In several metropolitan statistical areas (MSAs), owning a home may cost less than renting. There are several factors that determine home affordability when compared to renting, so let’s dive right in.  Out of the 33 largest MSAs, 17 have homeownership options that are more affordable than renting. Homebuyers’ savings could exceed 3 percent of their incomes in nine of the 17 cities. Buying is more affordable than renting when homebuyers are able to: Put 3.5 percent down on the property, often with help of down payment assistance programs. Meet eligibility requirements for those down payment assistance programs Qualify for a loan for a median-priced (or less expensive) home Cover mortgage insurance costs, which vary by loan Down payment assistance programs are a huge factor in home affordability. A report by Urban Wire helps consumers identify available programs by state. There are 2,144 down payment assistance programs from which borrowers can choose.  Top 5 Locations Below are the top 5 cities where buying a home offers greater savings than renting.  Miami In this multicultural city of sun and surf, the buyer of a median-priced home could save about 11 percent of their income when compared to renting. This is even when the expense of Miami real estate is factored in: Miami is the 11th most expensive city amongst the MSAs in terms of mortgage affordability. The median mortgage costs 32 percent of buyers’ median income, which is 2 percent above the recommended affordability average. While that mortgage-to-income ratio is high, it’s not as high as renting. Rent can cost a whopping 42 percent of a household’s median income. Detroit As the Motor City continues to redefine itself, it entices residents with affordable housing stock. With a rent gap of -7.11, rent will cost 21.30 percent of...

What does a largely stagnant year for the multifamily industry in 2017 imply for this year?  How will economic, tax policy, demographic, capital market and supply factors impact the segment?  These and other issues comprise the content of “Sustainable Pace?”, a new market analysis compiled by Yardi Matrix. The Yardi Matrix research team’s study suggests that there’s enough steam left in the sector’s bull run to make multifamily a solid, dependable real estate market segment over the next 18 to 24 months for property owners, residents and investors. Rent growth cooled in 2017 amid robust development and occupancy levels began to trend down in some metros.  On the upside, demand for multifamily shows no signs of slowing in 2018, as the renter cohort ages 20-34 keep growing while retirees continue to downsize.  Urbanization and other social trends will also conspire to keep rental demand steady. Economy: Bright Prospects With regard to the national economy, “we expect another year of moderate economic growth, which potential upside from the recently passed tax reform bill that will lower tax rates and encourage corporate investment,” the report says, adding, “Job growth could slow as the labor market nears full employment, but should remain healthy.”  A 17-year high in consumer confidence plus healthy housing, automobile, manufacturing and other segments are additional positive indicators. Rent Growth: Modest but Steady Following multifamily’s significant deceleration in 2017, the report forecasts rent growth in the 2.5% range nationally this year, with increases in supply and lack of affordability in high-cost metros checking growth.  “Supply is the biggest headwind,” the report says, forecasting apartment deliveries in 2018 to increase by 20% to 360,000.  This new supply will outstrip demand and prompt a slow slide in the occupancy rate. Sacramento, Calif., is the projected leader...

Yardi Matrix reports another strong summer for the multifamily real estate sector. The fundamentals were downgraded from “great” to “consistently good” but several factors suggest continued, healthy performance. Even rapid development in some of the nation’s hottest markets has slowed to a more sustainable pace due to construction labor shortages. The shortages may have longer-lasting effects due to disaster recovery efforts throughout the United States. Rents For the last year-and-a-half, rent growth as gently declined as rents inched upward. The rent growth deceleration may be drawing to an end, though, as the supply boom reaches it apex. National average rents increased by 2.4% on a year-over-year basis in August, yet are down from 4.6% at this time last year. Deliveries are not manifesting as quickly as previously anticipated, which should moderate rent increases. The long-term outlook for multifamily seems promising due to favorable fundamentals and demographic trends: Millennials are forming households, wage growth remains solid, and the economy is relatively healthy. Hottest Markets The hottest metros for rent growth are still secondary markets that are lagging on supply. Tacoma (8.1 percent), Sacramento (7.7 percent), Colorado Springs (7.6 percent) and the Inland Empire (4.3 percent) are four of the fastest growing markets yet they’re only estimated to increase stock by 1 percent this year. These markets benefit from their proximity to larger markets such as Seattle, the Bay Area, Denver and Southern California. They enjoy vigorous employment growth and popularity with Millennials. The young renters look forward to the areas’ desirable lifestyles with lower costs. There are always exceptions. Seattle faced 5.9 percent rent growth regardless of the surge in supply.  Analysts are exploring the connection between rents and the city’s increased minimum wage. Minimum wage increased from $9.47 in 2015 to $13. Nashville is...

