Tuesday, September 30, 2008

Bailout Package Will Have Little Impact on Financing Apartment Investments

The bailout package now rumbling around the halls of Congress will have little impact on multifamily financing, the Multi-Family Housing News reported yesterday.

David M. Abromowitz is a senior fellow at the Center for American Progress, focusing on housing policy and related federal and state programs and issues says that the multifamily market thrives better when the homeownership market is not flooded with cheap and easy loans. Since those loans are never coming back, there is good news for multifamily.

Today, Jim Arbury, senior vice president of government affairs at the National Multi Housing Council (NMHC), told the Multi-Housing News “If and when the bailout package passes, it will no doubt have a positive impact on multifamily."

Monday, September 29, 2008

400 University of Oregon Freshmen Living in Off-Campus Apartments

As we mentioned in our earlier post, apartment buildings located next to colleges and universities will continue to do well across the country.  Here's an example from today's Oregonian about what's happening in Eugene.

Thursday, September 25, 2008

Mid-Year 2008 Portland Area Apartment Market Update

by Mark D. Barry, MAI
The big news impacting the real estate market in YTD 2008 has been the problems in the single-family market, a much tougher real estate lending environment, the current crisis going on in the financial markets, and an obvious slowdown in the economy. So what has happened in the Portland area apartment market? The purpose of this article is to provide an update on the Portland area apartment market as of mid 2008.

Portland Economy: In recent months, our economy has stagnated. We have added just 3,000 non-farm payroll employment jobs over the last year, and have seen our unemployment rate increase from 5.0% in August 2007 to 6.1% in August 2008.

Residential Market: The Portland area single-family market was one of the last in the nation to head south. The median single-family sales price is now down 7.3% over the last year, with a ten-month inventory of homes. The condo construction and condo conversion market has come to a virtual halt, with inventories estimated at 2.5 to 3.5 years based on the slower recent sales activity.

Single Family and Apartment Construction: 2008 will be the slowest year for single-family construction in our market in three decades! Permits have been issued for just under 2,500 homes through July. Thus, we should see around 4,000 new single-family homes for the year, or well under half of the average number of homes added per year over the last decade.

Apartment construction remains slow by historical standards, but has been more active in YTD 2008 than in recent years due to favorable fundamentals. Permits have been issued for 2,249 apartment units in the four county metro area through July 2008. Thus, we should see around 4,000 new apartment units for the year. Around 83% of the YTD 2008 permits are in Multnomah County, with Trammel Crow Residential and some subsidized projects accounting for well over half of the construction. The balance of the activity is concentrated in Washington County, with virtually no new apartment construction activity in Clackamas County or Clark County.

Apartment Sales Activity: The first half of 2008 saw 65 apartment sales. This is in comparison with 139 apartment sales for the first half of 2007. Thus, the credit crunch is clearly having an impact on apartment sales activity due to tighter underwriting standards, and more limited availability of financing.

However, the first half of 2008 saw $360.7 million in apartment sales volume vs. $389.7 million for the first half of 2008. The first half of 2008 saw eight sales of $24 million or more vs. five such transactions in the first half of 2007. While the first half of 2008 saw 52 sales of apartments with a price under $5.0 million, this is in comparison with 127 such sales for the first half of 2007. Thus, the big slowdown in apartments sales activity in YTD 2008 has been in apartments with 50 units and under.

Apartment Values: The median sales price per unit of an apartment in the first half of 2008 was $78,362 vs. $70,000 in the first half of 2007, or almost a 12% increase. However, this is misleading due to a high number of sales of larger, newer high-end apartments in YTD 2008. If one eliminates the sales of newer, larger apartment communities, and instead looks at all of the sales of apartments of 100 units and less and built prior to 2001, the increase is closer to 3% over the last year. In addition, cap rates have declined by 5 to 15 basis points, with a median cap rate of 6.06% for the YTD 2008 sales.

