Monday, August 26, 2019

Lack of Affordable Housing Turns Dated Apartments Into Investor Darlings

Lack of US Affordable Housing Turns Dated Apartments Into Investor Darlings

Renovated Projects Increasingly Trade for Profit, Outdraw Luxury Towers

The Avant at Pembroke Pines is selling for the third time in 10 years. (CoStar)
The Avant at Pembroke Pines is selling for the third time in 10 years. (CoStar)
To a potential renter, older, nondescript apartments may be unremarkable but cost-effective places to live. To investors though, they're an increasingly popular financial strategy.
Apartment investors across the country are more and more bypassing luxury towers to unlock the potential of these more humble buildings amid a nationwide shortage of affordable housing.
In one of the latest examples, a 1980s-era apartment complex northwest of Miami is poised to sell for the third time in 10 years, setting a South Florida sales record each time. NexPoint Residential Trust, a Dallas-based real estate investment trust, announced it has a contract to buy The Avant at Pembroke Pines for $322 million, or more than $211,000 per door.
Investors in Boston, Phoenix and Atlanta have focused on suburban propertieswhere rents are lower, and have more room to increase.
Even so, South Florida has particularly strong demand because it is a land-constrained market and wedged between the Atlantic Ocean and the Everglades, a unique geography that creates a land shortage across the region. And when it comes to commercial real estate, South Florida sometimes can provide a glimpse of where the national multifamily market is headed, as was the case when it was the first region to signal the Great Recession was coming.
With value-add plays, owners make changes, such as improving the landscaping, refurbishing the pool and clubhouse and adding granite countertops in the units, all to raise rents and boost returns at the property. Nationwide, these second-tier apartments have outperformed luxury projects in rent growth and occupancy in recent years, according to David Kahn, CoStar's managing analyst for the South.
Across the Southeast, value-add rentals are trading hands every few years, some with huge price increases. The 936-unit Gulfstream Isles in Fort Myers, Florida, sold this month for $109 million, three years after fetching $95.25 million. In Norcross, Georgia, the 684-unit Canopy Glen sold for $90 million in May after fetching $49.25 million in 2016.
Rising costs of land, labor and materials have made it more profitable for developers to build luxury projects, leading to a shortage of units for middle-class residents, brokers and analysts say. In fact, government assistance is needed to close income gaps so more people can reduce exorbitant housing costs, according to a report released this summer by the Joint Center for Housing Studies at Harvard University.
"It's very difficult, almost impossible, to develop the kind of apartments that the working class can afford," Zach Ames, senior director for the Franklin Street brokerage in Tampa, Florida, said in an interview. "I don't know that that's going to change. It will continue to make value-add a hot subsection of multifamily."
Canopy Glen in Norcross, Georgia, sold twice in three years. (CoStar)
Some investors worry that the value-add market has peaked, but the lack of affordable construction and large number of low-wage jobs being created have kept the workforce housing renter pool strong in recent years, "allowing for landlords to continue to hike rents at an accelerated pace," Kahn said.
The sale of The Avant at Pembroke Pines is due to close by Aug. 30. The 1,520-unit property at 11801 Pembroke Road in Pembroke Pines, Florida, broke apartment sales records across metropolitan Miami in 2010 at $193.5 million and 2013 at $225 million, according to CoStar records. The seller is an entity tied to GoldOller Real Estate Investments of Philadelphia and the Carroll Organization of Atlanta.
The complex, built in phases from 1986 to 1990, was more than 96% leased with an average monthly rent of $1,487 at the end of July, according to NexPoint.
The REIT wrote in a summary of the planned acquisition that it has “identified value-add opportunities that will enhance the interiors and common areas of the property, providing our tenants with higher-quality living spaces and attractive returns for our investors.”
The Pembroke Pines-West Miramar apartment market in western Broward County is an affluent area known for its premium properties and rents, according to CoStar Market Analytics. The area, popular among millennials, has seen its population grow by more than 10% over the past five years, making it one of the fastest-growing areas in Broward, based on CoStar data.
Western Broward is home to the major mixed-use project Metropica, which is under construction near Sawgrass Mills, the largest outlet mall in the country. Christos Costandinides, a CoStar economist in Miami, said these developments have led to a "suburban renaissance" in South Florida.
"That's the place most people want to be in Broward right now," he said. 

Tuesday, July 16, 2019

Cap Rates on Apartment Acquisitions Take a Slight Dip in the First Half of 2019

Multifamily investors are still eager to buy apartment properties, pushing cap rates even lower.
Cap Rates on Apartment Acquisitions Take a Slight Dip in the First Half of 2019. For years, apartment experts predicted that yields on investments in apartment rental properties would rise. Years passed, but cap rates in the sector remain historically low, and are getting lower.
“Cap rates have not risen in the last five years,” says Chris Espenshade, managing director with real estate services firm JLL. “Why should we expect they would rise in the next five?”
New investors keep finding reasons to buy apartment properties, and prices for these assets keep rising. That strong demand from buyers seems likely to keep cap rates low.
“New investors are coming in at a rate that I have never seen before,” says Brian McAuliffe, president of CBRE Capital Markets. “The multifamily investment market continues to be very active.”

