Nine Things Renters in their Late 30's and 40's Want

Renters in their late 30s to 40s likely have careers, families and responsibilities. These things are all taken into consideration when they look for a new apartment. What are these renters looking for? Click to read more at the Multi-Housing News blog.

Following two strong years for the U.S. apartment market, what should we expect to see in 2012? Jay Parsons and Greg Willett discuss in this video from Apartment Market Dynamics.

Multifamily's Future for 2012

Multi-Housing News reports that thanks to a favorable combination of limited supply and demand edging up, market conditions for the multifamily sector are likely to be favorable in 2012.  Although multifamily market observers expect that the economy will merely plod along in 2012, not improving much from 2011 levels, they still expect somewhat higher vacancies and effective rents. Read the full story.

Demand for Rentals Drives Jump in Home Building

Construction of residential housing surged last month, leading to increased optimism that the U.S. housing market is gaining steam. The uptick was the highest level in 19 months, the Commerce Department reports.  Click here to read the story in the Wall Street Journal.

Wall Street Journal: Big Developers Dabbling in Apartments

The Wall Street Journal reports some of the major developers of malls and office properties are now moving into the apartment development sector -- where the money is.  Read the full story.

Two Reports Released Yesterday: Portland Metro Area's Economy Recovering

The Portland Tribune offers insight into two reports released yesterday indicating the Portland/Vancouver metro area is starting to recover from the worst recession in 50 years -- but it will take time. Read the full story.

Is Portland A Renter's Hell?

In this week's cover story Willamette Week's banner headline is "Renter's Hell: Portlanders pay a steep price in the nation's toughest rental market."

The report cites statistics from the US Bureau of Labor  and Metro Multifamily Housing Association that average Portland area rents have increased 8% this year, 16.9% in the last five years.  It reports that rents in downtown and the Pearl District have increased 15.8% this year and 36% over the last five years. Read the full story online. 

Developer Announces 177-Unit Project in the Pearl

Developer Robert Ball has announced that his company, Astor Construction, will construct a privately funded 6-story 177-unit luxury apartment complex at NW 12th between Pettygrove and Quimby. Amenities include 181 parking spaces, a workout facility, coffee bar, 180 bicycle stalls, a dog-washing area and a bicycle repair station.

Read the Oregonian Report
Read the Business Journal Report

HFO Announces Past 30-day Sales Totaling $35.44 million



Westview Heights

Over the last 30 days, HFO Investment Real Estate brokered the sale of Westview Heights Apartments in Beaverton for $29.5 million, the Riverside Villa Apartments in Milwaukie for $2,495,000 and the Cinnamon Lakes Apartments in Salem for $3,445,000. 

Westview Heights is an “A” quality institutional grade community built in 2002 and consisting of 198 units.  This garden-style apartment complex located along the Sunset Corridor is a condo quality complex with an average unit size of over 1,400 square feet with attached garages and full-size washers/ dryers. Westview Heights sold for $29,500,000 or $149,000/door with a cap rate of 6%. The seller was Westview Keys Pacific LLC of Portland; the buyer was California real estate firm Kennedy Wilson. The Buyer assumed an above-market interest rate loan with low leverage.  The Buyer plans to remodel unit interiors on turnover and capitalize on the rent growth in this market. “This is a unique opportunity for the buyer to acquire a solid condo quality project in a location which will capitalize on the continued increased demand for rental units,” said HFO partner Cody Hagerman.

The Cinnamon Lakes Apartments in Salem were built in 2005 and consists of 42 units on a low-density 4.25 acre parcel – most with lake views. Units include washers/dryers, bamboo hardwood floors, private decks and patios, a park-like walkway along the lake and assigned carport parking. The sale price of $3,445,000 represents $82,024 per unit and a cap rate of 6.27%. The seller was QA Enterprises Inc. of Salem and the buyer was LB LLC of Portland. This sale was another example of investors looking for quality assets to place their investment dollars.
 