Apartment Fundamentals
Vacancies: The Fall 2008 MMHA survey shows a slight up tick in apartment vacancies to around 3.6% vs. 3.3% in the Spring of 2008, and 2.9% in the Fall of 2007. I attribute this increase in apartment vacancies to a slower economy, some doubling up or moving home, many new row houses or condominiums being converted to rentals, and some apartment construction.

The apartment market in Portland and most other areas of the country has been immune to problems occurring in the single family and condo market. In my opinion, the main reason that the apartment market here has been so healthy is that fewer people can afford to buy houses, and are forced to rent. The US Census Bureau recently reported that around 66% of Oregon households are homeowners, which is a decline from the peak of 69% in 2004.

Rents and Income: The latest MMHA data as well as information from RealFacts shows an increase in rents of just over 5% in the last year on a per unit per month basis. Studios and two bedroom townhouse units are showing the largest increases, while one bedroom units are showing the smallest increase. The actual income for YTD 2008 is clearly up all over the metro area. Typical increases I see range from 3% to 6%.

Expenses: Most operating expenses, with the exception of insurance and advertising, are creeping up. Utility costs have shown double digit increases on the majority of appraisals I have completed in YTD 2008. I expect 2009 to be a tough year for owners of apartments with central utilities.

In conclusion, a flat economy, increasing unemployment, very slow single-family construction, high inventory levels of residential properties for sale, and a decline in the median single-family prices characterize our market for YTD 2008. In addition, there has been a noticeable slowdown in apartment sale transactions, which is partially offset by greater sales activity of larger, high profile complexes. However, apartment values are showing some increases, and cap rates are down slightly from a year ago. The apartment fundamentals remain solid, with below normal vacancies, and noticeable increases in rents and income. Increasing expenses continue to be a challenge, particularly utilities.

Mark D. Barry, MAI, is a real estate appraiser specializing in apartment appraisal work in the Portland-Vancouver metropolitan area. He has completed almost 5,000 apartment appraisals since starting as a fee appraiser in 1983. He has a BA from University of California at Berkeley, and an MBA in Real Estate from American University in Washington, D.C.

Monday, September 22, 2008

Multifamily Investment: 29 turnkey units ~ Beaverton, Oregon ~ $2.15 million

The Hampton Court apartments, built in 1967, consist of 29 turnkey units. This clean property has many upgrades, is convenient to retail and shopping, and near major employers.

Learn More > > >

Big Players Holding Back for Lower Prices

Given the current credit crunch, the advantage for acquiring multifamily properties rests with equity-blessed players like REITs and institution-backed investment advisors. Income producing apartment properties are sitting with general equilibrium so few sellers have adjusted their asking prices, while the best-heeled buyers consider some sellers' pricing expectations unrealistic in today's shaky economic situation and conservative financing environment. Data crunchers report investment could fall as much as 60% from year end 2007 to year end 2008 on investment property trades, largely due to particularly slow portfolio and other large transaction sales. The bulk of today's deals are modest-size transactions in major markets.

Summarized from: "Long Jump: Well-Heeled Equity Players Can Leap Over The Bid-Ask Gap -- But Will They?" By: Brad Berton, Commercial Property News

Portland: Most Sustainable U.S. City 2 Years Running

Portland, has been named once again as the nation's most self-sustaining city according to 2008 SustainLane U.S. City Rankings.

Complete results are available online.

Thursday, September 18, 2008

Tuesday, September 16, 2008

Student Rental Housing Needed as College and University Enrollment Booms

The group known as "echo boomers" are heading off to college and entering the workforce. With many campuses offering outdated housing stock, apartments near colleges and universities are expected to do well in the years ahead. in a recent speech at the PSU Center For Real Estate, Christopher Lee, President & CEO of CEL & Associates, Inc. cited statistics that 74% of 15-24 year olds rent, and 51% of 25-34 year olds rent. At recorded birth rates the number of emerging renters will increase 17.3 million between 2010 and 2050. Additionally, because universities supply only 35% of student housing needs, a substantial increase in housing near colleges and universities will be necessary to house the growing number of students nationwide.

