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Your Coastal Housing Dollars Are Welcome In Flyover Country — But Fly-By-Night Investors, Not So Much

A weekend topic starting with National Real Estate Inventor. “The average cap rate in the multifamily sector remained flat at 5.4 percent in the fourth quarter, after falling in previous quarters, according to Barbara Byrne Denham, a senior economist at research firm Reis Inc. When looking at the top 50 metros overall, the mean price per unit leveled off in the fourth quarter. New York City and Los Angeles saw their average price per unit decline in the fourth quarter as cap rates rose.”

“The luxury side of the market is a concern, according to Manus Clancy, senior managing director of applied data, research and pricing with Trepp. ‘At the high end, people are concerned about oversupply and lack of demand. Wherever you see overbuilding in 24-hour cities, it wouldn’t be that big of a surprise if cap rates went up as demand tapered off,’ he said.”

“Student housing could experience a similar trend, Clancy notes. ‘Cap rates have room to move up in student housing, especially in college towns that have added a lot of inventory. An increase of 50 to 100 basis points wouldn’t be out of the question as people start to realize how many new beds have been added.'”

From Bisnow on Texas. “The Dallas-Fort Worth market continues to absorb luxury apartments with rents above the $1K/month price point, but the capital side of the industry is beginning to sound the alarm on the prospect of oversaturation. The multifamily market remains solid and in demand, but Wall Street is definitely watching closely for signs of too much supply, Mag Mile Capital CEO Rushi Shah said.”

“‘Wall Street and the lending community are going to regulate the market,’ said. ‘They are starting to ask questions. Everybody wants to know the [multifamily] supply situation.'”

“He envisions a not-so-distant future when financiers question developers who project higher rental returns on developments out of the gate. An example of such a scenario would be an apartment development where the developer estimates rent rates of $1,500/month during underwriting when nearby apartments are leasing for $1,250.’That’s where the lenders are going to push back and say, ‘We don’t agree with those numbers,’ Shah said.”

From The Oklahoman. “Out-of-state housing dollars cut both ways in Oklahoma. David Dirkschneider and Micheal Massad, multifamily brokers with Price Edwards & Co., point out the disconnect in the firm’s 2018 year-end multifamily market summary. They’re writing about capital invested in apartments, but single-family home investors sometimes discover the same unexpected challenge.”

“Out-of-state dollars buy a lot of house here, or apartment house, but the generous market that let them buy-in relatively low is stingy when it comes to returns. ‘One of the main complaints echoed by many investors new to Oklahoma is the inability to increase rents on a pound per pound basis compared to other markets. Whereas in markets similar to Dallas/Fort Worth, a standard $5,000 interior upgrade can often yield an instant $200 or more per month rental premium, the Oklahoma City market will not support this level of rental increase.'”

“Something about this makes me feel good about the market. Your coastal housing dollars are welcome here in flyover country — but fly-by-night investors, not so much.”

The Union News Daily in New Jersey. “State Assemblywoman Holly Schepisi, a Republican who represents the 39th Legislative District, including parts of Bergen and Passaic counties, poke at a town hall meeting about the need to halt any further affordable housing development before a statewide inventory of projects could be studied.”

“‘Because it is going through the courts, there is absolutely no statewide record as to what’s taking place. Nobody, including DCA, HMFA or any other government agency in the state of New Jersey right now knows how many projects in total have been approved simultaneously’ Schepisi said, referencing the Department of Community Affairs and the Housing Mortgage Finance Agency. ‘Nobody knows exactly how many units, what type of units, whether or not we’re going to crash the entire real estate market of the state of New Jersey. We need to stop this.'”

“Hartz Mountain Industries has made an application seeking to have a 30.5-acre triangular parcel of land at 750 Walnut Ave. rezoned from office and warehouse to residential usage. The developer is seeking to build a 905-unit apartment complex on the land.”