CBRE recently released the Spring 2017 North America Suburban Office Trends Report. Econometric advisors foresee positive net absorption and rent growth will continue throughout suburban office markets in the United States. A handful of cities stand out for their growth. For more than 27 quarters, the U.S. suburban office vacancy rate has refused to rise. Sluggish new supply in major suburbs cannot keep up with increasing tenant demand. Even suburbs that were slow to recover from the recession are now showing luster.  CBRE reports that several Florida markets, Milwaukee, Phoenix, and even Detroit posted year-over-year vacancy rate decreases of 200 bps or more in Q4 2016. Submarkets that cater to thriving industries, such as technology, stand to benefit the most from this trend. Major suburbs that offer energy efficient spaces and top-end amenities will also do well. The following 10 markets are slated for success throughout 2018. Suburban Atlanta Increasing by 10.1 percent, rates for Atlanta office space for rent ended 2016 at an average of $22.47 per sq. ft. Atlanta Business Chronicle reports that some areas of the metropolitan area just made history by breaking the $50 per foot barrier. Cambridge, Mass. The vacancy rate declined by 180 basis points by Q4 2016, ending at 3.8 percent. The average price came in at $65.26 per sq. ft. The new city of Cambridge has grown in large part due to the presence of technology powerhouses, Microsoft and Apple. The presence of academic professionals, employees of Cambridge Innovation Center and WeWork also contribute to the high demand for office spaces. Suburban Fort Lauderdale, Fla. At the end of Q4 2016, the suburb yielded 8.3 office rent growth, at a price of about $29 per sq. ft. New construction and the conversion of some retail spaces...

Two updates issued by the U.S. Department of Housing and Urban Development bring bad news to homeowners. Denied Mortgage Insurance Rate Cut Costs Homeowners $500/year The new administration indefinitely suspended a proposed rate cut for FHA-backed mortgage insurance. Instead of dropping rates to .60 percent, they will remain at .85 percent. The decision—made within the hour that the new administration assumed office– will cost homeowners a savings averaging $500 a year. Savings would vary by state. In California, the savings would have averaged $860 per year. LA Times reports that the administration denied the proposed cut, citing risk prevention as the cause. Borrowers can have down payments of as little as 3.5 percent and credit scores as low as 580. The average credit score for borrowers, however, was a fair 679 in late 2016. Non-bank lenders often manage higher risk FHA-backed loans. These lenders may not have the same reserve requirements as banks. The California Association of Realtors president Geoff McIntosh issued the following statement on the decision: “FHA’s single-family home portfolio is financially sound as it has ever been, and we hope that once the new administration has thoroughly reviewed the merits of the premium reduction the suspension will immediately be lifted.” Secretary of Housing and Urban Development  Ben Carson says he intends to reexamine the decision. He plans to collaborate with FHA administrator and other financial experts to “really examine that policy.” American Indian Households Face Increasing Challenges Affordable Housing Finance shared the latest developments in an independent American Indian Housing Report initiated by HUD.  While tribes have responsibly used existing resources for improvements, dire housing conditions and a lack of resources continue to hinder progress. Researchers with the Urban Institute in Washington, D.C. examined the housing needs of American Indians, Alaska...

