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Looking To Justify The High Prices They Paid

A report from Nasdaq. “The struggle to lure renters is feared to continue into the near term as supply volumes are likely to remain aggressive. In fact, per the study by RealPage, in the past six months, demand could not keep up with new product deliveries that aggregated 127,121 market-rate units in fourth-quarter 2018 and first-quarter 2019. Also, the study pointed out that market-rate apartment properties which are under construction have more than 403,000 units which will be completed over the next 18 months.”

“Specifically, supply of luxury/high-end properties is anticipated to be high in some markets during the prime leasing period, propelling competition in turn. Elevated supply volumes generally curb residential landlords’ ability to command more rents, and affect occupancy and concession levels. These apart, the student housing sector, which is part of the residential REIT industry, has been witnessing a slowdown in leasing velocity and compression in rent growth, amid demand-supply imbalances and intensifying competition. Specifically, properties away from campus are feeling the brunt.”

From Westword in Colorado. “High-income renters who make more than $100,000 per year represent one of the fastest-growing segments of today’s rental market, and nowhere in the country has this phenomenon been more strongly felt than Denver. But down the road, the trend may be bad news for renters without such fat wallets.”

“‘I don’t know that you’re seeing a whole lot of affordable rental places being built,’ says Scott Grossman, who’s both a major player for Madison & Co. Properties and a past boardmember of the Denver Metro Association of Realtors. ‘Everybody wants to get in on the game when they can, and if they can make more on upper-end product, they do. You’re seeing that on the purchase and rent end of things.'”

The News Journal in Florida. “When Eastwind Development officials visit Daytona Beach to check on the construction of their Tomoka Pointe Apartments, they can’t help but notice the growing number of competing projects underway in the area. All have one thing in common: they are being touted as luxury apartments with ‘resort-style’ amenities.”

“That’s no accident. With the rising costs of construction materials and labor, ‘You can’t build affordable housing these days. The numbers don’t make sense so you’ve got to build luxury apartments,’ said Ty Lohman, an Ormond Beach investor in apartment properties throughout North-Central Florida.”

“However, with the average annual median wage for the Volusia-Flagler area well below statewide and national levels, affordable housing advocate Pedro Dash, co-chair of the local interfaith-based nonprofit group F.A.I.T.H., wonders how many here can afford those luxury apartments. ‘There are jobs being created but most are service industry lower-paying jobs,’ Dash said. ‘If they’re only earning $10 an hour, to afford one of these luxury apartments, they’d have to work 72 to 75 hours, close to half their monthly pay.'”

“So who are these luxury apartments for? At Icon, ‘First and foremost the local community,’ including empty nesters and those who would like the ‘lifestyle’ amenities offered not only at the apartment complex itself but also the International Speedway Boulevard, said Dorothy Palmer, property manager. ‘We want to appeal to national and international race fans,’ thanks to Icon’s close proximity to the Speedway, she said.”

“‘It is on the high-end for Daytona, but some of our competitors are pushing $1,700 (a month) for three-bedroom units,’ said Palmer.”

The Philadelphia Inquirer. “With a growing number of health problems, emergency procedures, and joint replacements, Rich and Elaine want to move to a home where they can age safely and more comfortably. Yet like many people their age, they can’t find one they can afford.”

“These boomer trends have presented a problem for developers, many of whom built independent living, assisted-living facilities, or continuing care retirement communities (CCRCs), which usually offer higher-end amenities, services, and a community for fees that tend to be thousands of dollars per month.”

“Developers are finding that the rooms they thought would fill quickly are sitting empty. In the fourth quarter of 2018, for example, the national occupancy rate for independent-living and assisted-living facilities fell to 88 percent, a seven-year low, said Beth Burnham Mace, chief economist at the National Investment Center for the Seniors Housing & Care Industry (NIC).”

“‘A lot of the development has been toward the higher-income cohort, so the gap that you’re seeing is because there may not be sufficient housing being built to cover middle-income seniors,’ said Mace.”