Read the Multi-Family Housing Article

See Mr. Lee's PowerPoint Presentation

Monday, September 15, 2008

Despite Recent Financial Upheavals, Outlook Remains Good for Multi-family

Fannie Mae and Freddie Mac report their multi-family delinquency rates remain very low - about the same as one year ago -- less than one quarter of one percent (0.25%).  The approximate loan-to-value ratio of Fannie Mae's multifamily portfolio is 67%

Both Fannie Mae and Freddie Mac are anticipated to stay active in making loans to multi-family projects, because their portfolios in these areas are doing well.  For the first half of 2008 the agencies report a 62% increase in new mult-family loans over the same period a year ago. 

Business Journal Reports: Landlords Protesting Rental Rule Revisions

The Portland Business Journal reported September 12, 2008 that residential landlords are hoping the city will relax its proposed rules that would "tap their wallets and air their dirty laundry." 

The entire story is available online to subscribers of the Portland Business Journal.

Friday, September 12, 2008

HFO Announces Sale of Gresham Apartment Complex for $2.7 Million - MarketWatch

PORTLAND, Ore., Sept 15, 2008 /PRNewswire -- Hagerman Frick O'Brien (HFO), a Northwest real estate investment firm with headquarters in Portland, Ore., has arranged the sale of the 54-unit Carrington Square Apartments in Gresham, Oregon for $2.7 million or approximately $50,000 per unit. The apartments, located at 637 SE 182nd in Gresham is located on approximately two acres of land and includes a private pool. The complex is 1/3 mile from a MAX stop and apartment amenities include private balconies/patios. The buyer was Carrington Investments LLC of Portland state and the seller was P. Carlson of Gresham. HFO Investment Real Estate represented the seller.

About HFO. HFO specializes in the sale of apartment properties throughout Oregon and Washington. Using cutting edge resources, HFO helps clients find dynamic investments and offers an insider's knowledge of the local market. It is HFO's mission to create wealth for its clients by providing extraordinary service, forging mutually beneficial, long-term relationships. Learn more at http://www.hfore.com/.

Tuesday, September 9, 2008

We're On Fire For New Listings!

Never a dull day here at Hagerman Frick O'Brien Investment Real Estate. At just after 5:00pm yesterday, after burning up the phone lines all day working on transactions, closing deals and obtaining new listings, a fire broke out next door at the Empire Rubber and Supply Company. Nick Kline of our office called in the fire when he saw it sometime shortly after 5. Source of the blaze has not been determined.

Our thoughts today are with the owners and employees of our neighbors at the Empire Rubber and Supply as they work through this difficult experience.

PSU Real Estate Report: Portland Multifamily Continues to Perform

In its 3rd Quarter 2008 Report, the PSU Center for Real Estate calls the multi-family market "one of the strongest performing real estate classes in Portland." The report says that after years of minimal rent growth, rents have increased by an average of 6% in the last 30 months, and vacancy rates have dropped since 2003 to a low of 3.3%. Median CAP rates have dropped from a high of 8.30% in 2002 to a media of 6.05% in 2007. This is reflective of the average price per unit. Sale prices for properties constructed after 1990 jumped 40% from 2006-2007 to an average of about $111,000 per unit. Pre-1990 building sales appreciated about 18% from 2006-2007 with an average sale of nearly $80,000 per unit.

The report indicates "multi-family brokers expect continued low vacancies and rent increases for 2008." Troubles may be on the horizon though for high-end rentals. NW Portland rents per square foot have dropped from $1.14 in Oct 2007 to $1.09 in Spring, 2008. These areas have seen a number of new condo projects enter the market in the last five years and some unsold condos are expected to enter the market as rentals. In addition, downtown and close-in Portland will see a total of 2,100 luxury rentals coming on the market prior to the end of 2009.

See the full report

Monday, September 8, 2008

Experts Hopeful Fannie/Freddie Takeover Won't Impact Apartment Lending

Doug Bibby, President of the National Multi Housing Council (NMHC), issued the following statement concerning the Treasury Department's plan to put Fannie Mae and Freddie Mac into conservatorship.