Where are the most affordable places to live in the U.S.? Demographia’s 13th Annual Affordability Survey brought to light a list of affordable markets in the U.S. based on their median multiple, a number obtained by dividing the median house price by the median household income. The Median Multiple is widely used for evaluating urban markets and has been recommended by the World Bank and the United Nations. According to the survey, there are 82 affordable housing markets in the country. Racine, Wisc., is the most affordable of them this year, followed by Bay City, Mich. Decatur, Ill., Elmira, N.Y., and East Stroudsburg, Pa. America’s Kringle Capital is No. 1 With a population of less than 80,000, Racine is officially the most affordable city to live in based on median house price and median household income. If you decide to settle here, you’ll be 22 miles south of Milwaukee and 77 miles north of Chicago. Located at the mouth of the Root River, on the shore of Lake Michigan, the city is most famous for its Danish pastries. In fact, its nickname is derived from the kringle, an oval-shaped, buttery, flaky delicacy. But Racine is more than finger-licking desserts. The city boasts a zoo, a beautiful lakefront, a picturesque lighthouse, museums and historic architecture. Affordability Perks Bay City, Mich., ranks second in the top 5 most affordable cities. According to recent data published by mlive.com, the city is oversupplied, which keeps home prices and rent levels very low. City officials are struggling to eliminate blight, increase home values and attract new homebuyers. So if you’re thinking about moving to a riverfront property in a quiet town, now’s the time to do it. The third most affordable city in the U.S. this year is Decatur,...

Before the presidential election, the consensus economic forecast was more of the same slow-growth environment that has prevailed since the Great Recession ended. However, the election of Donald Trump changed expectations for domestic output, prompting interest rates to rise. Yardi Matrix vice president Jeff Adler and CBRE Americas head of research Jeanette Rice spoke to these changes and more during the Apartment Markets: The Macro Perspective panel at the National Multifamily Housing Council’s recent Apartment Strategies Outlook Conference. The panelists discussed what rising interest rates could mean for an interest-rate sensitive asset class such as commercial real estate. Adler asserted that the impact will be determined by how much and how fast rates increase and property performance. A prolonged period of rising rates could diminish property valuations, but at the same time a modest decline in values caused by a one-time bump in rates could be offset with revenue increases. Although it will take some time before the true impacts can be fully gauged, if interest rates are an indication, then economic productivity and inflation could rise in the coming years. The panelists deliberated upon what happens to cap rates as interest rates and (by extension) property values move higher. Adler believes that Cap rates are likely to moderately rise and valuations may take a slight hit as interest rates increase, however the key factors will be the pace of rate increases and the concurrent revenue growth. He shared a model that Yardi Matrix® created to predict the impact of both interest rate and revenue increases and determined that mild and steady interest rate increases can be significantly offset by healthy revenue growth, and as a result valuations should remain stable. Looking at an internal rate of return (IRR) calculation, an increase in interest...

Taking over abandoned storefronts and long-shuttered factories, breweries are breathing new life into cities across the country. Job interview, proposals and book clubs represent just a smidgen of activities occurring at your local brewpub. In the last few years, cities across the US have experienced a brewery renaissance. From empty storage units to abandoned storefronts, microbreweries are choosing to open taprooms and brewpubs in economically depressed neighborhoods, bringing in new jobs and creating a sense of community. “People tell me, ‘It feels like I’m at my best friend’s place,’ ” Jim Jamison, founder of Foggy Noggin Brewing, tells Imbibe magazine. “ There’s even been a proposal, and another guy asked for permission to marry someone’s daughter. It’s a place where people want to meet.” Pint-Sized Urban Renewal In a recent article for The Atlantic, writer James Fallows identified “Eleven Signs a City Will Succeed.” Wrapping up a list ranging from community engagement to politics and education, craft breweries came in at number eleven. Calling it “perhaps the most reliable” marker of a city on the rise, Fallon believes having a brewery within city limits provides clear evidence of urban renewal. “A town that has craft breweries also has a certain kind of entrepreneur, and a critical mass of mainly young (except for me) customers,” he writes. “You think I’m joking, but just try to find an exception.” Close Communities That entrepreneurial spirit does more than invigorate local commerce; many local breweries make a point of giving back to the community. In Philadelphia, for example, Crime and Punishment brewery sponsors Little League team, while over in Dallas, monthly pet adoption events take place at Community Brewing. Detroit’s Batch donates a portion of its taproom sales to charity and Colorado’s Green Flash’s brews a special pink IPA...

