Wait, I Can’t Just Bring On More Luxury Studios And Apartments?

A report from the Watertown Daily Times in New York. “With a second defendant recently pleading guilty to conspiracy, it was learned that the Autumn Ridge apartment complex on Route 202 is among dozens of rental properties in New York and several other states that allegedly received $500 million in fraudulent bank loans.”

“On March 15, mortgage broker Patrick Ogiony, 35, of Buffalo, became the second defendant to plead guilty in federal court in Buffalo to conspiracy to commit bank fraud. Mr. Ogiony conspired with codefendants Frank Giacobbe, Kevin Morgan, Todd Morgan and others to defraud financial institutions between March 2011 and June 2017, the U.S. attorney’s office said.”

“The four men are accused of obtaining over $500 million worth of loans connected to properties, including apartment complexes in Buffalo, Canandaigua, Syracuse and Avon in Livingston County, and in Pennsylvania, Texas, South Carolina and North Carolina. When contacted Friday, Donald C. Alexander, CEO of the Jefferson County Local Development Corp., said he was unaware that Autumn Ridge is going through foreclosure and that it was part of the case. ‘At the time, they had a great reputation,’ Mr. Alexander said, noting that the company was one of the largest real estate companies in the state.”

The Post and Courier in South Carolina. “Frequent property flipping, perfectly legal in a free market system, can rive up the price of affordability even further, pushing renters farther to the suburbs and away from the service-sector jobs many of them hold in the central business district. Investors can make off with a tidy windfall in their short-term holdings, but the higher price paid for the property eventually trickles down to the end user — the tenant.”

“Properties are bought and then developed, with many developers anticipating a double-digit return after three to five years. ‘Their business plan is to acquire, improve and then sell the property,’ said Brent Case, president of Coldwell Banker Commercial Atlantic.”

“After a property is developed and sold, the new owner will likely see a single-digit return, and Case said the real estate industry has been in that cycle for the past couple of years as flipping of multifamily developments becomes more commonplace.”

“‘You go from people who are entrepreneurial to people who are institutional,” he said, referring to investors such as pension funds and insurance companies. ‘A lot of institutional money is willing to invest in our market. Our growth has allowed us to be a desired place to park money because we have had a stable economy for the past eight years.'”

The Denver Post in Colorado. “The median rent in metro Denver, including the incentives offered by landlords, was $805 in the first quarter of 2010, according to RealPage. By the end of last year, it had risen to $1,462, an increase of 82 percent.”

“Teo Nicolais, an instructor at Harvard Extension School who specializes in real estate, argues all the new supply is pushing older buildings down the value chain. The high-end luxury units are turning yesterday’s Class A properties into Class B. And Class B units are becoming Class C, making it harder for them to pass on big rent increases.”

“The difference is all about adding new supply, Nicolais said. From 2010-13, developers added 9,229 apartments in metro Denver, while from 2014-18, they added 43,205. That new supply is what has pushed down rent increases.”

“Greg Willett, chief economist at RealPage notes the most expensive housing markets are seeing more household leave than they are able to attract from other states. Places like New York, the Bay Area, Los Angeles and Boston would be losing population if it weren’t for international immigration.”

“And a lot of apartments are in the pipeline and they will struggle to find tenants during a recession, whenever it comes. But Willett thinks that will be a ‘cyclical bump in the road.’ Denver would have to suffer a loss of economic vitality, something comparable to what cities in the Rust Belt did in the 1970s to 1990s, for housing prices to suffer a big and sustained drop. ‘Something like that certainly isn’t anticipated in Denver’s future,’ he said.”

From Bisnow. “We sit down with Brad Hargreaves, the CEO and founder of co-living company Common. We talk about underserved segments of the housing market, the widening gap between rents and wages — and convincing lenders that the co-living business model isn’t some ‘kooky’ thing.”

“‘Since 2008, rents have gone up by over 10% across the entire United States. Nominal wages have gone down 7%. So just that delta between wage growth and rent is going to accelerate, he said. ‘It’s a crisis point now. So I think you’ve tipped the scales where a lot of developers are saying, ‘Wait, I can’t just bring on more luxury studios one- and two-bedroom apartments.'”

The Wall Street Journal. “One decade ago, when real-estate financier Jay Sugarman was fighting to keep iStar Inc alive, one of his challenges was 25 acres of oceanfront land in Asbury Park, N.J., that the company had acquired from a defaulting borrower. Now the success of what he hopes will be a more than $1 billion redevelopment depends on an ambitious proposition: that people will pay nearly $1 million to $6 million for condominiums in the once-dilapidated area.”

“But the price tags on the new project are a stretch in an area that still has a high poverty rate and, according to Zillow, a median home value of $362,000. The New Jersey housing market has been cooling, along with many others throughout the country, as growth of home values have been slowing.”

“‘There’s a lot of inventory that needs to be absorbed in the New York metro area,’ said Jade Rahmani, a managing director at Keefe, Bruyette & Woods. ‘So the timing may not be great.'”

From The Real Deal on Florida. “When Brickell House opened in 2014, condo owners thought they were buying into an ultra-modern luxury tower with panoramic views of Biscayne Bay and a new state-of-the-art robotic car elevator that would bring them their cars within 10 minutes.”

“Shortly after closing on their units, however, buyers realized the dream of hassle-free smart parking wasn’t to be: The technology flopped, the elevator’s manufacturer Boomerang Systems filed for bankruptcy and unit owners had to resort to parking their cars at a nearby garage.”

“Litigation continues, though the settlement likely brought some relief for condo owners at the 374-unit tower at 1300 Brickell Bay Drive who have had to park at a nearby building’s garage. The association claims owners have lost an average of $70,000 in value per unit due to the parking garage’s malfunctions, according to the complaint.”

“Condo owners allege that it would take hours to get their cars, and the system began malfunctioning as soon as residents moved in, according to the association’s complaint. The condo association also alleged that the system would often stall and malfunction and would only work properly under constant staff supervision.”