Riverside Villa Apartments in Milwaukie is 37-unit apartment community built in 1975 on almost two acres. These 15-townhouses and 22 flats have easy access to I-205.  The Milwaukie area was pegged with an average 2.9% vacancy rate in last month’s Metro Multifamily Housing Association survey. The Riverside Apartments has a pool, picnic and BBQ areas and sold for $2,495,000 or $67,432 per unit at a cap rate of 7.31%. The Buyer is planning on putting in new windows and doors at the property. P. Rorex and J. Sandoval of Los Angeles sold the property to a Portland area buyer for all cash. 

Developers Halt Plans for 15-story Pearl District Apartment Tower

The Oregonian has reported that Simpson Housing LLP of Denver has called off plans to develop a 15-story apartment tower in the Pearl District at the corner of NW 14th and Irving. Read More.

Axiometrics: Recent Slowdown in Apartment Effective Rents and Occupancy

Axiometrics Inc., a provider of data and analysis on the apartment market, notes in its latest research that effective rents (rent net of concessions) and occupancy declined slightly in October, typical for the market as it heads into the fourth quarter. Nationally, effective rents declined 0.28% between September and October, similar to the 0.21% decline in October of 2010 but far ahead of the -0.73% and -0.63% growth rates in October of 2009 and 2008.

The national occupancy rate also declined slightly, from 94.07% in September to 93.83% in October. This trend is also seasonal and similar to the decline in October of 2010. Overall, occupancy is up 0.71% year-to-date.

"The market typically sees negative growth for effective rent and occupancy in the fourth quarter, and this year the rates are likely to be negative again, though much milder than for the average fourth quarter," said Jay Denton, vice president of research for Axiometrics. "Year-to-date growth has slowed somewhat from our last forecast. We continue to expect a strong apartment market for 2012, but perhaps not as robust as previously forecasted."   Read the full story.

Costar Reports on "The Coming Rental Housing Wave"

The multifamily market is benefitting from changing demographics and consumer attitudes toward renting resulting from the growing number of financially stressed households. The increase in young and newly formed households that have decided to postpone or even reject homeownership in favor of the lower debt and flexibility afforded by renting during these last unsettled economic years. Read the full story.

Apartment Sales Volume Remains Strong

Despite economic uncertainty, the apartment transaction market remained strong in the third quarter, according to New York–based commercial real estate research firm Real Capital Analytics (RCA). Read the full story.

Census Reports: Portland Metro Q3 Vacancy Rate Falls Yet Again to 3.1%

The U.S. Census Bureau reported this week that Portland's vacancy rate fell from 3.5 percent to 3.1 percent in the third quarter of 2011, maintaining its position as the nation's fourth lowest vacancy rate among the top 75 U.S. Metropolitan Statistical Areas (MSAs).

Seattle-Tacoma-Bellevue, WA had a Q3 2011 vacancy estimate of 6.8 percent, down from 7.5 percent the prior quarter and the nation's 17th lowest.




The nation's 10 lowest vacancy rates were:

• Springfield, MA 2.6
• Worcester, MA 2.8
• Oxnard-Thousand Oaks-Ventura, CA 3.0
• Portland-Vancouver-Beaverton, OR-WA 3.1
• El Paso, TX 3.3
• Bakersfield, CA 3.7
• Alburquerque, NM 4.3
• Albany-Schenectady-Troy, NY 4.5
• San Jose-Sunnyvale-Santa Clara, CA 4.6
• Los Angeles-Long Beach-Santa Ana, CA 5.0

The MSA's with the five highest vacancy rates were as follows:

• Greensboro-High Point, NC 16.3
• Orlando, FL 16.6
• Poughkeepsie-Newburgh-Middletown, 17.0
• Tucson, AZ 17.0
• Houston-Baytown-Sugar Land, TX 17.1

Click here to read the full report online.

