Whether you invest in, develop or manage residential buildings, you’re always trying to make the most of your budget and invest wisely in your properties to help attract great residents. Giving a little extra attention to design can go a long way toward meeting those goals in cost-effective and eye-catching fashion.
We like to use the term “adaptive reuse” in describing much of the work undertaken by my Chicago-based company when we purchase and renovate nondescript, mid-century buildings in aging parts of the city that have fallen into disrepair over the decades.
There are things you can and can’t do. Concrete structures with units that have 8-foot ceilings can’t magically be transformed into 10-foot-high grand palaces. But we can, for example, move around interior walls to create rooms that work for today’s lifestyles, rip out carpeting that’s covering beautiful hardwood, patch and paint the walls for a major refresh and, if we happen to still encounter any in 2019, peel off aging psychedelic wallpaper.
Manufacturing is once again a growing U.S. industry, especially in Southern “right-to-work” states, which tend to have lower wages than unionized states, and Midwestern cities with an abundance of highly skilled factory labor, according to Jack Fraker, vice chairman and managing director of global Industrial and logistics group with real estate services firm CBRE. In addition, there is a build-up in the high-tech manufacturing sector in Silicon Valley, with 1,500 manufacturing facilities with 65,000 jobs alone in San Jose, reports a local ABC News affiliate.
Due to this ramp-up in demand for industrial space in secondary markets, some smaller markets, like the Spartanburg-Greenville area in South Carolina, are performing more like primary, core markets, Fraker says. Growth in manufacturing in these towns is adding pressure on industrial vacancy and rent, and spurring new industrial development around plants and ports.
Investors are showing a growing appetite for co-living start-ups, though multifamily sector experts doubt the co-living trend will disrupt the housing sector.
Hundreds of millions of dollars have been invested in co-living start-ups in the last 18 months, according to Jeffrey Pang, CEO of Homeshare, a co-living marketplace. In major U.S. cities, where housing costs are high, such as San Francisco, millennials would have to spend 77 percent of their income on rent to afford the average one-bedroom, according to MarketWatch. And those rising housing costs are not changing soon, at least in major U.S. cities.
Since early 2010, apartment rent growth has far outgrown income growth, according to data from RealPageInc., a provider of property management software and services. In 2017, apartment completions in the 150 largest U.S. cities jumped to 395,775 units. Upscale buildings accounted for 75 to 80 percent of that new supply, according to RealPage. In that same span, nearly 30,000 new apartments were built in the New York area. Roughly 85 percent of them were luxury units.
Over the last three years, nearly 1 billion sq. ft. of new warehouse space came on-line, but demand for new space continues to outpace supply, with absorption hitting a record 261 million sq. ft. in 2018, according to JLL’s 2019 Industrial Outlook.
With vacancy nationally dropping to a record low of 4.7 percent, real estate services firm Transwestern reported that the average national asking rent, which has been on an upward trajectory for six years, ended the fourth quarter at $6.29 per sq. ft. Of the 47 industrial markets Transwestern tracks, more than 90 percent experienced year-over-year rent growth, and all but four markets posted positive net absorption for the year.
The supply-demand imbalance, which has averaged 97.3 million sq. ft. annually for nine consecutive years, has driven rents up by 20 percent since 2014, according to a CBRE report.
A major and unprecedented structural shift has occurred in the real estate market due to a variety of demographic and socioeconomic factors. Occupied U.S. rental apartment units rose by 20 percent above the prior 10-year period. Real estate investment managers’ allocations to institutional-quality multifamily product have risen on the ongoing strength in property fundamentals.
The sector offers steady income streams with rents that adjust with inflation annually, with new opportunities in professionally-managed rental housing. Interest is rising in high-quality rentals across all price points and regions, demanding a well-diversified inventory.
The homeownership rate across all ages is near historic lows. For-sale housing may recover, but full return to the prior peak homeownership rate is not anticipated. Apartment living is generally a more manageable expense and flexible living arrangement than a single-family home. It is now cheaper to rent than buy in more than half of all counties nationwide.
Industry experts see plenty of room for growth in the manufactured home communities sector, particularly among the smaller properties.
Often referred to as mobile homes or trailers, manufactured home communities are, in fact, a specific type of factory-built housing, constructed in accordance with the U.S. Department of Housing and Urban Development’s (HUD’s) Manufactured Home Construction and Safety Standards Code. They should be distinguished from RVs, trailers and park-model homes.
Manufactured homes are an important source of affordable housing, particularly for rural and low-income residents, according to experts.
MBA Senior Vice President and Chief Economist Mike Fratantoni said slightly higher mortgages rates last week led to a decrease in application volume.
“Furthermore, the average loan size for purchase applications increased to a record high, led by a rise in the average size of conventional loans,” Fratantoni continued. “This suggests that move-up and higher-end buyers have so far become a greater share of the spring market.”
In February, Marcus & Millichap released its annual forecast for the self-storage market in the United States.
Overall, the firm sees the investment climate as being robust for the sector, in part due to favorable demographic trends.
“The self-storage industry continues to benefit from long-term demographic factors, including the aging of the millennial generation,” according to the report. “The 80 million strong population cohort represents a little less than a third of all non-commercial self-storage renters. That proportion is likely to rise as the leading edge of the demographic group enters their primary income-earning years.”
This week ATTOM Data Solutions released its Q4 and 2018 Year-End Home Flipping report. The report showed that 207,957 U.S. single family homes and condos were flipped in 2018, down 4 percent from the 216,537 home flips in 2017.
However, did you know that ATTOM Data drills all the way down to the zip code level for this specific report? In fact, most of ATTOMs reports consist of various granular geo levels being analyzed, but the flipping report can really help real estate investors who are looking for their next move.
Average time to flip down slightly from 2017
Homes flipped in 2018 took an average of 180 days to complete the flip, down from 181 days in 2017 but up from 159 average days to flip 10-years ago.
Among 6,013 zip codes with at least 10 home flips completed in 2018 and a population greater than 5,000, those with the longest average time to flip were in zip codes 95742 located in Sacramento, California (301 days); 85935 located in Show Low, Arizona (285 days); 77441 located in Houston, Texas (285 days); 98116 located in Seattle, Washington (280 days); and 53532 located in Madison, Wisconsin (277 days).
Apartment developers continue to be stressed by the unpredictable cost of construction materials.
Overall, materials prices keep rising faster than inflation. But what’s worse is that prices for individual construction materials are unpredictable from month to month. The price of lumber and diesel fuel has fallen sharply, for now. But new policies from the U.S. government continue to jolt the markets, from possible sanctions on oil producing countries like Venezuela to government tariffs on imported steel.
Developers and contractors are struggling to adapt. “It’s likely that contractors will try to protect themselves from unexpected price jumps by putting contingencies into their bids or asking owners to share price risks,” says Ken Simonson, chief economist for the Associated General Contractors of America.