Wednesday, July 29, 2009

Entrepreneur Magazine Ranks Portland Top Startup City

August's edition of Entrepreneur Magazine lists Portland as the nation's #2 city to start a new company, second only to Las Vegas. Other top cities include Austin, Orlando, Phoenix, San Diego and Atlanta. Read the full story.

Monday, July 20, 2009

Worried About Today's Market?

Are you experiencing concerns over some or all of these issues?
We are happy to discuss these and other issues with you at any time. Call us if you're feeling: 
  • A lack of confidence in your ability to refinance a loan you have coming due
  • Worried that future inflation will increase your expenses faster than rents
  • That you would like to sell but hesitate to do so in these market conditions
  • Interested in buying property, but not sure we have reached the bottom of the market
  • Afraid that interest rate increases in the future will drive up CAP rates and erode your equity
  • Concerned about the occupancy / income at your apartment going down in the current economy

Thursday, July 16, 2009

Portland #1 U.S. City Where it Makes More Sense to Rent an Apartment Than Buy a Home

A brand new report out from Multifamily Executive indicates that a recent comparison of first quarter single-family home prices in the top 50 metro areas puts Portland #1 in terms of price to rent ratio - meaning that it makes more sense to rent in Portland than any other city based on the cost to purchase a house vs. rent. The price-to-rent ratio is calculated by dividing the annual rental cost for a unit by the price of a single-family home in the same area. A ratio higher than 15 signifies that renting makes better financial sense. Portland's ratio was 25.5.

Of the top 50 U.S. metro areas, here are the top 5 Cities where it makes more sense to rent than to buy:

(Multifamily Executive, July, 2009)

Wednesday, July 15, 2009

Washington State Passes Laws Affecting Multifamily Property Owners

The Washington State legislature was busy this year. It appears that nearly a dozen bills related to landlord/tenant law were introduced but most were not enacted.

Here's a list of what passed and what didn't pass this term (summaries taken from information from the Washington Multi-Family Housing Association)

The following bills PASSED the Washington State Legislature in 2009 and are deemed effective July 29, 2009.

Carbon Monoxide Detectors (passed) (a similar bill passed the Oregon Legislature in 2009)
SSB 5561 (DIGEST AS ENACTED) Requires the building code council to adopt rules requiring that all buildings classified as residential occupancies in the state building code be equipped with carbon monoxide alarms. [Note: applies to new construction effective January 1 2011 and existing structures January 1, 2013.] Excludes from this requirement owner-occupied single family residences legally occupied before the effective date of the act.

Tenants Allowed to Change Locks When Sexually Harassed by Landlord (passed)
Authorizes a tenant, if a tenant or a household member is a victim of sexual assault, stalking, or unlawful harassment by a landlord, to: (1) Terminate the rental agreement and quit the premises without further obligation under the rental agreement or under chapter 59.12 RCW (forcible entry and forcible and unlawful detainer) prior to making a copy of a valid order for protection or a written record of a report signed by a qualified third party available to the landlord, if certain conditions are met; and (2) Change or add locks to the tenant's dwelling unit at the tenant's expense. Prohibits a tenant from changing any locks to common areas and requires the tenant to make keys for new locks available to other household members. Requires a tenant, upon vacating the dwelling unit, to deliver the key and all copies of the key to the landlord by mail or personal delivery by a third party.

Mandatory Third Party Inspections (failed). These bills would keep local governments from requiring landlords to have their property inspected by a third party before receiving a business license. These bills were opposed by the City of Seattle and other jurisdictions. (HB 1296 / SB 5495)

Limitations on Landlord Obligations for Utility Debt. (failed) These bills would limit the ability of local utilities to collect unpaid utility bills that a tenant was responsible for but failed to pay. (HB 1298 / SB 5667)

60-day Termination Notices (failed). These bills would have changed termination notices landlords were required to give month-to-month tenants. They require a landlord to give 30 days notice before the end of a month but 60 days if the tenancy has been in effect more than 1 year (although Oregon passed a similar bill this session). (HB 1773 / SB 5549)

Mandatory Acceptance of Section 8 (failed). These bills would have made source of income and Section 8 protected classes and lardlords would be required to accept Section 8 tenants if they met other screening requirements. (HB 1766 / SB 5742)