Favorable rates

Investors continue to pay higher and higher prices for apartment properties, though prices are not growing as quickly as they once did.
“Prices are still increasing… just at a slower pace,” says Will Mathews, managing director and platform leader of the east region multifamily advisory group with real estate services firm Colliers International.
Prices for apartment properties grew by 8.8 percent over the 12 months that ended in May 2019, according the Commercial Property Price Index (CPPI) tracked by real estate research firm Real Capital Analytics (RCA). That’s a lot faster than inflation. It’s also faster than the 7.2 percent rate of growth for commercial properties overall over the same period. But it’s below the 12.8 percent rate of growth recorded for apartment properties over the same period the year before.
On average, prices are rising relative to the income from apartments properties, pushing low investment yields even lower. Cap rates are dropping again, according to experts interviewed for this story.
Cap rates on infill apartment properties averaged 5.20 percent in the first half of 2019, according to CBRE. That’s down five basis points from the second half of 2018. Cap rates for suburban properties averaged 5.49 percent, down six basis points compared to the same period a year ago.
“Cap rates, as compared to last year, have compressed moderately,” notes Matthews.
Low interest rates have helped push prices higher, and cap rates lower. The yield on 10-year Treasury bonds has dropped by more than 100 basis points since the fourth quarter of 2018. “The decline in interest rates, that has been a real accelerant for property sales,” says McAuliffe.

Investors make fewer deals

Even though prices are rising, so far this year, the volume of investment sales of apartment rental properties is about 5.0 percent below the same period in 2018, according to market-watchers like JLL.
“We are seeing a little bit of a slowdown,” says Espenshade. “There are plenty of deals to go around, though not as many deals as this time last year.”
That’s partly because sellers have not offered as many large portfolios for sale so far in 2019. Those who put up apartment portfolios for sale in 2018 did not earn much higher prices than sellers that sold properties one at a time.
“They put portfolios on the market looking for a portfolio premium—and they did not get it,” says Espenshade.
Also, many investors, including private equity funds, are now in the part of their usual five-year cycle in which they buy and hold properties, rather than sell. “We don’t have as many of those funds that are maturing,” notes McAuliffe.

Investors look to secondary markets and suburban submarkets

Investors are also looking at new markets to buy apartment properties. “We are seeing more volume in the Sunbelt,” says Espenshade. “There are more jobs there and properties are less expensive.”
“We have seen the growth of secondary and tertiary markets and declining cap rates,” says McAuliffe.
At the same time, investors are buying fewer properties in core markets like New York City, where the competition between newly completed projects has forced many landlords to offer deep concessions to attract renters. “The hardest place to buy and sell is in core real estate markets [like New York],” says Espenshade. “If you buy a new, beautiful building, someone is going to build right next door.”
Instead, a growing number of investors is drawn to suburban areas, where the barriers to new development are higher, according to Espenshade. The yields that investors can earn by buying stabilized apartment properties also tend to be higher, with cap rates often averaging in the 5.0 percent range.
As investors become more comfortable with shopping for suburban apartment assets, they are looking at a different set of metrics to identify the best geographic locations. The quality of the local school district now matters more than how many shops and services are within walking distance of the property, Espenshade says.
“Investors are looking at greatschools.org,” he notes. “Now we put the schools and their rating on page one of our marketing materials. A property’s WalkScore still matters, but we put it in the back of our marketing materials for suburban properties.”

Thursday, February 14, 2019

Amazon Scraps Plans for New York City

Amazon Scraps Plans for New York City Headquarters Hub, Citing Political Opposition

Online Giant Says It Will Stick With Developments in Arlington, Virginia, and Nashville, Tennessee

New York City's Long Island City neighborhood, above, where Amazon plans a major staffing hub. Photo: Jayson Photography
New York City's Long Island City neighborhood, above, where Amazon plans a major staffing hub. Photo: Jayson Photography



Amazon said it is scrapping its plans to add a headquarters hub in New York City's Long Island City neighborhood after local politicians criticized tax incentives and other parts of the deal that led the online retailer to choose the location over more than 230 other cities last year in a highly publicized search process.
The Seattle-based company said in a statement it will not seek another location for the operations it had planned to build in New York, instead spreading the expansion over its existing offices across the United States. CoStar News reported early Friday that New York City real estate professionals were concerned that the political squabbling over the deal could prompt Amazon to abandon the project.
"The commitment to build a new headquarters requires positive, collaborative relationships with state and local elected officials who will be supportive over the long-term," the company wrote in a statement on its website. "A number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward with the project."
The company said it will proceed as planned in Northern Virginia and Nashville, and "we will continue to hire and grow across our 17 corporate offices and tech hubs in the U.S. and Canada."
Source CoStar

