Category: Multifamily

Apartment Outlook 2020: Riding the Zenith

Flush with capital and boosted by solid fundamentals, multifamily real estate rolls into the new decade with an optimism that seems almost too good to last.

Carl Dranoff is like the M. Night Shyamalan of multifamily real estate development. Rooted in Philadelphia since receiving his MBA from Harvard in 1972, Dranoff has succeeded through multiple economic cycles by adopting a maverick mentality and a cut-no-corners approach to developing high-end, placemaking properties across the City of Brotherly Love. With a zig-when-they-zag strategy for finding emerging investment opportunities, Dranoff follows a personal credo that “if you follow the pack, you’ll always be behind the curve.”

So when Dranoff unloaded his six-property luxury apartment portfolio to Denver-based Aimco in April 2018 for $445 million, market watchers took notice. On the surface, Dranoff’s subsequent move into for-sale, high-rise condominium development has had all the marks of the developer’s iconoclastic market timing. Even as investor demand for multifamily has continued to boost asset valuations in Philadelphia and nationally, Dranoff has tapped into a parallel (and unmet) demand for luxury condos from buyers discontented with the single-family home market supply.

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Market Monitor: Six Top Multifamily Metros

Take a look at how multifamily is faring in Dallas-Fort Worth, Denver, Miami, Phoenix, Seattle, and Washington, D.C.

With data and insight from RealPage as well as Hanley Wood’s Metrostudy and Meyers Research, the Multifamily Executive staff takes a deep dive into the state of housing in six of the nation’s top metropolitan areas for multifamily activity: Dallas-Fort Worth, Denver, Miami, Phoenix, Seattle, and Washington, D.C., which includes its surrounding Maryland and Virginia suburbs.

The following reports offer some insight as to how the markets will fare in 2020. Each one is chock-full of data, from building activity to average rents. Consistent across all six of these markets are job growth and strong local economies, which are positive signs for the apartment market.

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Buying A Home Is More Affordable Than Renting In 53 Percent Of U.S. Housing Markets

Renting More Affordable Mainly in Suburban and Urban Counties; Home Price Gains Outpacing Wages in 66 Percent of U.S. Markets

IRVINE, Calif. – Jan. 9, 2020 — ATTOM Data Solutions, curator of the nation’s premier property database and first property data provider of Data-as-a-Service (DaaS), today released its 2020 Rental Affordability Report, which shows that owning a median-priced, three-bedroom home is more affordable than renting a three-bedroom property in 455, or 53 percent, of the 855 U.S. counties analyzed for the report.

However, the analysis shows a split between different-sized markets, with ownership more affordable mainly in lightly populated counties and renting more affordable in more populous suburban or urban areas.

The analysis incorporated recently released fair market rent data for 2020 from the U.S. Department of Housing and Urban Development, wage data from the Bureau of Labor Statistics along with public record sales deed data from ATTOM Data Solutions in 855 U.S. counties with sufficient home sales data (see full methodology below).

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Here’s where rent prices surged – and where they didn’t – in 2019

Nationally, cost of rent went up 4.1% for one-bedroom units

As 2019 saw historically low vacancy rates among multifamily housing, it also led to a rising cost of rent, too.

According to realtor.com, a report from Abodo said rental prices went up in 38 states, including Washington, D.C., in 2019. In the other 12 states, the cost of rent actually fell, but only slightly.

Nationally, median rents for one-bedroom units went up 4.1%, making monthly rent $1,078 at the end of 2019.

Prices for two-bedroom units went up 5.5%, making monthly rent $1,343.

In 2019, multifamily occupancy rates reached as high as 96.3%. The demand of multifamily housing keeps rising, as home prices are also continuing to climb.

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Multifamily Finance Experts Discuss 2020 Outlook

Borrowers still must pay attention to potential recession and macro trends.

As housing demand continues to surge across the nation, finance leaders are predicting that capital will continue to flow for both affordable and market-rate multifamily deals in 2020.

“There is a lot of capital in the multifamily lending space for both market-rate and affordable financing,” says Rich Martinez, senior vice president of multi-family production and sales at Freddie Mac. “We expect the markets to be as strong and robust as they have been in the past several years.”

Hal Collett, managing director of Federal Housing Administration and affordable lending at PGIM Real Estate Finance, agrees. “The interest rate environment has been incredible. It has played a large role in keeping us at a level to continue to spur business in a large way,” he says. “All indications are that we will continue to have a strong environment.”

The Mortgage Bankers Association forecasts record commercial and multifamily mortgage originations and multifamily lending for 2020.