Change to Mandatory Crime Free Programs (failed). These bill would have imposed limitations on any local government adopting a crime free program for rental housing. One of the provisions would require any such program to be voluntary, not mandatory. (HB 1299 / SB 5742)

Limitations on Screening Information Available to Landlord (failed). This bill would have limited information that screening companies could give to landlords about previously filed eviction actions involving an applicant. It would have also allowed an applicant to take a screening from one property to others for 60 days. (SB 5922)

State Claim for Interest on Security Deposits (failed). This bill would have taken interest earned on security deposits and required it be sent to the state for affordable housing programs. (SB 5923)

Tuesday, July 14, 2009

National Market Strategist Sees Positive Turns in Economy

Saying that investor decisions should focus on quality and diversification, a recent report issued by financial services firm Edward Jones says that after 17 months in a recession in the U.S., some signs now suggest that the economy is stabilizing. Edward Jones' chief market strategist Alan Skrainka says the rate of decline in the economy is slowing and that the recession is showing signs of coming to an end.

"The challenges we face are serious, but they're not insurmountable," said Skrainka. "The economy hasn't disappeared. It may be bruised but not broken. Over the past 50 years, our economy has continued to grow with only brief interruptions. Investors should be making decisions based on investment principles, not predictions, and focus on quality, diversification and holding for the long term."

Although the unemployment rate has reached 9.5 percent, Skrainka prefers to focus on the positive signs of the U.S. economy, which has been growing 86 percent of the time since 1957, and 95 percent since 1982.

In fact, according to Skrainka, the value of all goods and services produced in the United States last year, which was a recession year, was $14 trillion. Americans last year earned $10 trillion in disposable income. More than 87 percent of Americans are current on their mortgage. One-third of all American homeowners don't even have a mortgage. Unemployment is up, but more than 90 percent of all Americans in the labor force are still employed.

"How people behave in bear markets can often determine whether they reach, or fall short of their financial goals," said Skrainka. "To avoid being caught flat-footed when the recession ends, it's important to stay fully invested and continue looking for opportunities."

Consumer Spending Index Moves Up In June

The Deloitte Consumer Spending Index rose in June, after falling four consecutive months. The Index attempts to track consumer cash flow as an indicator of future consumer spending.

Deloitte Consumer Spending Index Moves Up In June

Monday, July 13, 2009

Legislature Approves Reuse of Bathing and Laundry Greywater for Irrigation at Multifamily Buildings

Passage of HB2080 (signed into the law by the Governor on June 12th) will now allow property owners to use treated greywater from bathing and laundry for irrigation and other outdoor applications. This is in addition to a previous state administrative rule allowing the harvesting of rainwater for toilet flushing, clothes washing, and for heating and cooling.

Over the next year, the Oregon DEQ will create a greywater-use permit process to reflect the new standards. Passage of the bill is the result of a two-year effort of Central City Concern and partners to improve water conservation at multifamily buildings. “We see enormous potential for both energy and water conservation,” said Ben Gates, project manager and architect for CCC. “Approximately 30 to 40 percent in water savings can be realized with the application of greywater reuse systems in multifamily buildings.”

Central City Concern issued a report entitled "Achieving Water Independence in Buildings" in March of 2009. The report is available for download here.

Thursday, July 9, 2009

How to protect your money in a 1031 tax free exchage

With the recent collapse of some 1031 exchange companies, we checked in with a couple of our contacts for information and advice we might pass along. We asked lawyers Toija J. Beutler of Investment Property Exchanges Services (IPX) exchange and Ron Shellan of Miller Nash LLP what information they had regarding the best way to protect your money in a 1031 exchange. Here is what they had to say:

Collapse of Exchange Companies: Protecting Your Investment
Ronald Shellan, Attorney at Law, Miller Nash LLP

In the Pacific Northwest, a number of tax-free exchange accommodation corporations have collapsed into bankruptcy. These collapses can be financially devastating for taxpayers who have deposited their funds with these companies in order to take advantage of the tax-free exchange provisions of the Internal Revenue Code.

