New Listing! 19-Units NW Portland $1,675,000. -- #PDX #HFO

It’s rare that an asset like The Belmar is offered for sale. This property was built in 1927 and consists of (1) 2-bed 1-bath apartment, (2) 1-bed 1-bath apartments and 16 studios. The Belmar is convenient to restaurants, retail and grocery stores in NW Portland. It has on-site laundry, period charm throughout, hardwood floors, updated electrical and indoor bicycle storage.

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Portland Ranked in Top Three - Greatest Improvement in Effective Rent Q3 2009

The real estate research firm REIS reported that the national vacancy rate reached 7.8% in the 3rd quarter 2009.  We noted earlier that the Portland metro vacancy rate of 5.1% is the third lowest in the nation.

REIS reports that vacancy rates decreased in 26 of the top 79 markets that it tracks and increased in 42 markets.  Nationally, effective rents fell 0.3 from Q2 to Q3 but Portland tied for #3 with Atlanta, Georgia for improvements in effective rent.

Greatest Improvement in Effective Rent

1. Long Island, NY & Colorado Springs, CO (tie) +1.6%
2. Pittsburgh, PA - +1.4%
3. Atlanta, GA & Portland, Ore (tie) +0.9%

Greatest Declines in Effective Rent Q3

1. Tacoma, WA - down 1.9%
2. San Jose, CA - down 1.6%
3. Orange County, CA - down 1.4%
4. Richmond, VA - down 1.3%
5. Ventura County - down 1.2%

Despite increased job losses, the University of Oregon Index of Economic Indicators shows Oregon's recession is over

The Portland Business Journal reports today that the recent behavior of the UO Index remains consistent with the end of the recession in Oregon, said Tim Duy, director of the Oregon Economic Forum and a UO adjunct assistant professor.

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Barclays: Wealthy Investors Call Market Bottom, Show Faith In Real Estate

In its latest "Wealth Insight Report" released this week, Barclays declared that global investors remain loyal to property as an asset class.

Barclays Wealth, the leading global wealth manager published this new global report which - for the first time since the start of the recession - reveals wealthy investors' attitudes towards residential and commercial property investment.

The report reveals renewed confidence in residential and commercial property:

• Twice as many investors (35%) set to increase property allocation than decrease (17%) over next two years
• Investor perception of property as an undervalued asset class and belief in better returns than other asset classes
• Significant difference between property investment approach taken by men and women

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Multifamily Brightest Commercial Real Estate Investment for 2010, Report Says

The nonprofit Urban Land Institute and PricewaterhouseCoopers LLP have released the report "Emerging Trends in Real Estate 2010." This 76 page report on commercial real estate includes these highlights:

• Multifamily "is the only place with a hint of hope, because of demographic demand. Scarce construction sets the stage for a strong rebound in any economic turnaround. There could be a shortage of apartments by 2012.(p. 12)
• Portland ranks among the top US markets to watch for multifamily investment.(p. 28)
• Multifamily ranks as the top prospect for real estate investment in 2010 (p. 41)
• Pent up demand grows for apartments. Twenty-somethings who moved back in out of necessity want out of parents homes as soon as employment prospects improve. This huge generation Y cohort of young adults should be avid renters as they delay marriage and kids to build careers. (p. 43)
• On the supply side, the apartment development pipeline will run dry. (p.43)
• Multifamily investments historically provide the best risk-adjusted returns among property types - and current market experience reinforces investor views of the sector's relative resiliency.  (p. 45)

Download the full report free.

U.S. Census Bureau Ranks Portland / Vancouver / Beaverton Market 3rd Lowest in Rental Vacancy Rates

The U.S. Census Bureau has reported 3rd quarter vacancy rate estimates for the top 75 U.S. Metropolitan Statistical Areas (MSAs). The Portland/ Vancouver/ Beaverton area ranked as having the nation's third lowest vacancy rate. 

Lowest vacancy rates were reported as follows:

• Springfield, MA 1.8%
• Grand Rapids-Wyoming, MI 4.5%
• Portland-Vancouver-Beaverton, OR-WA 5.1%
• Nashville-Davidson-Murfreesboro, TN 5.7%
• New York-Northern New Jersey-Long Island, NY 6.1%
• Oxnard-Thousand Oaks-Ventura, CA 6.1%
• Providence-New Bedford-Fall River RI-MA 6.4%
• Boston-Cambridge-Quincy, MA-NH 6.7%
• New Haven-Milford, CT 7.1%
• Virginia Beach-Norfolk-Newport News, VA 7.1%
• Los Angeles-Long Beach-Santa Ana, CA 7.2%

 The MSA's with the five highest vacancy rates were as follows:

• Orlando, FL 28.1%
• Memphis, TN-AR-MS 26.0%
• New Orleans-Metairie-Kenner, LA 21.3%
• Greensboro-High Point, NC 19.9%
• Richmond, VA 19.7%

Read the full report online.

