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There Are Now Thousands And Thousands Of Units That Have To Be Filled

A report from Commercial Property Executive. “An inverted yield curve and forecasts of a dropoff in job growth are among the signals that the industry’s long, great ride may soon be ending, says economist Hugh Kelly. Lenders have generally been disciplined, but those financing projects at the riskier end of the spectrum may face trouble as the cycle turns. These include regional banks financing construction projects and mezzanine lenders who have not delved deeply enough into property inspections.”

“Perhaps, though, the most significant item I’d like to underscore is that the very allusion to the late-cycle syndrome suggests that, following a recession, we will inevitably ‘get back to normal.’ Normal, in this view, is the growth pattern of the economy in the most recent upcycle.”

“But the odds are that the 2020s will see growth at a mere fraction―around one-half―of the expansion following the Global Financial Crisis. Are the real estate markets prepared for that kind of lengthy slowdown in demand? I suspect not.”

From Realtor.com. “These are discount days for renters, as landlords roll out an onslaught of concessions: promos, discounts, and deals to help lure prospective tenants. A building boom in high-end rental developments over the past few years has yielded an oversupply of new luxury rental units in the nation’s biggest cities.”

“Construction pretty much ground to a halt during the housing bust and recession of 2008–09, but it ramped up with a vengeance as the economy has improved. The past three years have been the strongest growth period for new apartment construction nationally since the 1980s, according to Yardi Matrix.”

“‘We still have thousands of units coming in that are skewed to the higher end of the market,’ says national real estate appraiser Jonathan Miller. ‘The concessions on these new buildings are usually double that of existing buildings.'”

“‘In Los Angeles, for example, ‘you’ll see things like $500 AmEx gift cards, free Wi-Fi, buildings with elaborate Starbucks machines in the foyer where you can get free coffee,’ says local real estate agent Kerry Marsico of The Agency. ‘They’re throwing in things like free parking as well.'”

“That’s because by 2018, there were more than 7,100 apartments under construction in Los Angeles’s downtown area alone, according to the city’s Downtown Center Business Improvement District. The estimated downtown population is also projected to grow from the current 74,558 to 87,655, according to the group.”

“‘There are now thousands and thousands of units that have to be filled, and buildings have to compete to get people in the door,’ Marsico says.”

The Times Herald in California. “Vallejo’s rents fell harder and further in January, than nearly anywhere else in the Bay Area, which could be some welcome news for renters and would-be renters, according to the Zumper SF Bay Area Metro Report.”

“Already the most affordable Bay Area city for rents, Vallejo’s median one-bedroom unit rent — $1,320 – fell more than 4 percent compared to December. Napa saw the median one-bedroom price fall slightly more than 5 percent to $1,660 month-over-month, and 3.5 percent compared to a year ago. A two-bedroom place in Napa fell nearly 5 percent to $2,180 compared to December.”

“‘The most notable changes in Vallejo are that one bed rent is down 4.3 percent month to month, which is the third largest monthly dip for one bedrooms of 30 cities, and along with this, one bedroom rent is down 12 percent year over year as well,’ Zumper spokeswoman Crystal Chen said. ‘It seems after a hot summer/fall with large and constant rent increases, this is the first time Vallejo is seeing a big, double digit decrease.'”

From WICZ on New York. “Binghamton Mayor Rich David delivering his sixth State of the City address Wednesday night. When addressing the city’s housing, David went over new housing projects across the city, which is currently oversaturated with student housing.”

From CNBC Make It. “The stars of ABC’s ‘Shark Tank’ are self-made moguls, and after getting their first taste of wealth, they were not shy to about splashing out. Shark Daymond John’s first splurge was no exception, and it was jaw-dropping, even by the Sharks’ standards.”

“After he had his first financial success, John recalls he went house-hunting in Miami and may have gotten a little carried away. ‘I bought a couple of houses at the same time,’ John tells Make It. ‘I went to Miami to go shopping, and I bought two houses. They were like, 10 blocks away from each other.'”

“‘One on was a condo, and then I realized I wanted a boat, and with the condo, I didn’t have a marina,’ John reasons. ‘So, then I needed to buy a house on the water, so I could buy the boat.'”

“John recalls the extravagant financial mistake with a laugh. ‘Oh did I learn from that experience,’ John says. ‘I got my a– handed back to me, yes I did.'”

“He learned an important lesson from that frivolous first splurge: ‘You can’t sleep in two beds in one night, and you just don’t need it,’ John says. ‘My friends and everybody else enjoyed the houses more than I did.'”

This Post Has 26 Comments
  1. ‘I’d like to underscore is that the very allusion to the late-cycle syndrome suggests that, following a recession, we will inevitably ‘get back to normal.’ Normal, in this view, is the growth pattern of the economy in the most recent upcycle’

    ‘But the odds are that the 2020s will see growth at a mere fraction―around one-half―of the expansion following the Global Financial Crisis. Are the real estate markets prepared for that kind of lengthy slowdown in demand? I suspect not’

    In RE, there is no plan B.

