The current real estate cycle is stretching into its second decade—with no clear end in sight. While there have been hiccups in some segments (we’re looking at you, retail), multifamily has been a rock. And despite being the favored asset type of many classes of investors, driving cap rates ever lower, the sector’s fundamentals have held up. To modify a phrase from Arrested Development’s George Bluth, there’s always money in multifamily.
For six years we’ve been tracking sentiment in the sector as part of our NREI Research Series. In fact, the response to and success of our annual multifamily research reports is what led us to expand the effort into other property types and topics. In that time, sentiment among respondents for multifamily has always been bullish. Yet that enthusiasm has moderated some from year to year. The big takeaway in this year’s edition is that optimism has ticked back up after dipping some in 2018.
(Bloomberg)—The wealthy masses are starting to bet their money on a new U.S. tax break after more than a year of indecision.
The latest data point: Bridge Investment Group announced Tuesday it has $509 million that it is deploying in projects in opportunity zones. The money was gathered from about 500 investors, according to a person with knowledge of the matter, who asked not to be identified discussing the private fundraising. The minimum investment was $250,000, but average check size was closer to $1 million, the person said.
The new fund shows that 18 months after Republicans pushed through a tax overhaul with generous incentives to invest in low-income communities, money managers are indeed having some success enticing large numbers of clients to pool cash for qualifying projects.
As this real estate cycle stretches out, the availability of financing for speculative development appears to be more constrained than during the last market peak, although opportunities continue to present themselves to investors betting on the growing e-commerce distribution sector.
Financing of speculative construction is somewhat common in the industrial sector and typically the only way development occurs when it comes to apartment, seniors housing and self-storage properties. It’s far less available for retail and office construction, but it is emerging in single-family build-to-rent communities.
“Things are robust and positive in terms of the overall amount of capital looking for investments in the real estate space,” says Lauro Ferroni, director of research with real estate services firm JLL. “We projected a minor decline in overall transaction volume for the U.S. in 2019, and we are really seeing the market moving in line with those expectations, so we aren’t seeing any real surprises at the moment.”
The tariff wars are causing the price of construction materials to rise, construction contractors are saying.
“Approximately 60 percent of the cost increases we’ve seen recently are directly related to tariffs,” says Aaron Trascritti, director of client relations for Summit Contracting Group, a multifamily general contractor.
The U.S. government continues to confront its main trading partners on what it calls unfair trade practices, placing heavy tariffs on goods from these countries. These include tariffs on goods from China and on Canadian lumber, to name just two. Subcontractors have often responded quickly, raising their prices on the news of higher tariffs, even if the price they pay for materials remains relatively low.
In June, housing confidence fell slightly as more Americans reported now is not a good time to buy, according to Fannie Mae’s latest Home Purchase Sentiment Index.
According to the GSE’s report, sentiment fell by 0.5 points in June to 91.5. Although this rate is a decline from last month’s near survey high of 92, it still remains 0.8 points higher than the same time period in 2018.
Despite this annual increase, the report indicates that a majority of its components either declined or remained relatively flat in June.
Fannie Mae Senior Vice President and Chief Economist Doug Duncan said growing expectations that mortgage rates will remain steady suggest improved stability for housing affordability.
Demand for apartments hit a high not seen in five years as a shortage of affordable homes has locked an increasing number of Americans out of the market.
According to recent data from RealPage, the national occupancy rate rose to 95.8% from 95.4% last year.
The increase in demand has sent rental prices upward, causing them to rise 3% from the same time last year.
Rental price increases varied across cities, with Las Vegas and Phoenix posting the greatest gains at 8.8% and 8.1%, respectively.
Of the cities that saw the most leasing activity, the Dallas-Fort Worth area takes the cake, with renters moving into 10,443 units in the second quarter of 2019, RealPage revealed.
Private investors have become the fastest growing buyer pool for retail centers due to low interest rates and an increase in 1031 and 1033 exchange activity, according to research from brokerage firm Stan Johnson Company and Real Capital Analytics (RCA).
Private domestic investors represented approximately 72 percent of the buyer pool for multi-tenant retail in 2018, based on sales volume, according to Stan Johnson and RCA. That’s a significant increase from around 42 percent in 2014.
The recent uptick in private capital in multi-tenant retail is due to three reasons, according to Duff.
First, the new supply pipeline in the retail sector has been low in recent years. This has helped shore up occupancy levels and rents, in spite of high store closing numbers. In addition, private buyers do not have to answer to shareholders, giving them greater flexibility than publicly-traded REITs to pursue these types of investment opportunities, Duff notes. (The share of publicly-traded REITs investing in multi-tenant retail has shrunk to 5 percent of the overall sales volume in 2018 from 33 percent five years ago, according to Stan Johnson and RCA research.)
Despite this week’s increase, the rate is more than three-quarters of a percentage point lower than a year ago when it averaged 4.52%.
Freddie Mac Chief Economist Sam Khater said the country is experiencing a tug of war as the fixed income market flashes warning signs while the equities market continues to march higher with optimism.
“The data suggests the economy is weakening but is still on very solid ground with high consumer confidence and strong labor market,” Khater said. “Closer to home, the housing market continues to slowly improve and gain momentum as we head into the second half of the year, which is good news and should keep the economy growing.”
As the rental market continues to heat up nationwide, rent prices are rising the fastest in sun belt cities, according to the latest quarterly HotPads® Rent Report.
Of the 10 fastest-rising rental markets in the United States, only one – Salt Lake City – is not in the sun belt. Phoenix has the fastest-rising rents out of the 50 largest metro areas, followed closely by Las Vegas. The median rent in Phoenix is $1,545 a month, up 6.9% compared to this time last year. The median rent in Las Vegas is $1,465 a month, up 6.8% from a year ago. After Phoenix and Las Vegas, the fastest rising rents are in Sacramento, Atlanta, Riverside, and Orlando, where rent prices are rising more than 5% annually.
Overall, the U.S. median rent is $1,545 a month, up 3.2% from a year ago. Across the country, the rental market has been on an upward swing since the second half of 2018.
In the first quarter of 2019, rents rose at a rate of 3.1% annually. A year ago, rents were rising 3% annually. Austin, Phoenix, and San Jose – all sun belt cities – have seen the highest gains in rental appreciation over the past year. In Austin, the median rent is $1,775 per month, up 3.6% from a year ago. This time last year, rents in Austin were rising just 1.1% annually.
Finding a reputable property management company can be quite daunting as it is difficult to really know how well the company is run. We have put together a list of items you should ask when interviewing a potential property management company.
You want to associate yourself with an established company, as this speaks to a company’s length of service in the community.
A property management company should have a presence in your local area, managing properties that are in the same asset class as your property. For example, if you own an apartment building in West LA, you should look for companies that manage apartments in West LA. The properties they manage may be available on the webpage, if not, ask this question while interviewing them in your initial conversation over the phone.
The company should at a minimum carry general liability and workers compensation for their business. In addition, it is always wise to look for a company that also carries Errors and Omissions insurance.