Some Multifamily Developers Resume Construction

The city of Portland has approved a six-story apartment project that will bring 138 affordable apartments to the Pearl District.
The $53.3 million Pearl Family Apartment project will be constructed at 1550 N.W. 14th Ave. The project is in the River District urban renewal area and will receive a 60-year low-interest loan of $19 million. Walsh Construction will build the project with developer Ed McNamara.

Meanwhile, REITS are preparing digs for mid 2010 in several areas of the country. Read More > > >

Experts Warn Apartment Owners to Protect Tenants' Identities

The National Multifamily Housing Council conference included a panel discussing the importance of safeguarding sensitive tenant information against identity theft.  It was estimated that the average breach of data costs a multifamily operator $830,000 to mitigate. 

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This Thanksgiving: Why I'm Thankful I Still Think Like an Investor

by Dwight Unti, CPM
(used with permission; edited for brevity)

After nearly 30 years of apartment development, investment and management I'm wondering why I still fall into the old trap of letting current economic circumstances affect my judgment about the long term, intrinsic value of apartment investments. Am I slipping in discipline and focus or are my defenses just not sufficient to thwart the volume and speed of negative information currently spewing forth about capital markets, real estate values, cash flow, vacancies and other apparent measurements of doom?

Unfortunately, I'm having a hard time fighting the feeling that I should just dump all my apartment investments. I mean apparently they've dropped in value along with everything else and according to some prognosticators they may just fall a lot further.

Oh, I know they still produce excellent cash flow and tax shelter, but who cares about minor stuff like that anymore? Haven't you heard, all real estate has plummeted and no longer offers much in the way of real value?

You see what's happening to me don't you? I'm letting current economic circumstances cause me to stop thinking like an investor and start thinking more like a banker or appraiser. It's a condition where you start to judge everything up ahead by what you see immediately behind. A little like walking down the sidewalk with your head partially turned backwards - as if someone is sneaking up on you. No wonder bankers and appraisers are a bit frightened these days - I would be too.

Okay, I'm being somewhat facetious, but my observation does seem to have some merit based on real world experience. Let's start with lenders. The buildings they once coveted as quality security for loans are now viewed as some sort of liability rather than asset. Traditional lender guidelines about vacancy rates, expenses per unit, debt coverage ratios and loan-to-values, all completely acceptable just a short time ago, are now entirely unacceptable. Where are they looking to reach this conclusion? They're looking back down the sidewalk. What they see immediately behind are increases in vacancy, rent concessions and soft economic conditions. Using this data and the look behind approach, they readily conclude apartment values are trending down for the foreseeable future. Oops, delete the word "foreseeable" - that's not allowed when living by the "look immediately behind" theory. Values are down and that's all you need to know.

Plenty of appraisers are also apparently on board with the "look immediately behind" theory. I suppose I can partially excuse appraisers for this practice because when you look at what they're charged to do and how they are told to do it -- it's pretty hard for them to look anywhere else. One thing is for certain, appraisers are under pressure from lenders to confirm they aren't overvaluing assets. The result is many have taken to carefully documenting downward trends. It's not hard to do when looking immediately behind. Just take the very few and mostly distressed sales over the past year and measure how far they've fallen from the over-inflated and mostly unrealistic values two years ago.

Boy, you get a good looking downward trend line when you go through that exercise. Now just apply the downward trend to all known apartment investments. Sometimes the process even produces humorous results. For example, by applying this approach, the same appraisers who two years ago concluded their clients were sitting on a gold mine of apartment investments now conclude their clients are sitting on empty mine shafts which are about to collapse!

Honestly, the speed at which apartment values have been revalued over the past several years is a fascination. It's been more like watching the stock market than a traditional real estate market. You know what I mean - up 20% this year, down 30% the next year. And much of this occurs without logical explanation and despite the fact the underlying investment chugs along producing a consistent net operating income. It seems the only difference lately between my stock broker and some appraisers is my stock broker always tries to make me feel better about a loss. True, my stock broker often resorts to a convoluted and nonsensical explanation for the loss, but I appreciate the effort and it can be quite entertaining. Appraisers, on the other hand, have become much drier and don't even attempt to explain away the pain. I've concluded it's more fun talking with my stock broker.