In late November, LandAmerica Financial Group Inc. filed for Chapter 11 protection. Its tax-free exchange accommodator unit had invested its funds in auction-rate securities. The credit crunch rendered these investments illiquid, and the company was unable to timely pay its obligations to taxpayers to use the funds to acquire replacement property for their exchanges.

In December, Bend's Summit 1031 Exchange also collapsed and filed for Chapter 11 bankruptcy. Reports indicated that it owed more than $27 million to clients. In this case, some of the funds had been invested in real estate transactions, violating promises to invest the funds in short-term, liquid investments.

Taxpayers can sell real estate on a tax-free basis if the funds are reinvested in other like-kind real estate. The IRS allows the sale proceeds to be held by an accommodator or "qualified intermediary" for up to 180 days while the replacement property is identified and acquired. In most states, accommodators are not regulated or insured by the state. Thus, like any business, they can experience economic reversals. If an accommodator files for bankruptcy, however, the taxpayer may lose some or all funds. Further, what funds are available are often tied up in litigation for many months, preventing the exchange from being completed within the 180-day period required by tax rules governing tax-free exchanges. If the funds cannot be used within the 180-day period to acquire replacement property, the exchange is fully taxable.

What can taxpayers do to protect themselves from a bankruptcy or insolvency of a tax-free exchange accommodator? There is a solution that is easy and practical. IRS regulations allow the use of Qualified Trusts or Qualified Escrows. When the transaction closes, the funds are held by a third party—normally a bank in either a trust or an escrow relationship. If funds are so held, the bankruptcy or insolvency of the accommodator will not affect the funds held by the third-party bank. Many accommodators have a standard form for either a Qualified Trust or Qualified Escrow and relationships with banks or escrow companies. Lawyers who practice in this area often also have prepared forms that can be used to facilitate a risk-free exchange. Both trusts and escrow companies have strict capital requirements that make it more likely that they will be able to meet their obligations.

Taxpayers should also take two additional steps to protect themselves:
  1. The escrow instructions to the escrow company closing the real estate transaction should provide that the funds go directly to the trustee or escrow agent and that the Qualified Trust or Qualified Escrow agreement be signed as part of the closing. Second, if the exchange funds exceed the FDIC insurance limits (either $100,000 or $250,000, depending on the type of account and the date), taxpayers should take at least three additional considerations into account to protect themselves. One consideration is obtaining additional FDIC insurance. This is available at most banks under the Transaction Account Guaranty Program available through the end of 2009 (which is expected to be extended). The extra insurance comes at a cost, though, because no interest is paid on the accounts and most accommodators will charge a higher fee.
  2. A second approach is to deposit the funds in a bank that uses the CDARS Program. This program protects depositors by providing FDIC insurance for the entire deposit. This is accomplished by using a computer-driven program to deposit the funds in multiple institutions so that no institution holds more than the amount that would be insured by the FDIC. The downside is that the funds are not immediately available because the funds are in certificate of deposit accounts. A final alternative is to find a bank that is financially strong enough so that the FDIC insurance limits are not an issue.
There is nothing like a worldwide financial meltdown to refocus attention on reducing risk. The risk in depositing taxpayer funds with an accommodator can largely be eliminated by using either a Qualified Trust or Qualified Escrow, issuing escrow instructions to make sure the funds are directly deposited in a bank, and considering whether additional protection for amounts in excess of applicable FDIC limits is needed.

Ron Shellan is a partner at Miller Nash. He practices tax law and real estate law with a focus including tax-free exchanges, affordable housing and low-income housing tax credits, historic tax credits, corporate and business acquisitions, and tax law. Ron is a certified CPA and has twice been a director of the Oregon Society of CPAs. Ron can be reached at 503-205-2541 or by e-mail at

Common Questions From Anxious Would-be-Exchangers
Toija J. Beutler, Attorney/Manager, IPX1031

Q. How do I find an exchange company?
A. Ask your commercial broker, attorney or accountant for names. They have probably had experience with several companies and can direct you to those with long histories and solid reputations.

Q. My broker gave me a couple of names. Does it really matter which company I select? Aren’t they all the same?
A. No, they are not all the same as we learned from several recent failures. Just as you conduct due diligence before buying a property, it is more important than ever that you conduct due diligence before selecting an exchange company.

