation’s 150 major apartment markets have seen approximately 2 million new apartments built since 2010, but there’s a problem. The number of renters in those cities have increased by about 2.5 million in that same time period. And with renting an apartment becoming more popular than it has in 20 years, that leads to many markets were demand exceeds supply.

In fact, according to a new study from RealPage, there are only three markets among those 150 where supply has outpaced demand: Washington, DC, Miami, and Austin, Texas.

Overall, apartment occupancy was the highest in August that it has been at any point since the tech boom in 2000, RealPage said earlier this month. August also marked the seventh consecutive month that apartment occupancy has risen, and the 12th consecutive month of rent growth at or above 3%.

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Lenders Won’t Cover Rising Construction Costs on Multifamily Projects

To make up for rising materials costs, apartment developers are being forced to put more equity into their projects.

Low interest rates are not enough to make up for the rising cost of construction on new apartment building projects.

“The drop in interest rates will not make a bad project look good,” says Matthew Swerdlow, director of capital services for Ariel Property Advisors, a real estate and advisory services firm based in New York City. “If it didn’t work with higher interest rates, it might not work with low.”

Apartment developers across the U.S. are struggling to pay for the rising cost of construction. Banks and debt funds are still eager to make construction loans at low interest rates, but these loans are not typically large enough to cover the higher cost of development. Many developers are now being forced to accept lower profits to make their deals work.

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Multifamily Investors, Spooked by Tougher Laws, Are Pushing Cap Rates Higher in Markets with Rent Control

More than 80 percent of markets with rent regulation tracked by RCA saw a spike in cap rates over the past year.

Investors are starting to pay less for apartment properties in markets that have some kind of rent regulation laws on the books.

In addition to New York, cap rates on apartment properties rose in cities in California, according to research firm Real Capital Analytics (RCA). The existing rent regulations in California didn’t change over the time period looked at by RCA researchers, though lawmakers there just approved broad new rent caps on Sept. 11th. The proposed law now awaits the signature of California’s governor, Gavin Newsom.

“These cities and towns have a propensity to try and regulate rents in an environment in which advocates are calling for more regulation,” says Jim Costello, senior vice president for RCA. “They are susceptible to toughening.”

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Apartment occupancy climbs to highest point since 2000

This is the 7th consecutive month of occupancy growth

Renting an apartment hasn’t been this popular in nearly 20 years, as the rate at which people are renting apartments hasn’t been this high since 2000.

According to new data from RealPage, apartment occupancy was the highest in August that it has been at any point since the tech boom in 2000. August also marked the seventh consecutive month that apartment occupancy has risen.

The 150 largest apartment markets in the country averaged an occupancy of 96.3% in the month of August. In July, it was 96.2%.

All four regions of the country saw a rise in its occupancy, with 97.1% occupancy in the Northeast; 96.6% in the West; 96.5% in the Midwest and 95.7% in the South.

Of the 50 largest markets in the U.S., eight of them saw a weaker occupancy rate in August than in July, while only three saw occupancy below 95%. Conversely, nine saw greater than 97% occupancy in August.

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What Millennial Renters Really Want

Cityview examines seven key components for staying ahead of the curve.

While some of the features sought after by renters are consistent across age groups, millennial tenants are leading the way with demand for more creative, community-building amenities at multifamily communities. The largest generation in the U.S., millennials are pushing multifamily owners and property managers to step up their offerings, or get left behind by the competition. By understanding what the younger renter demographic really wants, multifamily developers, investors, and builders can stay ahead of the curve and improve tenant attraction and retention.

Here are some of the key components Cityview has identified as priorities for millennial tenants:

1. Creative amenities: Fitness centers, resort-style pools, and clubhouses have become standard at luxury multifamily developments, so developers and property managers need to take amenities one step further to truly stand out. Unique offerings such as speakeasies and virtual reality rooms appeal to younger renters and foster resident interaction. Rock-climbing walls, roof decks with Airstreams, and rooftop dog parks create a fun atmosphere that caters to the younger demographic’s always-on lifestyle. As we’ve learned with some of the community spaces in our developments, “Instagrammable” locations have the added benefit of providing free promotion for your apartment community, which ultimately helps attract more renters.

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Low-Cost Luxury

Why it’s time to remove the price attached to creating a rich living space.

More than anything today, residents want to have rich experiences in the places they live. But they don’t want to break the bank to do it.

While luxury living has been featured in apartment communities for years, as the costs of land, entitlements and overall building materials continue to rise, developers are increasingly forced to make choices in the design and feel of their communities to stay on budget. At the same time, residents are pushing back against higher rents, even as they demand the same level of luxury today.

But by choosing from products like Peerless Faucet’s new design-oriented collections, multifamily designers and developers can create rich living experiences for their residents, without spending a fortune.

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