Developers Reportedly Actively Moving to Construct Apartments

Two-thirds (67%) of developers surveyed last quarter by the National Multifamily Housing Council said construction activity is underway, and 20% are breaking ground on new projects at a rapid clip. The other 47% reported an increase in pre-construction activities—acquiring land, lining up financing, getting building permits—but not much actual construction yet.

Read more: Too Many Renters, Too Few Apartments

T. Barry Brenneke to MMHA: Tenant Relationships Key

At this month's MMHA breakfast, keynote speaker T. Barry Brenneke explains that although it is easy to get caught up in the excitement over improving market conditions, it’s important to remember that maintaining good renter relationships is the real key to success. T. Barry Brenneke co-founded Guardian Properties with two family members in 1971. Mr. Brenneke developed and operated the apartment management division of the company for ten years before purchasing the company in 1981. Under his direction, Guardian grew to a 14,000 unit portfolio covering several western states. In 2001 he sold the business to his son Tom Brenneke. Tom now operates the company under the name Guardian Real Estate Services and Barry manages his personal portfolio of 600 units under the flag of GMC Properties. Barry was active in the founding of Metro Multifamily Housing Association.

Rent Growth Levels in Portland Ease Off

The latest report from Apartment Market Dynamics reveals that rent growth in Portland has eased off a bit this quarter.

In Case You Missed it - Metro Approved Urban Growth Boundary Expansion

In case you missed the news, last week Metro approved an expansion of the Urban Grown Boundary of 1,985 acres in these areas:

• North Hillsboro -- 330 acres south of U.S. 26, for industrial development. 
• South Hillsboro -- 1063 acres near S.W. 229th Ave. and Tualatin Valley Highway, for up to 10,776 homes. 
• South Cooper Mountain -- 543 acres west of Beaverton, near S.W. Scholls Ferry Road, for residential development. 
• Roy Rogers West -- 49 acres west of Tigard, for residential development. 

A map can be found here. 

News from the Metro website about the decision is here.

Housing Starts Above Forecasts - Largely Multifamily

Bloomberg News reported today that builders began work on more U.S. homes than forecast in September and consumer prices climbed at the slowest pace in three months, supporting Federal Reserve forecasts for a pickup in growth and a moderation in inflation. Click here to read more. 

Multifamily Finance Professionals Exceptionally Optimistic

Apartment Finance Today reports on the results of their annual CFO strategies survey: "Optimism reigns among multifamily finance professionals in the early stages of the next great cycle." Read the full story.

MMHA Breakfast Happening Now. Report: Positive Trends Continue.

At the Metro Multifamily Housing Association breakfast happening now downtown, the fall 2011 Apartment Report survey results point to "continued strength and health of the apartment market in the Portland/Vancouver area." The average overall vacancy rate continues to decline and stands at 3.34%, according to the report. Average effective rents are $0.97 per s.f., representing an 8% annual increase, according to the survey of more than 38,000 units.

14 Steps to Zero Resident Turnover

In his latest post, Brent Williams brainstorms ways to move towards zero resident turnover.  Click here to read more.

Multifamily Lending Up as Investors Seek Safe Haven

The Mortgage Bankers Association reported recently that multifamily lending rose 36% in 2010 compared to 2009 and that the trend was continuing into 2011. The MBA and other organizations that keep track of such statistics further believe that, going forward beyond 2011, banks will continue to keep their sights on the apartment market. Read more online.

Multifamily is a Bright Spot in the Struggling Economy

Although the notion of “Renter Nation” might seem far-fetched, one thing is for sure: The apartment industry is at the starting point of a great run.

Attendees and speakers at the 2011 Multifamily Executive Conference, held Oct. 3-5, 2011, at the ARIA Hotel & Casino in CityCenter Las Vegas, were assertive in voicing their agenda on the future of multifamily, pointing to a run of development and transactional activity that will keep business solid until at least 2014, if not 2016. Read all the latest from the Multifamily Executive Conference online.