    April 19, 2018

    From Bisnow on Florida. “‘Palm Beach is completely on fire,’ said Todd Michael Glaser, a high-end homebuilder who made his name in Miami but has lately been concentrating on Palm Beach County. ‘I’ve never seen the amount of $8M to $70M homes as in the last three and a half, four months. It’s staggering.’ It’s not just single-family homes that are hot, but a new wave of high-end condos and mutifamily apartments, especially in downtown West Palm Beach.”

    “Kolter Urban President Bob Vail, who is developing the Alexander, said that there is something of an arms race for amenities in the new supply of high-end homes. ‘You see that across the U.S. There are [apartment] buildings in Atlanta, Denver and Dallas that are nicer and more fully amenitized than condominium units, because that’s what it’s going to take to get people to choose that building,’ Vail said. ‘It’s just sort of a differential advantage. It’s really become a race in those more in-demand markets.’”

    “Though the market is healthy now, the developers agreed a slowdown is possible as new supply takes time to be absorbed, construction costs rise and actionable sites get harder to find. Low salaries in Palm Beach County mean that not many workers can afford high rents. When an audience member asked whether they were concerned with an economic downturn, Vail responded half-jokingly, ‘Condo developers, we don’t forecast those kind of things, you know what I mean? We’re just go, go go,’ he said. ‘And the faster we go, the faster we get to the closing, and then, I’m not going to say we don’t care, but … ‘ The audience chuckled as he trailed off.”

    http://thehousingbubbleblog.com/?p=10407

  2. ‘That’s because by 2018, there were more than 7,100 apartments under construction in Los Angeles’s downtown area alone, according to the city’s Downtown Center Business Improvement District. The estimated downtown population is also projected to grow from the current 74,558 to 87,655, according to the group’

    ‘There are now thousands and thousands of units that have to be filled, and buildings have to compete to get people in the door’

    Wa happened to my shortage?

    ‘It seems after a hot summer/fall with large and constant rent increases, this is the first time Vallejo is seeing a big, double digit decrease’

    What’s crazy about this Dec to Jan crash is January is the best month to fill vacancies cuz of tax refunds.

    1. Same basic problem here in Irvine.

      Irvine Company is on a construction binge.

      Lots of units under construction near Spectrum. (Alton and Irvine Center drive are coordinates to the epicenter).

      Great area to live in if you like grid lock traffic, and $20 plates of spaghetti at the Spectrum.

      I have no idea how folks actually afford these rents.

      Have met a few such renters via social circles and none have jobs that would [in my mind] enable such a lifestyle.

      My best guess is that Irvine Renters get seduced by the cool hipster “luxury” lifestyle. (Gotta also throw in the BMW or Telsa, BTW)

      A year or so goes by and suddenly they wake up one morning and discover that they are going broke.

      They then disappear and move to Santa Ana.

    2. At $1500 a month, people would be lining up to fill those units.

      At $3000 a month – not so much.

      Those $3000 a month 1bd/1ba units BTW are not even that big (550-650 sq ft), the amenities don’t work half the time and the residents in the affordable units eventually trash the building. Plus after the building reaches an occupancy level it’s flipped to a new management company and things really start to deteriorate.

    1. Here’s a chart that shows the growth of house prices compared to the growth in wages. It ends at 2016 and I don’t know if it is for California, the US, the planet, or what but it appears to me to be just a wee bit unsustainable …

      https://goo.gl/images/1GA4U5

  3. Here’s a chart that shows “The Real State of Orange County Real Estate” that ends in 2013. But not to worry because this “Real State” contains a price projection that extends into the future for several years.

    What could be more fun than plunking down some very big bucks (that you probably don’t have) based on a projection that extends forward for several years?

    https://goo.gl/images/8vfJxQ

    1. That blog was pretty good until it went away. I appreciated the comparison between prices and rental parity.

  4. “‘In Los Angeles, for example, ‘you’ll see things like $500 AmEx gift cards, free Wi-Fi, buildings with elaborate Starbucks machines in the foyer where you can get free coffee,’ says local real estate agent Kerry Marsico of The Agency. ‘They’re throwing in things like free parking as well.’”

    Just lower the price already.

  5. https://www.cnbc.com/2019/02/28/most-millennial-homeowners-have-buyers-remorse-a-new-survey-shows.html

    “Today’s buyers have the benefit of low mortgage rates but the strong headwinds of high home prices. That may be why other common regrets were that the purchase was a “poor investment” and that the mortgage payments were too high. Some said they did not get the best rate available.”

    Wait until they found out what’s coming when “You’ve got to roll with it”

  6. ‘You can’t sleep in two beds in one night, and you just don’t need it,’

    But if real estate is going up at double-digit rates, owning two places doubles your appreciation.

    Where’s the downside?

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