Jeff Adler and Jack Kern hosted the semi-annual Yardi Matrix webinar on Thursday, November 10th. More than 300 participants dialed in to hear their data-based assessment of the economy and the multifamily market. Our hosts covered a number of topics from the 2016 presidential election, to job growth and economic fundamentals, to specific markets and submarkets primed for growth in the coming years. .Highlights of the webinar included: Economic Fundamentals: The domestic economy continues to grow at a steady pace, creating new jobs at an average rate between 150,000 and 200,000 per month. Recent GDP growth shows signs of strength as output picked up in the third quarter, yet the economy has cooled slightly compared to prior years. Strong employment and modestly rising wages have supported the American consumer, which in turn has helped bolster the economy. Inflation remains tepid although, as Adler mentioned, there are two sides of the inflation equation. Goods inflation has remained flat and even negative at times, while services inflation, specifically education, rent and healthcare, has been rising significantly. The State of the Multifamily Market: New apartment construction has been a major headline throughout 2016 and Yardi Matrix anticipates roughly 350,000 new units to be completed this year. While 2016 will be the largest year for new supply since the Great Recession, Adler noted that the majority of new supply is being built in only 10 markets across the country. As a result, certain high supply markets such as San Francisco, Houston, and Denver have seen rents decelerate throughout the second half of the year, while rent growth remains above 5% in many markets across the country, especially on the west coast. Demand remains strong and Adler indicated that pent up demand, especially among millennials, should provide a consistent...

Economic forecasts can seem as mysterious as reading tea leaves or interpreting the energy of a crystal ball. Hit or miss at best. Yet with several economists spotting a recession on the horizon, property managers may want to take precautions. The U.S. Bureau of Labor Statistics kicked off the summer with a wave of bad news. Only 38,000 nonfarm jobs were created in the previous month—122,000 fewer than many economists expected. World economies are tottering on the brink of a slump. Washington Times points to the misallocation of credit as a catalyst for economic decline. Policies created by the Fed, Bank of Japan, and European Center bank subsidize government debt rather than funneling that support to job-generating small business. Additional financial, labor, and economic policies muddy up the economic waters. The end results may be stagnant or weakening economies throughout North America, Europe and Asia. The bottom line: the next 12 months may bring another economic decline. JP Morgan cites the U.S. as a “medium-term recession risk.” If there is a decline, it’s too early to determine its severity. Property managers can brace for impact of any caliber with these stabilizing tips: Be selective. Now is the time to be picky about your tenants. In depth screening processes will help property managers identify tenants who pose the least amount of risk. Collect now. Reconcile late payments and balance the books. Position the business in the best financial state possible and maintain that balance. Clean house. Replace problematic tenants with more reliable candidates while the market is still favorable. Appear occupied. If your space is currently vacant, outsiders should not be able to tell. Properties that show signs of neglect are a turn off for property hunters. In contrast, neglected properties are very appealing to...

While international markets reel in the aftermath of the Brexit vote, U.S. REITs and senior housing providers are well poised to not only survive, but thrive. It will be months before the international markets begin to feel the effects of the Brexit vote, and probably years before any real assessments can be made on the economic and political impacts of Britain’s decision to exit the European Union. With uncertainty and fear looming, Senior Housing News (SHN) presents a mostly reassuring profile explaining how the U.S. senior housing market can weather the storm. The bottom line: U.S. senior living providers will not only survive, but perhaps even thrive thanks to a mix of strong portfolios, stable property values, and domestic insularity. Evolving Circumstances There’s plenty to worry about in terms of Britain’s separation from the E.U. Many predicted complete economic Armageddon and while the U.S. stock market did experience a round of sell-offs and tanking stock values, overall international markets seem to be holding steady. Additionally, some REITS with senior housing in their portfolio actually performed quite well, with both Ventas and HCP ending the day on an upswing. Although a weakened British pound may introduce another layer of caution, slower expansion does not necessarily translate to catastrophe. In fact, many U.S. REITS may capitalize on the opportunity presented by a more favorable exchange rate by increasing property acquisitions in the U.K. “[Brexit] will give them more of the field to themselves because the levered investors are going to find debt financing somewhat difficult in the next couple of quarters,”  Keith Harris, London-based executive director for specialist markets at CBRE Limited, tells SHN. “…I think the international investor who can take a long view on currency hedging is going to be fine. If anything, the...