A Property Manager's Safety Net From Uninsured Residents

What can you do if a renter cancels his/her policy or fails to renew it -- leaving you with little resourse to repair resident-inflicted property damage? Here's your safety net: A supplemental insurance program allows the property management company to put insurance in place for a unit as protection from losses due to resident negligence when a renter has not met the insurance requirement in the lease agreement. Read more at Property Management Insider online.

For Fourth Consecutive Year, HFO Named Top Corporate Philanthropist by Portland Business Journal

HFO Investment Real Estate has been named by the Portland Business Journal as a top Corporate Philanthropist for the fourth year in a row.

“We’re pleased to have been a leader in our industry niche in terms of charitable giving. Our participation in the program has inspired other local real estate firms to join in this awards program... something that's exciting for us to see happening,” said marketing director Aaron Kirk Douglas. 

HFO’s unique corporate giving program provides for a charitable contribution to be made for the closing of each transaction.  So far in 2011, HFO’s clients business have helped support these charities:

• Audobon Society of Portland
• Bicycle Transportation Alliance
• Big Brothers Big Sisters Columbia NW
• Blanchet House
• Children’s Cancer Association
• Compassion International
• Doernbecher Foundation
• Dougy Center
• Ecumenical Ministries of Ore.
• Juvenile Diabetes-Oregon Chapter
• Knight Cancer Institute (OHSU)
• Metropolitan Family Service
• Oregon Food Bank
• Oregon Humane Society
• The Portland Area Theatre Alliance
• Portland Jewish Academy
• Raphael House
• Red Cross of Oregon
• Southwest Parent Child Collective
• Sparrows Clubs USA
• St. Francis Dining Hall
• Stand for Children
• The Salvation Army

In addition to the charitable giving, HFO's staff and brokers offer their ongoing leadership and fundraising talents, volunteering hundreds of hours for the Dougy Center for Grieving Children, Big Brothers/Big Sisters Columbia Northwest, and the Portland Area Theatre Alliance.

U.S. Apartment Vacancies Fall to Five Year Low

U.S. apartment vacancies fell to a five-year low in the third quarter, enabling landlords to increase rents even as tepid job growth slowed leasing in what is usually a strong season for demand, Reis Inc. (REIS) said.

Mounting foreclosures, tighter credit for homebuyers and young people moving out on their own have increased demand for apartments after the vacancy rate reached a three-decade high of 8 percent at the end of 2009. Leasing may be starting to cool as the U.S. unemployment rate sticks above 9 percent and concern grows that the economy is weakening, Reis said.

Renewed weakness in the labor market slowed a wave of young people moving out of their parents’ homes or leaving roommates to rent their own place, a phenomenon known as unbundling, said Donald Davidoff, head of marketing for Archstone, the apartment owner based in Englewood, Colorado. The U.S. economy added zero jobs in August, the weakest reading since September 2010, and the unemployment rate remained at 9.1 percent, according to the Labor Department. Read the Full Story at Bloomberg News.

Will Multifamily Fall Victim to Congressional Tax Reform?

As Congress looks at overhauling the nation’s tax code, the multifamily industry may become a collateral victim. The bipartisan “super committee,” formally called the Joint Select Committee on Deficit Reduction, is charged with finding $1.2 trillion in deficit cuts by Thanksgiving. And several tax programs and provisions that multifamily owners and developers have enjoyed for years may be on the chopping block. Read more in the Multifamily Executive online.

Multifamily Executive Magazine: Beware The Seven Deadly Sins

Amid all the good news and trends in apartment investing these days, Multifamily Executive Magazine reminds investors that as the next boom approaches, we should be careful to remember and not repeat our past mistakes.  Read their take here in "The 7 Sins."