Saturday, February 9, 2019

Miami's Industrial Leasing Surges on Record Demand, Boosted by Shipping

Miami's Industrial Leasing Surges on Record Demand, Boosted by Shipping

Investors Eager to Put Their Money in a Top US Port Market

Metropolitan Miami’s industrial market is surging with unprecedented demand for rents, vacancies and leasing, fueled by e-commerce, port upgrades and the region’s status as one of the most coveted ocean shipping centers across the United States.
The average industrial asking rental rate for Miami-Dade, Broward and Palm Beach counties in the fourth quarter of 2018 hit $8.75 per square foot, eclipsing the previous mark of $8.54 set in 2007, the Newmark Knight Frank brokerage said in a new report.
In Miami-Dade , the average industrial asking rate climbed above $8 a square foot for the first time, the report shows. Palm Beach County’s average rate reached $10 a square foot, the highest ever in Florida.
Meanwhile, the tri-county area's leasing activity remains robust, with tenants taking 17.2 million square feet for the full year, breaking the 2017 record total of 10.6 million square feet.
South Florida’s industrial market is one of the hottest in the nation as companies seek more distribution space to fulfill next-day and same-day delivery service for online shoppers. In addition, the expansion of the Panama Canal in 2016 has brought more large ships to Florida ports, sparking improvement projects and boosting the value of nearby industrial developments, brokers say.
What’s more, institutional investors are pouring money into industrial real estate in Miami because it’s considered a gateway region to other countries, explained Steve Medwin, executive managing director for Newmark Knight Frank.
South Florida also is desirable because of a severe land shortage that makes it difficult for competitors to enter the market. The region is wedged between the Atlantic Ocean and the Everglades, limiting expansion and driving up costs for investors seeking to buy into the area.
New York-New Jersey, Seattle and Los Angeles-Long Beach also are enjoying industrial booms for similar reasons, Medwin added.
“REITs, pension funds are all looking to have a position in industrial properties in these markets because the fundamentals are so strong,” Medwin said. “There are no headwinds that we see on the horizon to slow it down.”
Single-digit vacancies are frustrating brokers and tenants across South Florida. Palm Beach County’s 3.4 percent vacancy is the lowest in the state, according to Newmark Knight Frank.
Kerry Jackson of Reichel Realty & Investments in Palm Beach Gardens, Florida, said he hasn’t seen the market this tight in his almost 30-year career. He's looking for 25,000- and 10,000-square-foot spaces for clients, with no luck so far.
“There are just a handful of options,” he said. “And if you throw in an extra requirement – like extra yard space or parking – it’s impossible to find. Everything is extremely compressed, which drives values up.”
Even with 4.7 million square feet of industrial space being completed across the tri-county region last year, demand still outpaces supply, though all the new space probably will lead to higher vacancies in 2019, according to the Newmark Knight Frank report.
Landlords probably will have the leverage to keep pushing rents, which already have grown by more than 5 percent over the past year, according to CoStar Market Analytics.
That should be a call to action for tenants, who may want to lock in longer lease terms to deal with the higher costs, according to Christos Costandinides, a market economist with CoStar Group in South Florida.
"You definitely want to use your negotiating power to account for what's happening in the market," he said.
Source: CoStar  FEBRUARY 06, 2019|PAUL OWERS

Friday, July 27, 2018

The U.S. housing market is weakening. Here's why

The U.S. housing market is weakening…
That’s the story of today’s chart, which maps the iShares US Home Construction ETF (ITB) – which tracks a basket of 47 U.S. homebuilders and construction-related companies – over the past 12 months.
Chart
As you can see, ITB has plunged 19% from its January peak of $46. Notice also how ITB sold off hard after the Federal Reserve announced rate hikes in both March and June of this year.
Rising interest rates appear to be having a material impact on demand in the U.S. housing sector.
U.S. home sales fell to an eight-month low in June, and sales forecasts were revised sharply lower. This indicates that the housing market is slowing down, as is demand for new homes… resulting in the sell-off in ITB.
And with the Fed expecting to raise the federal funds rate twice more before 2018 is out, there’s a good chance this trend in housing will continue.
– Joe Withrow

Friday, June 1, 2018

U.S. dollar & South Florida real-estate

The value of the U.S. dollar is the most important number in finance. It's currently rallying for the first time in months. And history says that should continue.
South Florida real-estate is extremely price sensitive to dollar swings as a strong dollar hurts our foreign purchasers buying power. Couple that with higher interest rates and you will have downward pressure on prices. Please subscribe to follow our coming updates.