Paul Fiorilla, Yardi Matrix’s Associate Director of Research, recently sat down with Tom Flexner, Citigroup’s Global Head of Real Estate, to discuss the global economy, the state of the commercial real estate market and new regulations that are impacting the sector. The interview was published in CRE Finance World, which is published by the Washington, DC-based trade group CRE Finance Council. Fiorilla serves as volunteer Editor in Chief of the magazine. Some highlights are below, and the entire interview can be accessed here. Flexner on the economy: It just feels to me that we’re in the midst of adjusting to some sort of overarching longer-term secular change marked by continued tepid growth, low interest rates, low oil prices, forced deleveraging by foreign sovereigns and so on … So we have a whole bunch of things working against us, and frankly it’s hard to identify a single reason to be terribly optimistic about the world’s growth trajectory. Other than somehow it always seems to work out at the end. But, you know, up until the financial crisis we had a global economy supported by huge credit expansion — consumers, governments, companies. It lifted growth beyond what would have happened had credit not expanded at such a vigorous pace. Today, we still have a significant amount of leverage, particularly at the sovereign level, but also in the banking systems in China, Japan and Europe; plus regulatory initiatives which will serve to constrain credit creation going forward. And this kind of countervailing pressure — deleveraging — will possibly hinder growth, as credit creation will not be the tailwind it once was. And so I think the twin impacts of globalization and technology are showing they also have downsides. Technological advances used to amplify human muscle or human...

When it comes to new construction, students are finding themselves in a dilemma similar to renters twice their age. A shortage of affordable and middle-market properties has students and seniors struggling to pay for shelter. Senior Care In senior housing, Boomers face limited affordable and middle-income options for their aging loved ones or themselves. New construction caters largely to high-end buyers. Location is a major factor: seniors’ most desired areas include sites with easy access to public transportation, activities, and proximity to family. These centralized locations come with high land costs. In the end, those costs and the costs of fluctuating building materials roll over to the seniors and their caretakers. Vorice Ratchford served as her mother’s caregiver for nearly a decade. She often checked for housing near her home in a southeastern suburb of Atlanta, but could never find accommodations within her price range. “Even when she was healthier, we couldn’t find housing that we could afford,” recalls Ratchford. “As her health declined—she had dementia—it became even harder.” The Alzheimer’s Association reports that housing costs range from $43,200 per year for basic services to $91,250 per year for a private room in a nursing home. In a single-earner household, taking on additional debt to pay for senior housing wasn’t an option. According to the 2013 Survey of Consumer Finances, the average American household has $15,054.54 in credit card debt, excluding mortgages and auto loans. Ratchford, like many Americans, has been struggling toward debt freedom. Ratchford became a full-time caregiver for her mother, putting three adults on the support of a single income. “I can’t imagine how someone with a full-time job could be a caregiver for someone with dementia,” Ratchford says. “Even with my previous job, every cent of my income would need...