The Wall Street Journal. “Joseph Sitt was one of the most aggressive investors during Manhattan’s retail real-estate investment boom. Now, he’s starting to feel the pinch of New York’s retail downturn. His company’s $37 million mortgage on 115 Mercer Street in SoHo late last month was taken over by a special servicer. Mr. Sitt’s Thor Equities had defaulted on loan payments for the property. A mortgage on one of his Upper East Side properties has been in special servicing since last year.”

“They show how challenging it has become for Manhattan’s retail landlords to make a profit in some neighborhoods amid rising vacancies, falling rents and competition.”

“Looking to justify the high prices they paid, some landlords started aggressively pushing for higher rents. That pressure, along with the trend of more shopping moving online, caused vacancies to rise. Back then, ‘if you had stopped to look at the trend of how retailers ‘ were performing and the pending impact of online sales, it would have been clear that those rents would end up strangling the retailer,’ said Nina Kampler, founder of Kampler Advisory Group.”

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This Post Has 63 Comments

  1. ‘We want to appeal to national and international race fans’

    Anyone remember the condos built at race tracks and baseball stadiums?

    1. There are tons going up around Angel’s Stadium.

      Be a shame if the team moved to Long Beach…

      2. I’ve heard a rumor that they might move to Vegas someday. Sin City Angels? (:

    2. I remember an article about the “Packer house,” a little ranch within walking distance of Lambeau fields. Nuts.

    3. When they built Texas Speedway the plan was to build condos where you could watch race from your room. Wonder how that panned out? NASCAR raced there two weeks ago, empty stands and open parking for miles – that is what stuck me all acres of parking and no cars.

      Watched some of the race at Bristol this weekend. Both ends were empty (blocked off?) and the straightaways were about half full. If Bristol can’t lure the crowds (which I would consider one of the more interesting races) then no hope for the rest of the tracks.

      1. It’s expensive to take the family to the races. And the days of bringing your own beer and food in an ice chest are history.

      2. There used to be a waiting list for Bristol tickets. Not so much anymore. 🙁

      3. I’m not a Nascar guy but I did notice they were making a big deal about bringing Nascar to Sonoma. To me anything on a road course is interesting, so I hope that goes well for them. I didn’t realize the traditional tracks were having a hard time selling tickets.

        1. Been going down the tubes for a while. Lot of tracks expanded seating during the boom years – late 90’s to early 00’s. Now they are ripping them out.

          — Daytona removes almost 50k seats
          https://jalopnik.com/the-daytona-500-is-sold-out-but-only-after-the-track-r-1823115572ats.

          — Bristol sinking (this was one of the most coveted tracks)
          https://www.forbes.com/sites/davecaldwell/2018/05/02/stock-car-fans-continue-racing-away-from-nascar/#3689d92b1df5

          “Times have changed. TV ratings are falling in almost every sport. Americans might not love cars, or racing, as much as they used to, and you can’t turn back the clock. But the decline is steeper. Only 48,000 tickets were sold for a race last month at Bristol, a speed bowl with a capacity of 162,000.”

          1. Soccer and basketball are doing okay. Baseball and football are trending down. X-games type sports seem big with younger crowd as does “eSports”.

          2. Soccer and basketball are doing okay. Baseball and football are trending down.

            Sounds like things that are more American focused aren’t doing as well and things with a more international focus are doing better. I can’t believe how much the Chinese love basketball. But it does seem like more of a crowded city kind of sport, so maybe it’s as simple as that.

  2. ‘Developers are finding that the rooms they thought would fill quickly are sitting empty. In the fourth quarter of 2018, for example, the national occupancy rate for independent-living and assisted-living facilities fell to 88 percent, a seven-year low’

    About a year and a half ago I posted an article on Phoenix that said they were building 15,000 senior living units. All 15,000 were “luxury”. As much media that’s devoted to real estate, why has no one asked, “what’s causing student living, apartments and senior units all being built for luxury, at the exact same time?”