Holland Developing, Building and Managing 190 New Units at Orenco and 324 Units in Wilsonville

Two new Portland-area apartment communities that broke ground last week are strategically sited to leverage burgeoning employment centers and heavily-used transportation hubs. Holland Partner Group of Vancouver, Wash., celebrated groundbreakings the same day at the 324-unit Brenchley Estates in Wilsonville, Ore., and 190-unit Living Green at Orenco Station in Hillsboro, Ore. In each case, Holland is developing, building and managing the property. Read more in the MultiHousing News online.

Morgan Stanley Predicts Apartment REITS to Enjoy 6% Revenue Growth in 2012

Morgan Stanley released today its 2012 revenue forecast for apartment REITS.  "Reflecting a strong demand/supply dynamic and tailwinds from declining homeownership, partly offset by a sluggish ongoing recovery for metro job growth. We forecast strong 4.4% and accelerating 6.4% same-store revenue growth for the apartment REITs in 2011 and 2012, respectively." HFO has obtained permission to share this report from Sr. VP Brian Currier. Read the full report.


Apartment Market Posts Robust Growth in 3rd Quarter

The U.S. apartment sector again posted robust revenue growth in the third quarter of 2011, according to the preliminary results from MPF Research’s 3rd quarter 2011 survey of more than 6 million apartment units across the country. National occupancy climbed 0.6 percentage points during the past three months, and effective rents jumped 1.6 percent.

In this special edition of Apartment Market Dynamics, Greg Willett and Jay Parsons with MPF Research take an in-depth look at the nation’s latest apartment market performance results and provide insight into what likely lies ahead for 2012.

No Rush to Home Ownership

Droves of potential buyers, particularly young adults, are renting longer even when they can afford to buy, stockpiling their savings or seeking investments they see as safer, real estate brokers and economists say.
People who do buy are increasingly opting for more modest houses. Recent data show new homes are smaller -- and sport fewer pricey extras, such as fireplaces and patios -- than in years past. Read the full story from the Charlotte Observer.

Multifamily Housing Construction Index Shows Ongoing Market Improvement

The multifamily housing market continued to show improvement in the second quarter of 2011, as the Multifamily Production Index (MPI) compiled by the National Association of Home Builders (NAHB) increased for the fourth consecutive quarter. Read the Full Story.

132-Unit $29 Million Apartment Project for East Burnside

KTGY design group of Irvine, CA is developing a green, 132-unit affordable housing apartment community on 1.4-acres adjacent to the Foursquare Church office at 12th Ave. and E. Burnside St..  The building will feature five stories of residential accommodations above 6,300 square feet of street-level retail space. Read More. . .

Investors Descend on Student Housing

Multifamily Executive reports that it's back to school time in more ways than one: both students and investors are interested in student housing this year.  Read More . . . 

Room for Apartment Rents to Rise According to National Multi Housing Council

There’s more room to increase rental prices in the apartment market, according to Doug Bibby, president of the National Multi Housing Council (NMHC).

Demand For Apartments Rises Across the Country

Investor's Business Daily reports Portland's 3.5% vacancy rate puts it among the nation's lowest.  Read more . . .

HFO Launches New, Streamlined Website

HFO is pleased to announce the launch today of our new, streamlined website. Among other things, we now have the capability to integrate videos. Watch for the mobile version of our site launching later this month designed especially for smartphone users. Investors will be able to quickly obtain directions to our listings using map integration. Our goal is to serve apartment investors using the most advanted technology and marketing tools available.

FHA Apartment Loan Originations Hit Record High

The Federal Housing Administration has backed a record $10.5 billion in multifamily rental housing loans during its 2011 fiscal year, the agency said on Tuesday. Read More . . .

Should You Appeal the Tax Assessment on your Apartment Property?

Oregon attorney Christopher Robinson discusses how an owner can evaluate whether a property's current assessed tax value is accurate and appropriate.

HFO Sponsors Dougy Center Fun Run, Fri. Aug. 19!