The Wall Street Journal on New York. “The New York real-estate industry is launching a frontal assault against a plan in Albany to impose a stiff annual tax on wealthy owners of part-time homes in New York City, warning it could topple an already weak housing market.”

“‘If they have the money to buy a $5 million apartment, which is not their prime residence, and it’s their little Manhattan getaway, they can afford the tax,’ Gov. Andrew Cuomo said in recent radio interview.”

“Manhattan real-estate sales fell 12% last year compared with 2017 levels, the worst sales pace since 2009. Developers and brokers warn that the new tax could drive down sales and prices further and halt construction projects.”

“Vancouver and Paris have imposed extra taxes on apartments deemed to be vacant in an effort to free up apartments in a housing shortage. But New York’s effort is focused solely on the wealthy and imposes a vast new tax burden that in many cases will be five times to 10 times higher than property taxes paid by New Yorkers.”

“Pam Liebman, the president of the Corcoran Group, said that if the tax goes through, it could cut property-tax revenues. She said one buyer looking at a $30 million condo decided to hold off after learning of the legislation. ‘If the real-estate market suffers, everybody will suffer,’ she said. ‘The condos will become rentals, the construction trades will lose out. Nobody will build another building.'”

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This Post Has 30 Comments

  1. ‘He envisions a not-so-distant future when financiers question developers who project higher rental returns on developments out of the gate. An example of such a scenario would be an apartment development where the developer estimates rent rates of $1,500/month during underwriting when nearby apartments are leasing for $1,250.’That’s where the lenders are going to push back and say, ‘We don’t agree with those numbers’

    This has only been going on for what, 5 years?

  2. ‘If the real-estate market suffers, everybody will suffer,’ she said. ‘The condos will become rentals, the construction trades will lose out. Nobody will build another building’

    I wonder if Pam was stamping her little feet? NYC doesn’t need anymore buildings.

    1. If the real-estate market suffers, everybody will suffer,’ she said.

      I won’t suffer. Falling prices don’t bother me one bit. In fact, the more, the merrier.

      1. ‘If the real-estate market suffers, everybody will suffer,’

        Me thinks that Pam is projecting a little bit. A lot of people will absolutely not suffer as their rents become more affordable!

  3. ‘a stiff annual tax on wealthy owners of part-time homes in New York City, warning it could topple an already weak housing market’

    ‘If they have the money to buy a $5 million apartment, which is not their prime residence, and it’s their little Manhattan getaway, they can afford the tax’

    I guess they are finding out that safe deposit box in the sky wasn’t so safe in a city full of commies. Every time one of these markets relies on outsiders it crashes.

    1. ‘If they have the money to buy a $5 million apartment, which is not their prime residence, and it’s their little Manhattan getaway, they can afford the tax’

      Might cut into their ability to compensate their mistresses.

  4. “The New York real-estate industry is launching a frontal assault against a plan in Albany to impose a stiff annual tax on wealthy owners of part-time homes in New York City, warning it could topple an already weak housing market.”

    I’m sure all the proles who are working three jobs to put a roof over their heads are deeply sympathetic to the plight of the wealthy grifters who used their free Yellen Bux to buy up part-time skyboxes.

  5. Every few years or so the lies(or helplessness) get so deep we have to conduct a little re-education to re-center and get back into the truth on construction. So who better than a guy like me that manages construction resources in the range of 0.5 million to 6 million/month.

    -Site package- $15k (mass excavation, backfill, trenching/pipe/corp stop, asphalt, misc concrete)
    Concrete-formed surfaces $100/cy +crete, flat work $2/sqft+crete.
    -Framing package(deck, sheat and install winders)- $6/sqft of floor plan +materials
    -plumbing package-$2500/bathroom or kitchen
    -E package $6000, $1k for fixtures, fix trimout $120/
    -HV package, $8k
    -EFS, $200/sq
    -Shingles $50/sq +materials
    – -kitchen- $4500 +1000 install.
    -Door &trim, $5k
    -Gypboard, $35/4×12 sheet
    -insulation, $2/sqft or $4/sqft for foam
    -Paint, $4000/2000sq ft structure
    -floor, $2/sqft +materials
    -tile, $3/sqft+ materials

    Anyone declaring “a house can’t be built for less than _______!!!!” in reality has no idea. They’re just guessing based on the massively inflated price they paid. They don’t know because they’re not in the business, therefore….

