Thursday, August 28, 2008
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- "Temporary" (no end date specified) $8-$10 per unit fee per year to help fund program start-up
- Sets various levels of inspections. Initial inspections can be triggered by anonymous tenant complaints, social services, police or fire referrals, unit-specific exterior violations observed by a Neighborhood Inspections Team, or three years of unpaid property taxes
- Requires landlords to send copies of all termination notices to a Neighborhood Inspection Team
- Substantially increases fines for violations and they accumulate monthly until a problem is resolved. Fines range from $300-$500 per month by unit and if not resolved result in double and triple those amounts per month
- Makes history of property violations permanently available to renters/general public (lenders, insurers, etc.) via Internet
- Adds information on number of inspections, violations, status of remediation and enforcement (including appeals), inspection schedules, fees assessed and collected by property tax ID and by unit at each rental property, with information on ownership at the time of violations
- Funds a full-time attorney to provide advice and representation to tenants living at or below 80% median family income
These recommendations (and others) represent significant changes that will affect all rental unit owners! The draft recommendations were made available to the public on August 12, 2008 and the public hearing on the changes takes place on Wednesday, September 3rd at 6 p.m. (public testimony 7 p.m.) at the Multnomah County Building, Commission Room, located at 501 SE Hawthorne Blvd., in Portland.
The workgroup draft document is currently 64 pages and is available online at the city of Portland’s web site at http://www.portlandonline.com/bhcd/index.cfm?c=48233.
What is a CAP rate?
A cap rate is simply the net operating income (NOI) of the property (before any debt service) divided by the price and it equates to a percentage rate of return if the investor were to purchase a property with no debt (all cash).
Example: NOI = $100,000, Price $1,200,000 CAP rate = $100,000/$1,200,000. Result: Cap Rate = 8.3%.
Supply and demand and the cost of debt are two factors that affect cap rates in a market place. The cap rate is one of the primary determinates of pricing for investment property and there is a direct correlation between market cap rates and current available interest rates for debt on investment property. When interest rates are lower than cap rates, we end up in what we call a positive leverage market; the more one borrows the higher the return on investment.
When interest rates are greater than cap rates, the market is in a negative leverage scenario -- the more one borrows against a property the lower the rate of return is on the investment.
It is also important to understand that the primary advantage of real estate over other investment types are leverage and tax advantages. Most real estate investors want leverage as much as possible because most advantages in owning real estate come with leverage. Like any other investment type, real estate is driven by supply and demand. Investors in real estate normally have a certain threshold of investment return they are willing to accept, depending on the asset and the current market.
As interest rates decline and the cost to borrow decreases investors are willing to accept a lower rate of return on their cash because other investment vehicles offer lower returns.
As interest rates decline, two market forces working to drive an increase in real estate prices: (1) Cap rates are decreasing with interest rates; and (2) Investors are willing to accept a lower rate of return on their money.
Conversely, in a rising interest-rate environment, the opposite is true. When more options exist for investors to achieve a greater rate of return and the cost of debt increases, cap rates increase and reduce the price an investor is willing to pay for an asset.
In conjunction with these effects, the market also plays an important role in cap and interest rates. The higher market demand is in a particular market, the lower cap rates tend to be.
Lower cap rates have a positive affect on prices. Alternatively in a weaker market with lower demand, cap rates rise and values decrease.
Wednesday, August 27, 2008
Portland, Oregon / Vancouver, Washington Apartment Investment Market Compares Favorably to Cities Nationwide
Q2 2008 statistics are in. Here's how the Portland/Vancouver MSA stacks up against 31 of the top metro areas: (data provided by RealFacts)
Year Over Year Average Rent Change
Of the 31 top metro areas measured by RealFacts, only three showed a drop in rents - all of them in Florida.
CURRENT AVERAGE OCCUPANCY
Nation's highest by Percentage
- 96.3% San Jose, CA
- 95.8% San Francisco/Oakland, CA
- 95.5% San Diego/Carlsbad/San Marcos, CA
- 95.4% Tulsa, OK
- 95.2% Vallejo-Fairfield, CA
- 95.2% Fresno
- 95.1% Seattle/Tacoma, WA
- 95.1% Salt Lake City, UT
- 94.7% Portland / Beaverton OR, Vancouver, WA
Tuesday, August 26, 2008
In its August edition, CPN reports that because of solid fundamentals, a relatively small size, and government-sponsored entities' purchase of residential loans, multifamily is being protected from the problems in the credit market.
Real Capital Analytics Inc. reported that year over year apartment sales fell from 2007-2008 as follows:
Loan Range Jan-May 2007 vs. 2008
$5-$10 million down 43.73%
$10-$30 million down 37.58%
$30-$50 million down 38.92%
$50 million+ down 63.78%
Fannie Mae and Freddie Mac have increased their spending in the paartment market, keeping sales liquid in spite of industry problems.