HFO is pleased to be among the local sponsors of the fun run - 2:30-6:30pm Friday, August 19th! This 2.8 mile non-competitive run/walk starts near the HFO offices at the Eastbank Esplinade near the Fire Station at the east end of the Hawthorne Bridge.  Picnic style food and beverages follow with raffle prizes and information about how The Dougy Center helps provide support in a safe place where children, teens and young adults can share their experiences surrounding the death of a loved one. Families are welcome.  Registration ends today!  Cost is $20, $12 for children under 12 and $5 for children under 12 who would like to participate but who don't need a t-shirt.

To register call Lindsey at 503-515-7715.

Census Reports: Portland Q2 Vacancy Rate Falls to 3.5%

U.S. Census Bureau: Portland Metro Scores America's 4th Lowest Apartment Vacancy Rate for 2nd Quarter

The U.S. Census Bureau reports Portland's vacancy rate fell from 4.0 percent to 3.5 percent in the second quarter of 2011, putting it at the nation's fourth lowest vacancy rate among the top 75 U.S. Metropolitan Statistical Areas (MSAs).

Seattle-Tacoma-Bellevue, WA had a Q2 2011 vacancy estimate of 7.5 percent, up from 6.8 percent the prior quarter and the nation's 21st lowest.

The nation's 10 lowest vacancy rates were:

• Springfield, MA - 1.9%
• Bridgeport-Stamford-Norwalk, CT - 3.0%
• San Jose-Sunnyvale-Santa Clara, CA - 3.2%
• Portland-Vancouver-Beaverton, OR-WA - 3.5%
• Boston-Cambridge-Quincy, MA-NH - 4.3%
• Bakersfield, CA - 4.5%  (tie)
• Milwaukie-Waukesha-West Allis, WI - 4.5% (tie)
• Rochester, NY  - 4.7% (tie)
• Worcester, MA - 4.7% (tie)
• Nashville-Davidson-Murfreesboro, TN - 5.0%
• Salt Lake City, UT - 5.1%

The MSA's with the five highest vacancy rates were as follows:

• New Orleans-Metairie-Kenner, LA - 16.5%
• Birmingham-Hoover, AL - 16.6%
• Detroit-Warren-Livonia, MI - 17.2%
• Houston-Baytown-Sugar Land - 17.4%
• Toledo, OH - 19.3%

Read the full report online

Reducing Risk When Going Green in Multifamily

Heidi McCauley of USI Insurance talks with HFO Apartment Broker Greg Frick about the risks of Going Green in Apartment Investments.

GlobeSt.com Reports "Apartments Shine as Beacon of Hope"

GlobeSt.Com is calling apartments a Beacon of Hope. "The nation’s apartment market continues to beat expectations as it speeds along to a full-scale recovery. Vacancy rates peaked in early 2010 at 8 percent and have since dropped to a healthy 5.9%. Effective rental rates have been moving upward for a year-and-a-half now, by 2.5% per year on average, and picking up pace to the 4% to5% range this year. Select markets are registering high single-digit rent growth."  Read more.  

MSN Reports: "The New American Dream: Renting"

MSN asks today: "Is renting about to replace property ownership in the hearts and psyches of Americans? With the traumatic disruption in housing lately, it certainly feels as if something fundamental is changing." Some economists believe an elite class of renters may be developing.  Read the full story. 

US Multifamily Investments Enjoy Strong Second Quarter Sales

The US Multifamily Investment Market enjoyed a strong bump in second quarter sales over a year ago. $23 billion in apartment assets traded in the first half of 2011 -- a $104 million year-over-year improvement from 2010. Click here to read the full story.

National Apartment Market Revenues Soar 2.5% 2nd Quarter

The U.S. apartment sector turned in a near-record revenue growth performance in the second quarter of 2011, according to the preliminary results from MPF Research’s 2nd quarter 2011 survey of more than 6 million apartment units across the country.

Seattle One of the Nation's Hottest Multifamily Markets

Although its overall vacancy rate continues to lag behind Portland,  Seattle is experiencing exploding transaction numbers and an increase in construction.  Read more in Multifamily Executive.