    Let the foot stamping, howling, braying and gnashing of teeth begin. (Yep…. you paid too much for a run down old house but every other DegenerateGambler and DebtDonkey did too)

    I’ll lean on Jonesy filter out the “my husband is kinda in the construction biz” and “but I saw it on the internet” whining.

    1. Thanks for this info MB. Cool to know your in the industry! Looks like I’ll have to dig deeper into this idea of building. labor could likely be the majority of the cost I have been given and Mabye I should source out other contractors that are not family. I don’t need a golden tower 100’ in the sky or a giant Superman statue over my pool. A decent lot would be $300k-$500k at least where I would want to build on the coastal area of Santa Cruz county (Aptos would be nice). I am guessing the permits would cost me another small fortune. I definitely have no data to backup my said cost per sqft to build other than what I have heard verbally. This topic has me kinda optimistic about this option 🙂

    2. Those may be realistic for some projects but not for others. How much for tile roof on complex roof line? Travertine or porcelain large profile floor tile? Where elevation requires, stemwall with infill. Wind code or flood zone adjustments etc. 4k for complete inter and exterior painting? Trim finish included? Carpet for $2.00 per SF? What grade. Union or non labor force?

      Although not structural per se, water and sewer impact fees? Site prep and areas with high rock content or full where needed or rectify soil engineering issues? Tract housing or 1 off? Kitchen 5k? Not like any quotes I have heard. Possible for high density, low quality high unit count development, depending on governmental regulations. CDD and bond debt sometimes paid by buyer as part of property taxes. Makes holding costs higher. Very location and jurisdiction dependent. Low cost frequently not possible.

      1. Over the years we’ve had a few charlatans pretend that a SFR is something so overly complex to rationalize the fraud and brown envelopes. It didn’t work then and it doesn’t work right now.

      2. My interpretation of the industry expert’s shorthand: the $/sqft figures are labor costs; cost of materials are contemplated in “+ materials.”

        1. Depends in you are referring to sales price per sf or construction cost. Sales price per sf is broadbrush since it allocates the value of land over the living area of the structure. By this logic, the value of land that a 4000sf sits on would be twice that of a 2000sf house even if the lots are identical. Obviously not accurate.

          To be accurate, the site values are determined by vacant site sales then construction, site prep, and governmental regulation costs figured separately. Unfortunately, in new developments, sites are not typically sold separately.

  7. Mar 16, 2019, 3:45 pm
    ICEE Is The Latest Business To Flee California, Joining Thousands Of People Pointing Wagons East
    Patrick Gleason, Contributor
    Policy
    I cover the intersection of state & federal policy and politics.

    A customer fills a cup with an Icee slushie drink. Photographer: Gabby Jones/Bloomberg© 2018 Bloomberg Finance LP

    NASHVILLE, Tenn. — ICEE, the more than half century old frozen beverage maker known for its cherry and coca-cola flavored slushies, announced at the end of February that the company will move its corporate headquarters from from Ontario, Calif., located 37 miles west of Los Angeles, to La Vergne, Tenn., a town situated 20 miles southeast of Nashville.
    …

    1. TN might get unpleasant soon with all these Californians moving in 😉 I was thinking TN seemed nice, but it’s getting crazy now with coastals. I hope it retains its charms–it could stand to lose some of its parochialness but the problem with getting lots of coastals can sometimes be that the locals get more suspicious of outsiders and lose their friendliness which sucks. I see it here in MI too…the Calis get ‘frustrated’ with the weather or the lack of something or other, aren’t friendly or pleasant or are so stuck up they make themselves unbearable, and then the otherwise friendly locals get unpleasant back and it cycles. Plus, the locals end up getting frustrated by the fact their kids can no longer afford to live in town, at the very least.

