Monday, November 30, 2009

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 > > >

Friday, November 27, 2009

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. 

Read More > > >

Tuesday, November 24, 2009

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.

Friday, November 20, 2009

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

Thursday, November 19, 2009

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.

Read the full story > > >

Wednesday, November 11, 2009

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.

Read the full story > > >

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 > > >

Monday, November 9, 2009

Glimmers of hope in the apartment market as 3rd quarter volume picks up

Apartment Finance Today reports apartment transactions in September totaled more than $1.5 billion, nearly double the $830 million closed in August. Overall, sales were up 12 percent in the third quarter compared to the second quarter, with more than $3.5 billion in assets changing hands.

Full story > > >

Friday, November 6, 2009

Downtown Portland vacancy rate drops by half to 2.3%

The Metro Multifamily Housing Association reports that overall vacancy rates in the Portland metro area trended downward from 5.2 to 5.9% over the past six months. But not every area of the metropolitan area is negatively affected, however.

Areas with vacancy rates trending lower the last six months include
  • NW Portland
  • Downtown Portland
  • Beaverton
  • Tigard/Tualatin/Sherwood
  • Wilsonville/Canby
  • Outer NE Portland
  • Inner & Central NE Portland
Areas with vacancy rates trending upward in the last six months:
  • Hillsboro
  • Aloha
  • SW Portland
  • Lake Oswego/West Linn
  • Oregon City/Gladstone
  • Milwaukie
  • Clackamas
  • Inner & Central SE Portland
  • Outer SE Portland
  • Troutdale/Gresham/Wood Village/Fairview
  • North Portland/St. Johns
  • Vancouver

Thursday, November 5, 2009

Apartment buildings near colleges and universities near capacity

Portland State University has about 1,400 more students in 2009 than the 26,500+ recorded in 2008. Projections call for enrollment at PSU is to increase nearly 30% to 36,000 students in just a few years.

Meanwhile, Portland Community College enrollment this fall grew by 15%, putting the number of students enrolled there over the 40,000 mark.

  • Neither of these schools provide much on-campus housing. 
  • Students tend to look for housing within a mile of campus.
In Eugene, the University of Oregon's increased enrollment has spurred on development of new complexes, and even with these new apartments the vacancy rate in Eugene dropped 21% to 4.2% from six months earlier.

In Corvallis, Oregon State University's enrollment is up over 1,500 students and with over 80% of students living off campus vacancies in that city have dropped to under 1.5% within a mile of campus.

To top it off, virtually no new apartment projects are scheduled to be constructed in the south valley for the next couple of years.

National apartment vacancy rates: research companies provide conflicting reports

Multifamily Executive reports that there are conflicting reports from the research companies REIS (based in NYC) and RealFacts (based in California) as to whether apartment vacancies are going up or down and what future trends will be.  Read the full story.

Wednesday, November 4, 2009

Decision time fast approaching for Portland metro area urban and rural reserves

The Portland metro area is getting closer to setting the limits of where it will grow over the next 40-50 years.  This past year, Metro has been working with the tri-county governments to identify urban and rural reserves. 

Later this fall these government entities are to have intergovernmental agreements in place next month that will allow the counties to move forward to amend their comprehensive plans and other land use documents to implement those reserves. 

The final milestone in which Metro designates the urban reserves and counties designate their rural reserves is expected in May, 2010.

Read the full article by Miller Nash lawyer Kelly Hossaini.

City of Portland Ecoroofs Incentive Program Deadline is December 1st

The City of Portland Environmental Services is accepting applications from property owners and developers for incentives to construct ecoroofs until December 1, 2009. 

Ecoroofs are lightweight, vegetated roof systems that replace conventional roofs with a layer of foliage over a growing medium on top of a waterproof membrane. They are part of Portland's stormwater management program. There are currently 173 ecoroofs in Portland, totaling nearly 10 acres.

Funds will be available until 2013; all types of projects are eligible. An Environmental services commtitee reviews applications twice each year and awards incentives.

To find out more, or to apply for the incentive, visit: or call 503-823-7914.