    1. Because they have money and because they can. And because they want to flip it. As a GenX, I gloated a little that I might retire at the exact time when these places are begging for business. But, by then these poorly-built properties will probably have fallen into massive disrepair.

  3. ‘You can’t build affordable housing these days. The numbers don’t make sense so you’ve got to build luxury apartments’

    See we live in a new age. Housing isn’t built for people. It’s a commodity, meant to be flipped. Never mind that we have nail guns instead of hammers. We can ship lumber around on trains not wagons. Lumber cut with electric saws, not by hand. That there has never been a period before when we “can’t build affordable housing.” This is the horse-sh$t we have to put up with from the REIC.

    1. They’re all full of ****, hiring Mexican laborers in the Home Depot parking lot and paying them under the table.

      They just don’t want to build affordable housing. Keep flooding the market with luxury properties and watch what happens.

      1. 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. “Keep flooding the market with luxury propertie$ and watch what happen$.”

        Popcorn $ales increase eye reckon, Maybee peanut$, organic granola bar$, jerky treat$, dried apricot$, … Eye’m aimin’ for a healthy varietie$ of snacks just in case it drag$ on past the late $pring of 2020!

        1. You can find such healthful snacks at Whole Food$ and Trader Joe$. Either is enough to “gentrify” a nabe and jack up the price of almost everything.

          1. Whole Foods is expensive, despite Amazon claiming to lower prices. Trader Joe’s seems very reasonably priced to me.

    2. Look at how long these shenanigans have gone on, and they continue to this very day. The central bank has figured out how to distort the economy for decades at a time. I’ll say it again – there was a class warfare and the wealthy won. Game, set, match. This highlights that fact:

      “America’s wealthiest households are stashing their cash at record levels. The top one percent have three times more in readily available cash than the bottom half, with holdings jumping from less than $15 billion shortly before the last recession to a record $303.9 billion at the end of 2018, according to Federal Reserve data released last week.”

      If that doesn’t wake people up, I don’t know what will.

      https://www.bloomberg.com/news/articles/2019-04-01/america-s-wealthiest-households-have-record-cash-on-hand-chart

    3. You see Ben, with the FED, the only solution they have is to print money. It’s like someone said here, if all your solution tool is a hammer, all your problems look like a nail. 🙂

    4. luxury

      The origin of the word is “sexual intercourse”. Maybe the buyers/renters are simply getting screwed over.

    5. Or maybe it’s the cost of land? Near where I live, there are three (probably more) separate developments going up, and I just saw a sign for another one. They all have the same damn look to them. Black/brown and boxy. They don’t even bother to put the circular corner entrance like they did 15 years ago — circles are expensive.

      In this area, commute is king. People are willing to pay $700K for a little townhouse if it means staying off of the major highways.

      1. Advances in construction notwithstanding, it is still a very outmoded and backwards industry. A real advance would be more modular, assembly-line operation that is installed on site rather than site-built stuff. The real economies of scale will be when homes are built similar to how cars are built.

        Also, it is very expensive to build still because input costs are high, including land. Lots of regulations still by local governments. Costs went up about 50% in about 3 years on our 2nd phase for the complex I manage.

    6. Ben, you nailed it (sorry). There’s a person on Twitter whose family is in the building trades, and she’s been talking at length about how the money launderers have infested the building trades. She says it’s not just the sales side of real estate that’s affected by this, but the construction side, too. Which is probably the real reason why they claim they can’t ‘afford’ to build affordable housing. They’d have to build a whole lot more to wash all those bux.

      1. That doesn’t make sense. How? And why would dirty money want to get into low volume construction like houses? Housing is single digit dollar volume of total construction dollars spent.

  5. “‘I don’t know that you’re seeing a whole lot of affordable rental places being built,’ says Scott Grossman, who’s both a major player for Madison & Co. Properties and a past boardmember of the Denver Metro Association of Realtors.