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Property Rental Sites Targeting Millennials

How Neighborhood and Property Data Can Help Rental Site Owners Target Millennial Renters Effectively

According to the U.S. Census Bureau, only 1 in 3 millennials own their own home. Stagnant wages, coupled with rising house prices, mean that many millennials are struggling to purchase their own property. This makes millennials one of the highest-renting demographics.

With so many millennials looking to rent out a property, several rental property websites are targeting millennials through their advertizing initiatives. As the owner of a rental website, it can be a challenge to ensure you continue to drive the most traffic to your website and guarantee that your site visitors convert successfully. Below, we explore how to target millennial renters effectively using neighborhood and property data.

Highlight the Property Features Millennials Want

Studies have shown that millennials value properties with large spaces for socializing with friends. Large kitchens and living rooms, and sizable outdoor space, are the perfect draw for millennials looking to host friends for social gatherings. As such, offering realty data on a property’s square footage, as well as details on any outdoor porches or balconies, is key for helping convert millennial house hunters who land on your rental website.

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Here’s what will happen in multifamily real estate in 2020

What will renters see next year?

After a strong year in multifamily housing, expect an even stronger one in 2020, according to RealPage Chief Economist Greg Willett.

In an interview with HousingWire, Willett said the apartment market is in great shape, and even the luxury market will see competition in 2020.

Occupancy rates were as high as 96.3% this year, a figure Willett said is well above the long-term norm.

And much of the new properties set to hit the market next year will be of the higher-end variety. According to Willett, about 75% to 80% of 2020’s additions will command luxury product rents, leading to increased competition in that market segment.

“Increasing completions point to a competitive leasing environment for luxury product in 2020. About 550,000 market-rate apartments are under construction right now. Approximately 366,000 of them are scheduled to finish in 2020,” Willett said. “That targeted delivery volume jumps sharply from 2019 completions of around 279,000 units.”

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Two-Thirds of Renters Make Sacrifices to Afford Rent

Entertainment spending is the most common sacrifice, but some cancel health services or eliminate insurance.

According to Zillow data, the U.S. median rent consumes 27.8% of the median income—close to the 30% point, where rent is considered unaffordable, and 32%, above which homelessness can rapidly increase.

In the 2019 Zillow Consumer Trends report, 26% of renters say that affording their rent is difficult or very difficult. Most renters—66%—make at least one sacrifice in order to afford rent. Nationally, the most common sacrifice is entertainment spending, with 38% of renters reporting spending less on entertainment. However, some make more serious sacrifices—9% will postpone or cancel health services, while 12% will reduce or eliminate downpayment savings.

Sacrifices aside, renters are financially strapped enough that only 51% say they could accommodate a $1,000 expense, compared to 80% of homeowners. Older renters are less likely to say they could afford such an expense: Only 38% of boomer and silent generation renters, compared to 60% of Gen Z and 54% of millennial renters.

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When it comes to their home, Millennials are picky

This is what they had to say

For the generation that is waiting the longest to buy a home, they appear to be the pickiest too.

According to a new data set from the National Association of Home Builders, Millennials care just as much (if not more) about what they want in a house rather than what they need.

And even though Millennials carry loads of student debt, they still want to live out the American Dream in a home, whether it’s rented or not.

The NAHB asked recent and prospective homebuyers about the features they want in a home and a community. Homebuyers were asked to rank more than 175 features in a home on a four-tiered scale of do not want, indifferent, desirable, and essential/must have.

The most popular specialty room, other than a bedroom, bathroom or kitchen, is the laundry room, with 50% saying it’s an essential while 36% said it’s more desirable.

On the bottom of the necessity list is breakfast nook and sunroom. Of those surveyed, 19% said both were an essential and 39% it’s just a desirable.

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Multifamily Investors Are Spending More Capital in Secondary, Tertiary Markets

Slightly higher yields and still expanding economies are driving multifamily investors to smaller cities.

Multifamily investors are now more likely to spend their money on properties in secondary and tertiary markets rather than in primary markets.

“In secondary and tertiary markets… the number of offers that we are generating is much higher than what it was,” says John Sebree, Midwest-based first vice president and national director of the national multi housing group with brokerage firm Marcus & Millichap. “The level of sophistication of those buyers is much higher.”

After the more than a decade of expansion, investors are running out of attractive places to invest their capital. In secondary and tertiary markets, the yields are often only slightly higher than in primary markets; however, the local economies are strong enough to keep attracting more investors.

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