Q. What questions should I ask?
A. The most important shopping feature is security. The exchange company will be holding your sale proceeds and, unlike banks, exchange companies have historically been unregulated. While this is beginning to change Exchangers must always look out for themselves. Just a few of the comparison points when shopping exchange companies:
  • How long has the company been in business?
  • Do they have an attorney, CPA or Certified Exchange Specialist on staff?
  • Do they have a fidelity bond and, if so, how much?
  • Do they have an errors and omissions policy and, if so, how much?
  • Do they have a guaranty from a third party?
  • Where do they invest the exchange funds and how?
  • How many signatures are required to move the funds?
  • Are the accounts audited by independent auditors?
Q. How do I know my money is safe?
A. Your best approach is to select a solid exchange company in order to minimize any risk. Make sure the exchange company has selected a strong bank. Perhaps the bank can be named in the exchange agreement. Ask if the bank can send statements directly to you so you can track the funds on a monthly basis.

Q. I don’t see pricing on the list. Isn’t that important?
A. There is little pricing difference between the companies, perhaps a couple hundred dollars one way or the other. The real difference is in the security offered by each company.

Q. I am selling in Washington and buying in Oregon. Can companies work across state lines?
A. Yes, companies work across state lines all the time. However, ask if the company is in compliance with each state’s applicable regulation. For example, Washington’s new law requires companies handling a sale in Washington to have a minimum level of bonding and errors and omissions coverage. They also require that an attorney, CPA or “person who has passed a test specific to exchange facilitation” be directly managing the business. Not all companies currently meet this requirement.

Q. Is there anything else I should be looking for?
A. Yes, staff expertise. Exchange companies prepare exchange documentation and hold your sale proceeds. And while that work is critical to your exchange, make sure they can also answer your questions about the basic rules but especially about anything out of the ordinary. You still need your own attorney and accountant advising you but experienced exchange companies can be a great help when issues arise – and 75% of all exchanges face issues and challenges.

Toija J. Beutler is Attorney/Regional Manager for Investment Property Exchanges Services, Inc. (IPX1031). She can be reached by phone at 888.310.1031 or by e-mail at

Tuesday, July 7, 2009

HFO on Oregon Business Magazine's 2009 Commercial Real Estate Powerlist

HFO is pleased to announce that once again we're on the Commercial Real Estate Powerlist published annually by Oregon Business Magazine. HFO is the top-ranked apartment-only broker on the list.

30 years of research shows apartments have the best track record for risk-adjusted returns

In its review of 30 years of data, Torto Wheaton Research recently reported to the National Multi-Housing Council that apartments "...have proven to be most resilient during economic downturns, delivering superior returns during recessionary periods."

Period Ending 2008 Q4, Years








Ave. Compounded return, %







Sharpe Ratio








Ave. Compounded return, %







Sharpe Ratio








Ave. Compounded return, %







Sharpe Ratio








Ave. Compounded return, %







Sharpe Ratio








Ave. Compounded return, %







Sharpe Ratio








Ave. Compounded return, %







Sharpe Ratio







  • Sharpe Ratio = Period Average (Compounded Return – 10-year Treasury Bond) / Period
  • Standard Deviation (Compounded Return – 10-Year Treasury Bond)
  • Grey color highlights the highest return; green color highlights the highest ratio of average annualized return to standard deviation

Data: National Council of Real Estate Investment Fiduciaries and Torto Wheaton Research (TWR) From the report: “A Case for Investing in U.S. Apartments” prepared by TWR for the National Multi-Housing Council (March, 2009).

Download the full 17 page report here.

Recovery: What Shape Are We In? A New Report

A report released this week by capital management specialists at Ferguson Wellman says "While not yet a consensus view, the outlook for positive U.S. GDP growth in late 2009 is increasingly likely."

Report highlights:
  • Strength is coming from emerging economies. "Shovel ready" projects in the U.S. means 1-2 years out. In China, that means months or a few weeks!
  • The market has made a very dramatic and rapid advance since it's March lows. 
  • There are "green shoots" emerging in the U.S. and around the world.
  • The recovery process will likely continue for some time. 
  • Consumer savings is at its highest point in the last 15 years. 
Click here to read the Ferguson Wellman Q2 Market Letter.