MPF Research: We're Nowhere Close to Overbuilding in Multifamily

The Census Bureau released June’s building permit info earlier this week with news that permits were issued for 20,000 units in buildings with five or more units.  It was the first time the monthly number has hit that 20,000-unit mark since October 2008.  Worried we're going to overbuild? MPF research has two words for you: "Chill out." Read More . . .

America to Become "Society of Renters" - Morgan Stanley

Political deadlock mixed with terrible housing market conditions will eventually turn America into a society of renters, according to the latest Housing Market Insights report from Morgan Stanley.  Read More. . .

Freddy Lunt of Princeton Property Management Discusses Multifamily Operating Trends for Portland Metro

Freddy Lunt, owner of Princeton Property Management, discusses current income and expense trends for the Portland metro apartment market.

Apartment and Condo Construction Jump in June

The Washington Post reported today that Apartment and condo construction is the driving force in a 14.6% surge in home building in June. Read More > > >

Hot Rents: Portland Ties Austin for Nation's 5th Hottest Rent Growth Market

What a report card [Portland]! Another quarter, another round of impressive rent fundamental numbers in the apartment sector, with rent growth continuing, particularly increasing its pace in secondary markets as occupancies return to pre-recession highs. The inclusion of May and June—the beginning of peak rental season—in Q2 numbers makes mid-year data all the more significant, and reports from Carrollton, Texas-based MPF Research and Dallas-based Axiometrics show cause for optimism with continued buoyancy in effective rent growth and apartment occupancy across the country.  Read More. . .

National Trends: US Apartment Vacancies Reach 3-Year Low

Rent increases replaced landlord giveaways as U.S. apartment vacancies dropped in the second quarter to the lowest in more than three years, bolstered by rising demand on the West Coast, according to REIS Inc. Read More...

Test Your Cap Rate Knowledge!

What is a cap rate? It 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 you borrow the higher your return on investment will be.

When interest rates are greater than cap rates, we are in what we call a negative leverage market scenario; the more you borrow against a property the lower your rate of return is on the investment.

It is also important to understand that the primary advantages of real estate over other investment types are leverage and tax advantages. Most real estate investors want leverage as much as possible as most of the advantages in owning real estate come with leverage. Just like in 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 there are more options 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.
Portland/Vancouver Metro Area Median CAP Rates for Apartments 2001-2010
2001 8.21%
2002 8.30%
2003 7.60%
2004 7.20%
2005 6.60%
2006 6.30%
2007 6.10%
2008 6.10%
2009 6.80%
2010 6.80%

Tim O’Brien is a partner at HFO Investment Real Estate. He can be reached at 503-241-5541 or by e-mail at tim@hfore.com.

Axiometrics: National Apartment Market Pushes Toward 6.0% Annual Effective Rent Growth

Axiometrics Inc., a provider of data and analysis on the multi-family housing sector, announced last week that the national apartment market continued to heat up in May, with effective rents (rents net of concessions) increasing 0.70% from April levels. Based on results year-to-date, Axiometrics estimates that effective rents will rise 5.9% in 2011, which would be the largest annual increase since a rate of 5.8% in 2005.  Read More > > >

Reports: Apartments Show Strong 2nd Quarter, Positive Growth Forecasts for 2011 and 2012

Morgan Stanley is forecasting strong 4.4% and 6.8% same-store revenue growth for the apartment REITs in 2011 and 2012. Meanwhile, MPF research reports that second quarter apartment market revenues increased 2.5% nationwide. Click here to read more.

Apt Owners to See Outstanding Returns Through 2012

Dallas-based Axiometrics Inc., a provider of data and analysis on the multifamily housing sector, says strong April performance numbers will help the industry deliver “outstanding returns” for owners and operators over the next 20 months, as effective rent growth and occupancy rates remain at near-record highs. Read More > > >

Apartment Real Estate Investment Trust Ups Earnings Forecast

Avalon Bay, an apartment Real Estate Investment Trust, has increased its earnings forecast for 2011.  Read More.