When I fight back against the slippage into banker/appraiser thought patterns and start thinking like an investor again, it brings up the strangest observations.

For example, did you know that demographic data indicates a surge of people will be entering their 20's in the next few years? As I recall, aren't those the same people who often rent? And what about the growing population of elderly who are choosing, with ever greater frequency, to exit ownership and seek low maintenance rental housing? Or how about the fact that few people are buying homes and it may take a generation for home buying confidence to return? And let's not forget the growing immigrant population and the positive impact it has on rental demand. Lastly, has anyone noticed that nothing new is being built and the supply of apartments will soon fall far short of demand? Doesn't this sound like the basis for an upward trend in apartment values, not down?

• Why is it so few apartment sales are occurring?
• Is it really caused by the lack of financing, distress in the capital markets and/or softness in the economy?
• Is there an absence of buyers or is it more about an absence of sellers?
• Could it be that apartment owners are simply refusing to part with their assets because they actually think they're worth something?
• Are apartments really in a long downward value spiral as current and "look behind" theory would suggest?
• Is there another answer that I just can't see because of the influence of too much coffee?

What are Joe Weston or Paul Labby doing? They're very smart, experienced and more often right than wrong abou the direction of the apartment market. So what are these fellows up to these days? From what I can tell they seem to be calmly holding to their apartment assets and looking to acquire more. I'll be darned they're thinking like investors, looking ahead and liking what they see. Hmm, maybe these apartment investments have some value after all.

Note to my dear friends in the finance and appraisal business. You guys are the best and I mean that, but things are getting a little out of hand. Rest assured, apartments remain an excellent investment and are only going to get stronger over the years ahead. It's now time to get moving again, not with free money or inflated appraisals, but with sound and reasoned underwriting and quality appraisals based on realistic market trends.

Dwight Unti, CPM is President of Tokola Properties, a real estate development, construction and property management company focused on multifamily and mixed-use development in Oregon and Washington. Mr. Unti is a Past President of the Columbia River chapter of the Institute of Real Estate Management and past board member of the Metro Multifamily Housing council.

Own a Vancouver apartment building? Here's a tip for keeping expenses down in 2010

In the November issue of the Clark County Rental Association newsletter, president Lyn Ayers points out that the City of Vancouver uses the months of December and January to determine the water/sewer charges for apartments. Owners should check all units in the next 30 days to ensure drips and leaks are shut off to avoid paying all year for those problems!

If you own an apartment building in the Clark County area and would like to learn more about the Clark County Rental Association and the benefits of joining, visit www.clarkcountyrentalassociation.org.

Washington State Apartment Owners Free to Harvest Rooftop Rainwater

The Washington State Department of Ecology clarified its rules on water harvesting in October when it said that building owners no longer have to acquire a permit to harvest store or reuse rainwater from rooftops. 

Learn more about rooftop rainwater harvesting.

Increased Apartment Loan Losses at Fannie Mae and Freddie Mac

The Wall Street Journal reports that the delinquency rate for Fannie Mae's apartment loan portfolio is on the rise.  Delinquencies increased from 0.16% in Sept. 2008 to 0.62% in September 2009.

Fannie and Freddie increased their apartment lending from 34% of the market in 2006 to 84% in 2008. About one fourth of all loans on Fannie's books were made at the top of the market in 2007. Even though losses from Fannie and Freddie's $300 billion apartment loans pale in comparison to their losses on loans for single-family residences, some critics of the agencies say the firms were too aggressive with their apartment lending.  The firms generally deny this charge, citing the fact that 97% of Freddie-backed properties are still worth more than the value of underlying loans.

Various proposals to revamp Freddie and Fannie haven't paid much attention to multifamily lending.  Industry leaders aren't worried, saying it's highly unlikely the government would take any position that would negatively impact affordable housing.

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National Multi Housing Council survey shows 3rd quarter improvements

According to the National Multi Housing Council, 3rd quarter sales were up and the market offered easier access to debt and equity capital.

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Portland #37 of 200 on "Top Performing Cities" list

The Portland area ranks No. 37 out of 200 large U.S. metro areas in the Milken Institute's annual report on the nation's "best performing" cities.

Portland-Beaverton-Vancouver area ranked No. 28 last year.

Download the full Milken Report here > > >