The future of apartment living: a groundbreaking national white paper

A new whitepaper entitled "The Future of Apartment Living" is now available for download.

Over the past six months Christopher Lee's research team, along with several apartment owners and managers contributed to the preparation of this publication, the first of its kind. In this report, they outline what is happening to the apartment industry, and offer evidence that it is undergoing a transformation that will allow it to more fully realize its potential.  To download the complete 20-page whitepaper click here.

Monday, July 6, 2009

New and revised laws for Oregon landlords affect apartment owners

Tenant groups and legislative members were busy in Oregon this year. Most of these new laws take effect January 1, 2010.

Oregon Legislative Updates include the following (note, this is not all-inclusive and please visit the state legislative website to read complete bills). Updates to these and other measures can be found on the Metro Multifamily Housing website as they become available.

  • SB 771: This new law requires 60-day no-cause notices for tenancies over one year; creates temporary occupant agreements and outlines what landlords have to do if a tenant dies. It also limits all allowable fees and requires the disclosure of all fees deposits and rent. (Governor signed 6/18/09.)
  • HB 2578: A towing company must now photograph each vehicle in violation noting the date and time. If the owner shows up at the time a vehicle is being towed, the tow truck operator has to drop the vehicle at no charge. Landlord is required to provide parking tags so tenants can use vehicles other than primary vehicles for reserved spaces. (Governor signed 6/26/09.)
  • HB 3450: Multifamily properties that have units with heat sources that emit carbon monoxide or that have a direct connection to a garage must have a carbon monoxide detectors installed by July 2010 for turnovers and in all units by April 2011. (Governor signed 6/25/09.)
  • HB 2614: Tenants must be notified if units are in a 100-year flood plain; allows tenants to recover value up to two months' rent in event of uninsured loss for a landlord's failure to disclose. Effective 1/1/10. (Governor signed 6/17/09.)
  • SB 875: Prohibits charging fees or deposits for assistance animals in rental housing; duplicates existing federal fair housing laws. (Governor signed 6/23/09.)
  • SB 952: Tenants in homes being foreclosed on receive notice. Tenants would not be evicted until purchaser owns the property and will be allowed to stay until their lease expires or for up to 6 months whichever is shorter. If a property is sold to someone who plans to live in the residence, only 30 days notice is required. (Governor signed 6/24/09.)

Population trends favor apartment living for the next 20 years!

Knowing that the rental pool will not be shrinking any time soon is a comforting thought.  The National Apartment Association projects demand for nearly $1.1 trillion in new apartment buildings by 2030.

A new report projects that U.S. home ownership will drop more than 10 percent in the next 10 years, bringing the United State closer to European housing models.

The report highlights these important facts:

  • Nearly 85 million Americans are part of the Generation Y group, born between 1977 and 1996. They are larger than today's Baby Boomer generation.  As a whole they prefer urban living and they avoid long commutes.
  • Most job growth is in urban areas.
  • Apartments are less expensive than condos or single family homes. Average household debt has doubled. People are spending less and saving more.
  • The population is aging. Next year, 40.2 million Americans will be over 65 and by 2030 that will reach 72.1 million.  Older people are more likely to become renters. 

Wednesday, July 1, 2009

The Silver Lining to Oregon's High Unemployment

Headlines screaming about Oregon's high unemployment is unsettling news. Still, sifting through the information there are some important facts to consider.

In reading the Oregonian yesterday, some telling facts were buried at the bottom of the story.

These points are important:
  • Michigan's 14.1 percent jobless rate would be even higher if so many people hadn't left the state or stopped looking for work!

  • While Michigan's labor force has been shrinking for some time, Oregon's labor force has been #2 for growth in the entire United States (3.1%, second only to Nevada).
So what is the good news? This recent in-migration to Oregon means we have more pent-up demand here for goods and services as the recovery takes hold. We cited yesterday a report indicating that the Portland metro's home value loss ranked on the middle lower end of the 20 cities in the S&P Case-Shiller home price index. This relatively strable value in housing is likely also a result of the demand for housing from ongoing population growth.

Stories about Oregon's unemployment are also not completely recognizing the future economic impact of strengthening economies among our international trading partners. The fact that China's economy is improving for example will undoubtedly result in an increasing demand for Oregon exports.