Commercial real estate has seen a remarkable run-up in values in recent years, driven by steady job growth and robust fundamentals. The strong performance coincides with the economic recovery in the U.S., but even so, the outsized increases are well more than would normally be expected given moderate GDP growth in the 2% range during that time. Overall, property values in the U.S. are up 17.7% from the last peak in December 2007 and 66.1% above the trough in January 2010, according to the Moody’s/Real Capital Analytics Commercial Property Price Index (CPPI). Major markets and apartments are doing even better. RCA’s core six markets (New York, Boston, Washington DC, Los Angeles, Chicago and San Francisco) are 39.2% above the last peak and 126% above the last trough, according to the CPPI. Meanwhile, apartments are 60.7% above the 2007 peak and 111.3% above the 2010 trough. So what is driving the rate of increase? Simply put, there is a lot more capital looking to buy commercial properties than owners that want to sell. Commercial real estate is increasingly popular with a wide range of institutional investors, for a number of reasons. As noted, the sector has performed extremely well, which always drives capital, but it is more than that. Commercial real estate produces a regular dividend that is very attractive. The average yield for core real estate is roughly 5.5% and for public REITs it is about 4%. Compared to other fixed-income products (say sovereign debt) that is extremely attractive, not to mention that the debt is secured by properties. Another attraction for foreign investors is to hold assets in American dollars. Whether Americans are satisfied with the level of growth in the economy, compared to other parts of the world the U.S. is seen...

Orlando—Overdevelopment? Affordability? Rising capitalization rates? An economic downturn? Falling stock market prices? Bring it on, the multifamily market can handle it this year. At least that seemed to be the consensus at the National Multifamily Housing Council’s annual meeting, held this week in Orlando. Panelists at the conference’s Apartment Strategies Outlook event were generally bullish on the outlook for the sector in 2016. “It’s a great time to be in apartments,” is how one panelist summed it up. The litany of positive fundamental drivers are familiar by now: vacancy rates are near historical lows, with demand driven by strong job growth, the growing number of Millennials and the increasing propensity to rent among young and older renters. Rent growth since the last recession has far outpaced long-term average, while properties values have soared. The market is “Awash in Capital.” That punctuation is not a typo, but the title of a panel at the conference. Bob White, president of Real Capital Analytics, released full-year 2014 numbers that showed multifamily sales at a record high, up 32 percent over 2014. Cap rates and cross-border investment are at all-time highs, although White said that prices are plateauing and appreciation is starting to slow. The conditions that produced the influx of capital seem likely to continue into 2016. The U.S. economy, as mediocre as GDP growth might be by historic standards, remains a beacon of stability compared to the struggling economies of Europe and Asia. Not only is that attracting sovereign wealth funds and pension funds from overseas, but there is an influx of high-net-worth investors from China who want to own U.S. real estate, particularly multifamily. That is increasing competition for multifamily assets, not just Class A properties in core markets, but small- and medium-sized properties in...

A seemingly healthy economy, rising rent rates and a limited inventory of existing homes are pushing some buyers into the new homes market. Interestingly, they have few options once they arrive; new home construction is largely targeted towards mid- to high-price tier properties. First-time buyers are in limbo, adding uncertainty to an already imbalanced market. Census Bureau data reports year-over-year prices of new home sales have risen above the May 2014 estimate. Price trends indicate above average emphasis on move-ups and luxury home sales. In May 2014, the average price of homes sold was $323,500. The May 2015, the average sales price came in at $337,000. These aren’t first-time homebuyer prices though the group makes up a noteworthy portion of home buyers returning to the market. In 2014, first-timers made up 27 percent of buyers. This summer, they’re exceeding 32 percent, reports National Association of Realtors. A Campbell/Inside Mortgage Finance HousingPulse suggests an even higher figure with first-timers composing nearly 40% of purchases in May. Most builders overlook this growing group. Inaccurate data—or incomplete data, at best—may be a factor in builders’ strategies. On the surface, home demand is up as are job growth and wages. In theory, first-time home buyers are walking into a market that is accommodating their needs and improving their odds. Except it isn’t. A Pew Research Center report explains, “For most U.S. workers, real wages — that is, after inflation is taken into account — have been flat or even falling for decades, regardless of whether the economy has been adding or subtracting jobs.” The report continues, “But after adjusting for inflation, today’s average hourly wage has just about the same purchasing power as it did in 1979.” The organization’s August 2014 survey concludes that 56 percent of Americans...

