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We Just Have A Flood Of New Inventory And There Is Too Much

A report from the Greater Baton Rouge Business Report. “If you’ve noticed all the recent construction south of LSU and thought to yourself that the student housing market has got to be overbuilt, your instincts are spot on. Vacancy rates for the 17 ‘class A,’ or newer, student housing complexes near LSU are approaching 19%, a stunningly high number, given that the university submarket is typically among the strongest in the multifamily sector marketwide.”

“‘We just have a flood of new inventory and there is too much,’ says appraiser Wesley Moore, who specializes in the local multifamily sector. ‘We were warning about this two years ago, and most of the deals we were talking about then have either gotten underway or been built and it’s starting to show.'”

From The Vindicator in Ohio. “Dominic Marchionda’s creditors have filed for foreclosure on Youngstown State University’s Flats at Wick student-housing complex, claiming he owes more than $5.2 million. The 112-bed apartment building, which opened in 2010, is also at the center of a 101-count corruption indictment alleging Marchi-onda bribed former city Finance Director David Bozanich to receive city backing for the Flats at Wick project in the form of $1.2 million in water and wastewater funds – money Marchionda is accused of misspending on himself.”

“Flats at Wick’s current valuation is about $4.4 million, according to the county auditor’s office.”

From Syracuse.com in New York. “Out-of-state developers spent millions of dollars buying Syracuse buildings just to tear them down, because there was money to be made utting up apartments for wealthy college kids. It’s a booming business. And it gets a lot of help.”

“Luxury student housing in Syracuse is heavily subsidized by city taxpayers. The developers get some of the biggest tax breaks in town. Syracuse officials say the city will benefit from the student housing in the long run, after property tax breaks expire on the new multimillion-dollar buildings. In the meantime, they say, new construction makes the city more vibrant and encourages investment.”

“But vibrancy in one neighborhood may come at the expense of others. Neighborhood groups in the Euclid Avenue area east of SU have sent up flares of worry that a glut of student housing could lead to vacant houses on their streets. And although tax exemptions don’t require the city to pay out cash, they give breaks to big national companies while other taxpayers, including competing landlords, pay full fare.”

From Multi-Housing News. “How have students’ needs and expectations changed over the past few years? PEBB Capital Principal & Managing Director James Jago: ‘We believe the era of the all-out amenity war to lure the highest rent may be fading.'”

“Please talk about trends to watch in the student housing market this year. Jago: ‘We’re keeping an eye on a potential pullback by some of the large institutional/sovereign investors that have been the high bidders for brand new, Class A core product. Whether it’s because student housing allocations are becoming maxed out or existing portfolio performance is stalling, we’re already seeing demand for this product soften a bit, especially in markets where the new supply pipeline exceeds projected enrollment growth. A pullback by these investors will have a meaningful impact on the developers/merchant builders who have been relying on those buyers as their exit.'”

From Bisnow on DC. “D.C.’s apartment market experienced unexpectedly strong rent growth in the first quarter, but a surge of new deliveries this year could put downward pressure on rents. The rent growth came despite the continued onslaught of new apartment deliveries and a significant drop in absorption. D.C. delivered 4,180 new Class-A units over the 12 months ending March 31. During that same period, the market absorbed 3,584 units, a 16% decrease from the prior year.”

“The supply surge is set to increase dramatically over the next 12 months, and Delta Associates President Will Rich expects rents will not be able to maintain the upward momentum. An estimated 6,346 units are expected to deliver in the District over the next 12 months, a 52% increase over the last year. ‘We expect the District will experience weaker rent growth than the long-term average over the next 12 months due to the sheer number of units that will be coming into the marketplace,’ Rich said.”

“Northern Virginia delivered 1,436 units in the 12 months ending March 31, but it is projected to deliver 7,646 units over the next year, an increase of over 400%.”

From the Washingtonian. “Washington’s steady stream of upper-crust transients means renting here isn’t just for recent college grads looking for a deal on an English basement. And while you’re not likely to find a 10,000-square-footer with a saltwater pool on Craigslist, mansions for rent are easier to come by than you might think.”

“Real-estate agents say some of those properties are available because there are more frustrated sellers in places such as Potomac and Great Falls. ‘People who bought homes in Potomac for $4 million in 2005 to 2007 that are now valued in the upper-$2-million range sometimes decide to rent for a while, especially if they can cover their costs,’ says Kara Sheehan of Washington Fine Properties.”

Related Posts

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This Post Has 49 Comments

  1. ‘there are more frustrated sellers in places such as Potomac and Great Falls. ‘People who bought homes in Potomac for $4 million in 2005 to 2007 that are now valued in the upper-$2-million range sometimes decide to rent for a while’

    Where’s that taxpayer poster claiming DC never goes down? Eat yer crow!