Tigard Wants MAX

Tigard is moving ahead on steps toward getting its own MAX line. MAX lines often spur the development, including apartments. Read more in the Portland Tribune.

City of Beaverton Buys Property For Housing, Development

Beaverton City Council last week authorized the purchase of three parcels – to become one city block – at the southwest corner of First Street and Lombard Avenue. City officials hope the property, which is being earmarked for redevelopment into workforce housing, can help spur private development. Read More.

Expert: Real Estate Cycles Exist and Are Predictable

In the recent PSU Center for Real Estate Report, Christopher E. Lee, a nationally recognized expert in the area of real estate, authored an article arguing that real estate cycles exist … and are predictable. He poses the question: How will you take advantage of the current and next real estate cycle? Read the full article.

PSU Releases Quarterly Commercial Real Estate Report

The PSU Center for Real Estate has released its quarterly real estate report. The report contains the news that Reis, Inc. predicts apartment rents will jump 4.3 percent this year, marking the biggest annual increase in four years. MPF Research, which also monitors apartment rents, expects them to rise more than 5 percent this year.  Click here to download the PDF of the apartment market analysis. For the complete analysis on industrial, retail and office properties, read the full report.

Current Demographics a Recipe for an Apartment Development Boom

Changes in renter demographics, pent-up apartment demand and an improving economy have experts predicting and preparing for a major period of development, perhaps akin to the suburban apartment boom of 1969 to 1973, when monthly multifamily startups hit the 1 million mark. Multihousing News reports > > >

Freddie Mac Loans Are Available, But can Trip up Some Borrowers

by Joel Kaplan and Elia Popovich
Attorneys at Law - Oregon Law Group

In today's challenging financing environment, apartment owners have increasingly turned to Freddie Mac as a ready source of financing for apartment acquisitions. Freddie Mac’s new and sometimes onerous loan process may, however, present obstacles for borrowers not familiar with Freddie’s Capital Markets Execution (CME) loan product.

CME loans were developed in the summer of 2009, after the residential real estate bubble burst. These loans are pooled, tranched and sold as mortgage-backed securities. By securitizing the CME loans, Freddie is able to provide greater liquidity and stability to the residential markets. However, along with this greater liquidity comes less flexibility and more stringent legal requirements than the standard portfolio loan.

The following Freddie Mac requirements are particular to the new CME loans:

1. All borrowers must be special purpose entities (SPEs) that own only a single asset. This provides protection against the risk of borrower bankruptcy for activities unrelated to the collateral.
2. All SPEs must be formed in Delaware, and have either one springing corporate member or two springing members who are natural persons. This requirement provides Freddie with protection against the inadvertent dissolution of the borrowing entity. 
3. Opinions from the borrower's counsel about the enforceability of the loan documents will be required. This provides the lender with assurance that in the event of a default, Freddie will be able to recover the loan proceeds.
4. Borrowers have less ability to modify loan terms. CME loans demand greater document uniformity to facilitate cost-effective securitization.
5. Escrow for immediate repairs and reserves for long-term capital replacements are required, in part because the SPE limitations leave the borrower with no assets other than the mortgaged real estate.
6. CME loans may not be prepaid if the loan is securitized within a year after origination. As a consequence of securitization, they must instead be defeased, but even then only after a two-year lockout.

If you think a Freddie loan might be appropriate for an acquisition or if you have any legal questions about multifamily projects, please feel free to give Oregon Law Group a call.

Joel and Elia are partners in Oregon Law Group, a Portland-based law firm that specializes in the acquisition, development and management of multifamily projects. Joel Kaplan can be reached by phone at 971.285.4260 or email joel@oregonlawgroup.com. Elia Popovich may be reached by phone at 971-285.4261 or email elia@oregonlawgroup.com.

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