Experts in the Multifamily Market say they "have the least negative outlook" for multi-family compared with other property types.
In a special section story, Sean Meyers writes "Multifamily properties are profitable in western Oregon and sellers are holding on tight."
"The key to breaking into the current market is to have financing lined up and ready to go when a good buying opportunity presents itself. That means providing actual rental income history from a targeted property rather than an average of the comparable market."
Although not yet available online, the full story is available in the "How to Book" pullout section published August 15th.
Monday, August 25, 2008
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Apartment-building sales already were far outpacing deals involving other commercial property, such as office buildings and strip malls with the availability of credit from government-sponsored Fannie Mae and Freddie Mac helping to buoy new deals.
Last month, Fannie Mae announced month that it would increase its commitment to buy loans on multifamily housing of up to $5 million to provide additional liquidity for rental housing. From January-June, Fannie said it invested $20 billion in multifamily housing.
Even with sales doing better than in other sectors, job losses in many cities have recently reduced the ability to raise rents and other renters are sharing apartments or moving in with family members. [Ed. note: the article reflects the nationwide trend, not necessarily that of Portland, where vacancy rates -- so far -- have declined, remaining relatively low at around 4%.]
Read the full article > > >
Studios 388-sq. ft. renting from $730-$800
1 bedroom 1-bath units of 568 sq. ft. renting from $920-$1,135
2-bedroom 1-bath units with 725 sq. ft. renting from $1,240-$1,800
3-bedroom 2-bath penthouses, 1,664 Sq. ft. $4,000
The Oregonian reports that the Vue's renovation comes "at a tumultous moment in the downtown housing market" amid the recent conversion of an estimated 1,200 apartments to condos. Read the full article > > >
Thursday, August 21, 2008
It's estimated that Oregon has between 120,000 and 170,000 undocumented workers. Recently, the Apartment Manager Newsletter carried an article arguing that this new law, which will have its largest impact between 2011 and 2014, may result in the loss of rent for 30,000 Oregon apartment units.
On the national level, some cities and states have gone as far as enacting legislation fining landlords for housing undocumented immigrants. Multifamily Executive magazine discussed some of these issues in a recent article called The Immigrant Experience. The article covers the national debate about the effect of the Hispanic immigrant demographic on rental housing. Among other things, the article states: (a) illegal immigrants will become a larger percentage of renters as 102.6 million immigrants are expected to arrive between now and 2050; (b) new state document requirements will adversely affect operations; and (c) immigrants can sometimes become a target for crime because they deal largely in cash.
Some believe Oregon's legislation may encourage undocumented workers to go home or to other states. For example, when Arizona and Oklahoma enacted tougher laws regarding immigrants, many of them simply moved to Texas.
Thursday, August 14, 2008
Portland Quality Rental Housing Workgroup Releases Draft Recommendations for Multifamily housing Code Revisions Re: Apartment Health and Safety Issues
The draft recommendations were approved July 22, 2008, were posted online August 12th and a public hearing on the draft recommendations will be held September 3rd. The entire 50-page summary document is available for review online.
These draft recommendations contain some important positive and negative things for owners of property within the Portland City Limits. Because there is only a brief amount of time prior to the public hearing, rental owners should download and read for themselves the entire list of recommendations. PUBLIC COMMENT IS AVAILABLE ONLINE OR AT THE PUBLIC HEARING ON SEPTEMBER 3rd.
After receiving public comment, the workgroup will vote September 22, 2008 on the package of recommendations that will be forwarded to City Council for approval in early October 2008.
There are several ways for organizations or individuals to provide comment on the Workgroup recommendations.
The public hearing on these draft recommendations will take place:
Wednesday, September 3, 2008
6:00 pm (7:00 public testimony)
Multnomah County Building, Commission Room
501 SE Hawthorne Blvd.
Public testimony is open to all and is limited to three minutes per person. Individuals wishing to testify will need to sign up upon arrival. Forms for written comment will also be provided. The hearing will be audio taped and a transcription will be made available.
Additionally, comments can be provided using the online form found at
For additional information or if you are having problems viewing or downloading the workgroup recommendations, please contact Andrea Matthiessen at (503) 823-2379 or firstname.lastname@example.org.
Tuesday, August 12, 2008
Hagerman Frick O'Brien (HFO) Investment Real Estate is pleased to support the charitable causes of our clients. For information about our apartment / multifamily investment opportunities in the Portland metro area, as well as throughout Oregon and Vancouver, Washington, visit our web site at http://www.hfore.com.