|Illustration by Alis Atwell for Bloomberg Businessweek, Source: Getty Images (9)|
by Spencer Marona, Managing Director
With record setting per-unit prices and low interest rates, active investors and developers view the market at a cyclical high and are taking advantage of the active domestic and global investor pools. A combination of rising interest rates and more supply of apartment units will trigger an increase in cap rates, which effectively will drive down value of the assets.
For now, many of these developers and investors have stabilized their assets with zero to minimal vacancy. Many have made capital improvements or are thinking about it while most have raised rents. However, not all investors are keeping up with rising rents and some may not be taking into account annual increases in operating expenses. According to MultfamilyNW's Spring 2015 report, median expenses increased 7.8 percent to $4,687 per unit in 2014. In a 6 cap market, this equates to a approximately $5,600 decrease in value per unit annually. Many investors are recapturing some of that lost income by implementing ratio utility billing systems, known as "RUBS."
In Zumper's April, 2015 National Rent Report, Portland remained the 14th most expensive city to rent a 1-bedroom apartment at $1,300 per month and 2-bedroom apartment at $1,530 per month. Seattle also held the 10th spot with a 1-bedroom at $1,640 per month and 2-bedroom at $2,290 per month.
More Apartment Investors Poised to Cash Out As Cycle Matters, CoStar.
Zumper National Rent Report: April 2015, Zumper.