Major metros are great, but the U.S. is  also home to dynamic second and third-tier cities that offer strong economies, booming job markets and unique local culture. Many of the nation’s smaller metro centers are brimming with business opportunities and the chance to be part of positive change. The Huffington Post recently nominated five such cities as the it travel destinations of 2015: Portland, Ore.; San Antonio, Texas; Raleigh, NC; Albuquerque, NM; and Denver, Colo. Of course, the movers and shakers of the multi-family industry have already taken note, so Portland, San Antonio, Raleigh, Denver and Albuquerque boast excellent apartment communities. Raleigh With over $2 billion in apartment sales and $3.6 billion in commercial sales, according to Colliers International data, it’s no wonder the Research Triangle is a hot place to be. Among the hot new tickets in town is the 216-unit Amelia Station Apartments, which had its grand opening in December 2014. Part of the Drucker & Falk Real Estate portfolio, this luxury apartment community comprises one-, two- and three-bedroom units ranging between 700 and 1,300 square feet. Amenities include a resort style pool complete with poolside entertainment plaza, outdoor grilling pavilion, 24-hout fitness center, 24-hour business center, 24-hour billiards room, children’s playground, leash-free bark park, concierge services and a car wash station.   Portland Banking on Portland’s growing popularity, Wood Partners entered a development partnership with Hoyt Properties in late 2012 to develop Block 17, the newest addition to Portland’s LEED-certified Hoyt Yards neighborhood. Set to open in fall/winter 2015 in downtown Portland’s Pearl District, the 281-unit luxury community is steadily rising near the three-acre Fields Park, which will provide ample outdoor green space for future residents. Comprising a 16-story high-rise and a five-story mid-rise and featuring floor-to-ceiling windows, Block 17 will...

The cat is out of the bag. Self-storage is a hot industry with hefty returns and minimal operating costs. If you haven’t explored the possibilities in this sneaky big market, you may be running out of time. Vacancy rates have gradually declined in the past seven years as rentals proved to be a more favorable option for young adults, empty nesters, and those facing financial challenges during and after the recession. Even as the economy regains its health, self-storage continues to do well as people relocate for work or for more comfortable living. By the end of 2014, self-storage occupancy reached a historic high of 90 percent. Yardi client Morningstar Properties president Dave Benson weighs in, “It’s really been strong occupancies and good demand as housing comes back, as jobs come back and people start to move around a little bit,” he says. 2015 has enjoyed a great start. Morningstar Properties exceeded its capital goal for a $75 million private-equity fund that will acquire at least 10 properties. Other Yardi clients also have ambitious plans for the year. Cubesmart has begun a 36-property acquisition from Chicago-based Harrison Capital. Ernst & Young Capital Advisors spotted LifeStorage LP with $120 million in equity to expand operations across the nation. Yet as institutional investors with diverse portfolios continue to pounce on Class A opportunities within the sector, top-notch assets have become harder to find. New developments are being built prospectively, often scooped up before being marketed. Second quarter of this year, we may see the self-storage behemoth lose its fangs, at least temporarily. Cap rates are declining and new construction is slowly forthcoming. “We were seeing stabilized assets trading at 5.5 percent cap rates, where this sector doesn’t usually see rates of less than 6 percent,” reports R....