  8. Skiing at Monarch today, because I-70 Front Range traffic sucks.

    At the party in Salida last night, the Denver and Colorado Springs housing bubble were discussed, and not denied (sorry, REALTOR). A Houston native who has lived in Denver and now lives in Gunnison commented about how sh*tty the quality of life in Denver is.

    Escaping the Front Range is a goal shared by many. Think about that before you consider relocating there…

    2. “Escaping the Front Range is a goal shared by many”

      Give me a break man with the drama and words like escaping. I hear this nonsense from people in CA hoping to maybe one day leave CA. As if they’re trapped behind some kind of Berlin Wall and it’s a dream to one day figure out a way to escape.

      If you hate where you live, move. It’s as simple as that.

      Oh oh oh, but I can’t move because my job or my kids love their school or the other 1000 reasons people give. That’s BS. There are jobs everywhere and your kids will be fine at a new school.

      1. There are jobs everywhere

        There may be “jobs” everywhere but I think for a lot of us in specialized fields there are only a few places where we can get paid for what we’re best at. In any other field I’m just some generic dude with “computer skills”. It is not easy to find a decent job as that guy at 50+ years old in a generic location. So people hang on until retirement and then become despised equity locusts wherever.

  11. Given the equal rights and gender freedom we enjoy in our present age, is it time to get rid of gender distinct sports and give all athletes the right to compete on an equal, non-discriminatory basis?

    1. Martina Navratilova apologizes for transgender ‘cheating’ comments
      Updated at 1240 GMT (2040 HKT) March 4, 2019
      Navratilova is one of the most successful tennis players of all time

      (CNN) — Martina Navratilova may have apologized for using the term “cheating” when describing transgender athletes but the issue received further attention over the weekend with former UK Olympic swimmer Sharron Davies saying trans women had unfair physical advantages.

      In a lengthy blog post Sunday, former tennis star Navratilova said she had “stumbled into a hornets nest” and been labeled as transphobic after speaking about the subject in recent months.

      While she said she was sorry for “suggesting that transgender athletes in general are cheats” she also added that there was no “perfect solution” to this issue and that if “everyone were included, women’s sports as we know them would cease to exist.”
      …

      1. “…been labeled as transphobic…”

        Name calling is a convenient tactic when you realize that you can’t win based on rational debate.

    2. Does the existence of distinctive women’s sports programs even make sense anymore when biologically-male athletes can compete as women if they identify as such?

      Connecticut runners part of debate over transgender athletes
      By PAT EATON-ROBB, AP Sports Writer
      Sunday, February 24th 2019
      In this Thursday, Feb. 7, 2019 photo, Cromwell High School track coach Brian Calhoun, left, speaks to transgender athlete Andraya Yearwood during a break at a meet at Hillhouse High School in New Haven, Conn. Yearwood, a 17-year-old junior at Cromwell High School, is one of two transgender high school sprinters in Connecticut, transitioning to female. (AP Photo/Pat Eaton-Robb)

      NEW HAVEN, Conn. (AP) — Andraya Yearwood hears the comments, usually from adults and usually not to her face.

      She shouldn’t be running, they say, not against girls.

      Yearwood, a 17-year-old junior at Cromwell High School, is one of two transgender high school sprinters in Connecticut, transitioning to female.

      She recently finished second in the 55-meter dash at the state open indoor track championships. The winner, Terry Miller of Bloomfield High, is also transgender and set a girls state indoor record of 6.95 seconds. Yearwood finished in 7.01 seconds and the third-place competitor, who is not transgender, finished in 7.23 seconds.

      Miller and Yearwood also topped the 100-meter state outdoor championships last year, and Miller won the 300 indoors this season.

      Critics say their gender identity amounts to an unfair advantage, expressing a familiar argument in a complex debate for transgender athletes as they break barriers across sports around the world from high school to the pros.
      …

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