"Fannie Mae and Freddie Mac have played a critically important role in the apartment industry, and we do not expect that to change with the recent actions taken by the Treasury Department. It is important to note that neither company faces an immediate crisis. Rather, these actions were taken largely to restore investor confidence and keep the markets working.

"The impact of the Treasury Department plan on the apartment sector remains to be seen as the details are worked out, but we are optimistic that there will be little to no disruption in the companies' multifamily operations.

"The government action is directly related to the companies' single-family investments and their efforts to weather the ongoing decline in that sector. The multifamily sector, on the other hand, remains strong and is actually producing profits for the firms that are helping rebuild their capital reserves. As a result, we expect them to remain active in the multifamily market.

NMHC is a national association representing the interests of the larger and most prominent apartment firms in the U.S. NMHC's members are the principal officers of firms engaged in all aspects of the apartment industry, including ownership, development, management and financing.

Thursday, September 4, 2008

Portland, Oregon: Great Place for Multifamily / Apartment Investment Property

What amazing changes can happen in almost 40 years!

Just a generation ago Portland was derided for its bland food, gangs and strip clubs. Now it seems to be on everyone's top places to live, work, and play including CNN Money, Moviemaker Magazine, Men's Journal, AARP, Men's Fitness, and in early 2008 Popular Science even called Portland the "Greenest city in the USA." Articles in the NY Times extol the virtues of Portland's hot restaurant and bicycling scenes.

Most recent Portland population estimates peg Portland's population at 566,072 with the entire Portland/Vancouver metro area estimated at 2.16 million. Portland is the biggest city in Oregon; third in the Pacific Northwest after Vancouver, BC and Seattle, Washington.

Portland's evolution has been a long time coming, but the past few years have seen the rise of incredibly popular compact, planned development in the Pearl District and South Waterfront while existing neighborhoods have had curb-appeal makeovers. About 60 blocks of downtown are currently undergoing street and storefront upgrades as the result of a new light rail line from the Amtrak/Union Train station to Portland State University. One of the more interesting new developments is the current installation of a KGW-TV satellite newsroom at Pioneer Courthouse Square. The newsroom will follow the concept of NBC's "Today Show" newsroom on Times Square. It is set to open this fall just steps away from "The Nines" -- a new 9-story 331-room hotel sitting atop the historic downtown Macy's.

Old run-down areas of town once home to pawn shops and seedy bars are suddenly lively with light restaurants, wine and cocktail bars, brewpubs and a plethora of unique retailers. Changes have been most noticeable in North Mississippi, SE Division, NE Alberta St. -- with many others currently in the making.

What caused all this? Likely a lot of things but the city's compact growth and the push to infill is largely the result of the state's urban growth management planning that began in the early 1980's.

Despite the growth and energy that exudes from Portland as a result of its huge population of young people. Portland is one of the top destinations for America's 20-somethings. In 2006, Portland had the 4th highest net migration rate in the US. In that year alone, Portland gained nearly 12,000 adults aged 25-39 and another 12,000 55 and over.

Despite these population increases in highly desirable demographics, rents remain lower in Portland than in Seattle or San Francisco. According to the US Housing & Urban Development (FY2008), a studio Apartment in averages $600 in Portland, $700 in Seattle and $1100 in San Francisco. A two-bedroom unit rents for $800 in Portland, $1000 in Seattle and $1,650 in San Francisco. While other West Coast Cities have become increasingly expensive, Portland has yet to catch up. As migration to the area continues to increase, rents will only increase. And that can only mean good news for today's apartment investors!

Wednesday, September 3, 2008

Oregon State Economist Predicts June 2009 as Recession's End

Oregon's economist Tom Potiowsky predicted last week that Oregon's economy would remain stagnant until mid 2009 when it will begin a slow recovery.  State economists also predicted that Oregon's employment growth will be 1% in 2008 and another 1% in 2009.