    Not to worry, Scottie. Once all those “luxury” apartments go under the auctioneer’s hammer, they’ll emerge from bankruptcy and foreclosure as affordable apartments. And this time around the Fed’s vulture fund accomplices almost certainly can’t count on trillions of free Yellen Bux to hoover up all these distressed assets and rent them back to the proles for inflated prices.

    1. Not only were regular apartments not being built, but Mel Watt and his pals backed about a trillion bucks of apartment loans to “value add” and jack up rents on existing stock. We just saw the largest multi-family building boom in 40 years, and rents have never been higher, nor have they ever took in such a large percentage of incomes. Something has got to give.

      1. What’s “giving” is household budgets. They’re completely wiped out. 7 million Americans with auto loans over 90 days late, which doesn’t even count those 30-60 days past due. If it did, it would likely be over 3x that number.

        The retail sales apocalypse is partially due to the lack of household disposable income which high mortgages/rents have caused. Credit cards can only mask things for so long. They actually exacerbate problems in the long term.

        And yet the Fed looks around at its handiwork and says, “Ahhhh, yessssssss, more of this……..”

        It’s absolutely despicable what’s going on, and you won’t find anybody in CONgress or the media even talking about it.

        1. Chinbabwe, you missed out on the greatest BOOM of all time. Don’t be a sour patch. With stocks and housing investments there is no need to work. It will make money for you, even when you are sleeping. So you got to buy them, and buy them often and buy them a lot. The best analogy I can give is the carnival games at the circus. If you don’t play, you don’t win. But if you play, everyone wins!!! This is how our capitalism system works.

          1. Yay Gov!!! Print money and pump it into housing and stocks! The smart true believers all know which direction all this goes. UP! In fact, I’m told it will go to the moon. I put my life savings into the new Lyft IPO but just heard Zoom and Pinterest are also doing an IPO next week. Luckily with all this easy credit I have access to I can get more free money to make me more money. Since I have a whole week that gives me time to pull out all my credit and leverage it to these soon to make me rich, always goes up stawks. All you peasants can watch as I bathe in heaps of my well deserved fortune! Buying some sh!tcoin too (smart people diversify!)

        2. It is beyond despicable. The increasing number of homeless, the debt strangling average families. It’s only a matter of time before we start reading about the elderly eating pet food.
          But the plan seems to be progressing nicely. Rich are much richer. Arab states continue to be attacked and demonized (see this study https://972mag.com/israelis-post-anti-arab-racism-online-every-46-seconds-study-finds/125181/). Russia continues to be made to be evil. Venezuela must be overthrown.

        3. “It’s absolutely despicable what’s going on, and you won’t find anybody in CONgress or the media even talking about it.“

          Well they are “hinting” we may have a bit of a problem but you are 100% correct, they are not making the reality very transparent. Instead of tightening credit they are doing the exact opposite. i think there is a plan behind all of this and that plan does not favor the consumers…

        4. The Millenial “side hustle” is now the new normal. Many of them take the social media route for extra cash. I’m not a big fan of the Millenial culture, but I don’t want a return to the Gilded Age either.

    2. I doubt that the luxury apartments will ever be offered at lower rents that are affordable to the masses.
      The carrying costs of the amenities will drive any owner to bankruptcy .

      Just try to estimate the carrying and replacement costs of those amenities over the term of the life of the building

      2. The carrying costs of the amenities will drive any owner to bankruptcy .

        The real price capitulation is after the bankruptcy. It should have happened 10 years ago but they got saved. And here we are.

  6. There’$ kool-aid, then there’$ Kool-Aid with Ar$enic …

    The average adjustable-rate mortgage is nearly $700,000. Here’s what that tells us.

    Published: Feb 5, 2019 | MarketWatch

    That’s “uncomfortable” because in many ways, it’s reminiscent of the housing bubble a decade ago. Progressives blame Wall Street, while conservatives blame lower-income people and the government policies that helped get them into homes they couldn’t afford. And analysts of all persuasions blame the mortgage industry for connecting people to increasingly exotic loan$ that would enable them to afford homeowner$hip, including adju$table-rate mortgage$.