The present is the most challenging time in 50 years for renting affordable and adequate housing. Historically low homeownership rates, the rising number of renters fueled by demographic and cultural shifts, increasing rents, a dearth of supply, growing construction costs, high levels of unemployment and underemployment and stagnant incomes have all converged to a critical point. Over 50 percent of American renters are now rent-burdened, up from approximately 40 percent in in 2000, according to the U.S Census Bureau’s American Community Survey 2000-2011. The U.S. Department of Housing and Urban Development (HUD) defines a rental unit affordable if the gross rent, comprised of rent and tenant-paid utilities, equals no more than 30 percent of the household’s income. Currently 28 percent of American renters, over 11 million households, spend half or more of their income on housing, making them severely rent-burdened, shows Harvard University’s Joint Center for Housing Studies (JCHS). Expert opinions declare that based on the traditional affordability standards the U.S. is currently facing affordable housing crisis. Housing affordability and the growing imbalance between supply and demand 2014 is the fourth consecutive year in which nationwide vacancies have decreased, clocking in at 7.5 percent in Q2 of 2014, the lowest rate since 2005 and close to 1995 rates, Census Bureau data shows. During the same time nominal rents have increased by 12.4 percent, while household incomes grew by a mere 4.3 percent, Freddie Mac uncovered. High rents and low vacancies are being fueled by the nation’s housing shortage, estimated at 1.5 million units by some. Although sustained growth in the multifamily sector has brought back development to historical averages with 386,000 units underway as of July 2014, due decreased construction during the Great Recession, Freddie Mac predicts that over the next decade a yearly...

NAAHQ reports that apartment revenues in the nation’s top 100 largest metros currently exceed pre-recession levels by nearly 14 percent, with considerations for rising rents and the recovery in occupancy. While the usual top performers remain strong, suburban markets are showing a healthy recovery and bright future. Middle-markets are giving their high-end counterparts stiff competition. While individual urban locations can boast the highest new construction rates, many cities’ suburbs combine to exceed the growth of urban cores. Suburban middle-market communities, which are the vast majority of apartment inventory, and new luxury apartment communities present appealing options for a growing number of renters, particularly young singles and families. The strength of middle market performance is projected to continue well into 2015 since the factors contributing to their success are unlikely to change. Metropolitan zip codes are still desirable to many but high rents have driven a large pool of renters to the more moderate prices of the suburbs. Secondly, homeownership isn’t a viable option for most of these renters, whose incomes do not support the rising interest rates, utilities, and maintenance costs of a single-family property. Lastly, vacancy rates are low for middle-market and top-tier communities in the suburbs, resulting in less horizontal movement for renters. With occupancy at 95.8 percent, owners can receive top-dollar rents for available units with very little room for competitive pricing within comparable properties. But not all suburbs are flourishing equally. Renters who seek middle-market properties abandon the city limits with a few trade-offs in mind: Proximity to Universities Students and young singles provide a boost to many college towns, which are some of America’s fastest growing cities. Access to Public Transit Public transportation that connects suburbs to the major cities will reap the benefits of greater growth. Such conveniences...

The U.S. apartment market is getting back on track.  As of July 2014, 386,000 units are underway, shows Fannie Mae’s Housing Industry Forum.  Multifamily research firm Axiometrics reported that year-to-date effective rent growth was the highest since the Great Recession, with June 2014’s YTD effective rent growth clocking in at 4.5 percent. Class B properties continued to provide the strongest growth among all asset classes at a 4 percent effective rent growth. Occupancy also shows a positive YTD growth, inching up from June 2013’s 94.8 percent to 95 percent for June 2014. Revenue growth is also on an upwards swing at 3.9 percent in June. MPF Research data shows that professionally managed apartments experienced a 3 percent rent increase in 2013. The growth rate was double at 6 percent in the 20 most rapidly appreciating markets, most of which are located in Northern California, with Denver and Corpus Christi also making the cut, shows Harvard University’s Joint Center for Housing Studies. Nominal rents for contract rents went up 2.8 percent in 2013, only slightly more than 2012, according to the consumer price index (CPI).  Professionally managed properties with five units or more increased rents by 3 percent, somewhat more restrained than the previous year’s 3.7 percent. Overall, rent growth outpaced the overall inflation rate of 1.5 percent. Multifamily starts grew by a whopping 25 percent in 2013, surpassing the 300,000 unit marker for the first time since 2007. New York (30,000), Los Angeles (17,700), and Houston (16,800) issued most permits, while Atlanta, Baltimore, Detroit, and Riverside had the largest growth rate.  Overall, 67 of the top 100 metros saw multifamily permitting increase in 2013 with 50 of the largest metros’ construction levels returning to mid-2000s levels. Permitting exceeded 2000s averages in 47 of the...