    Karan Kaul, an Urban Institute researcher, called the recent explosion in the size of ARMs “ironic” for their similarities to the bubble era, but said that things are very different now. Perhaps most important, Kaul thinks, is the contrast between the fundamentals of the two markets. A decade ago, speculation and greed drove up prices, whereas now, in a supply-starved market, “demand” might be just as easily characterized as “need” for housing, of any kind.

  7. ” ‘There are jobs being created but most are service industry lower-paying jobs,’ Dash said. ‘If they’re only earning $10 an hour, to afford one of these luxury apartments, they’d have to work 72 to 75 hours, close to half their monthly pay.’”

    What a bunch of lazy slobs. You know my math tells me there are 168 hours in a week. These socialists are not using their time to the max optimal. I guess they want wealth distribution next!

    1. “…‘If they’re only earning $10 an hour, to afford one of these luxury apartments, they’d have to work 72 to 75 hours, close to half their monthly pay.’”

      Nah, that’s old timers’ math. They don’t have to work, they just need to buy some Bitcoin, man, it’s going to a million.

    1. The article appears to be stating the opposite of that — the “starter” home in this context is what would have historically been a property moved up to from a smaller, lower priced one purchased first (which probably adds to builders’ lack of interest in producing anything but “overpriced” now).

    2. This sounds a lot like the conversation my wife and I recently had. There was a not-too-bad townhouse being offered for about $168k close by and we briefly considered buying. But it really is not in a good location and was nothing special. In 2012 it probably would have gone for about $115k, maybe $120k. At the end of the day she just said, “I don’t really love that area at all. Let’s just rent and wait and see what happens in the next 10 years. I’d rather buy our dream house than just buying something that we don’t love.”

      I love the way she thinks, it makes waiting out the bubble much easier!

  10. Who else imagines that all these student luxury high rises with 4 bedroom/bath areas off a central small kitchen and living area but with granite and stainless and so on will be single person government-subsidized flophouses some day? Or will a giant flushing happen and the foreclosure buyers will gut them and make them into apartments useable by small families ? I can’t imagine that being ‘profitable ‘ enough though. If the government takes them they can create “workforce” housing a la Chinese factory worker dormitories for people from the rural outlands forbidden from officially relocating to their work city. That would make the most sense. One for teachers one for university lecturers, one for food service workers etc etc

    1. Or what will become of the boom in luxury assisted living facilities, once what few boomers there are that can afford them shuffle off of the mortal coil?

      My late father spent his twilight in one of them. $4,400 a month. He was able to afford it, but who else is going to have savings and a defined benefit pension to supplement Social Security?

        1. Careful, most CNAs I know do the most difficult work and are paid a pittance. I sure hope they receive good rewards in the afterlife for doing perhaps some of the most socially valuable, poorest remunerated work on this planet.

  13. “In fact, per the study by RealPage, in the past six months, demand could not keep up with new product deliveries that aggregated 127,121 market-rate units in fourth-quarter 2018 and first-quarter 2019.”
    and
    “Also, the study pointed out that market-rate apartment properties which are under construction have more than 403,000 units which will be completed over the next 18 months.”

    – I donno, is that a lot?
    – The U.S. must be minting millions of millionaires for all these lux apartments.
    – classic malinvestment due to distorted economic signals from the Fed.
    – I’m sure it will all end well just the same…

  14. “Almost all qualified borrower$ can get a loan.”

    Opinion: The most important number in the economy is one nobody knows

    Published: Apr 8, 2019 |MarketWatch | By Rex Nutting

    “But credit is different, because credit can be created almost at will. There’s no physical stock of credit in bank vaults waiting for customers. How much credit will be supplied is determined as much by sentiment, judgment and animal $pirits as it is by physical or financial factor$.”

    1. “KEY POINTS

      More consumers think now is a good time to buy and sell a home, and more expect interest rates to fall in the next year.“

      Remind me again why it’s a good time to buy and sell? I just can’t get my head wrapped around that one

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