    3. Potomac MD is the the DC area version of NYC’s Greenwich CT. It’s no surprise that luxury is getting slammed there for all the same reasons: SALT tax / mortgage interest deduction bloodbath coupled with a change in buyer tastes toward smaller, easier to maintain houses with better commutes.

      So if you have a love affair with McMansions you are in luck. But if you want what everyone else suddenly wants, things seem a bit tougher (which makes sense). Prices are up and listings are down closer to DC proper: https://wtop.com/business-finance/2019/04/march-madness-for-northern-virginias-housing-market/

      As dumb as it is, I think that for the time being the Amazon effect is real in Northern Virginia. Folks seem to be HODLing houses in Arlington and Alexandria.

      1. I think it’s more the SALT tax than anything else. Bethesda/Potomac are actually pretty good places to commute from, and it’s not as if those doctors and lawyers are mowing lawns and fixing toilet leaks themselves.

    4. Hope it wasn’t me. Luxury was always falling. Even the “affordable” stuff ($300-350K) is either overpriced and sitting, or sits until someone renos with Minimalist Millenial Gray.

      I wanna know who’s going to rent out a $4M mansion? Would make for an interesting AirBnB.

    5. I’m in bullet proof 22151
      inventory 1/3 of par
      express bus to pentagon
      growing w the orangeman

  2. ‘The rent growth came despite the continued onslaught of new apartment deliveries and a significant drop in absorption. D.C. delivered 4,180 new Class-A units over the 12 months ending March 31. During that same period, the market absorbed 3,584 units, a 16% decrease from the prior year’

    So you got hundreds of new empty airboxes and you want us to believe rents went up? Bisnow is a REIC publication. (Which aren’t?) The fact is if it doesn’t say effective rents, it’s not including vacancies or concessions, which can turn into double digit rent drops lickey-split.

  3. ‘We believe the era of the all-out amenity war to lure the highest rent may be fading’

    This has always been an absurd mania behavior.

    ‘We’re keeping an eye on a potential pullback by some of the large institutional/sovereign investors that have been the high bidders for brand new, Class A core product. Whether it’s because student housing allocations are becoming maxed out or existing portfolio performance is stalling, we’re already seeing demand for this product soften a bit, especially in markets where the new supply pipeline exceeds projected enrollment growth. A pullback by these investors will have a meaningful impact on the developers/merchant builders who have been relying on those buyers as their exit’

    Merchant builders are apartment flippers. Gosh, do you mean there isn’t a never ending flow of greater fools? Why that’s like the fabled Chinese buyers who went away like a puff of wind.

  4. “Real-estate agents say some of those properties are available because there are more frustrated sellers in places such as Potomac and Great Falls. ‘People who bought homes in Potomac for $4 million in 2005 to 2007 that are now valued in the upper-$2-million range sometimes decide to rent for a while, especially if they can cover their costs,’ says Kara Sheehan of Washington Fine Properties.”

    Assuming they put 20% down which is $800,000, the P&I is still around $17-18k per month (depending on interest rate). Plus around property taxes, the carry cost is about $20k+ without taking into account for maintenance costs. Why would anyone want to rent for $20k a month? These white elephants are ****ed.

    1. There is a property I know of around here that rents for $20k/month. It’s rented out to a pro-basketball player.

  5. Another one bites the dust:

    Creditor files foreclosure on Flats at Wick student housing

    ‘The Flats at Wick development is just one of Marchionda’s Youngstown projects cited in a 67-count indictment handed up last year. Marchionda has denied allegations that he improperly secured money from Youngtown’s Waste Water Fund to aid construction of the Flats as well as several other developments.’

    ‘He faces charges of theft, receiving stolen property, falsification, record tampering, telecommunications fraud, money laundering, and engaging in a pattern of corrupt activity. Marchionda has denied the allegations in the indictment. The next hearing in the criminal case is set for May 31.’

    http://www.wfmj.com/story/40313281/creditor-files-foreclosure-on-flats-at-wick-student-housing

  6. I haven’t heard whether my wife’s cousin was able to cash out of the Bethesda home since recently putting it up for sale. I’ll have to check…

  8. More debt$ shenanigan$ … More,more, more! … Higher, higher, higher!I

    Ma$tercard taps into buy-now, pay-later trend with acquisition of Vyze

    MarketWatch |Published: Apr 16, 2019

    Vyze connects con$umers with lender$ to finance purcha$es in installment$

    “Installment purchases are back in vogue among millennials, who are using lender$ like Afterpay and Klarna to $plit tran$actions into more manageable chunk$, even for items that wouldn’t ordinarily have been layaway targets, … “

    1. Ok I read the article on Marketwatch and I don’t see what the difference is between Vyze and Mastercard. I guess you go the cashier in Urban Outfitters clothing store and Vyze calls up a number of choices how to pay for the clothing on credit. I don’t get it. I guess this is meant to compete with Mastercard interest rates? If so, then if Mastercard buys Vyze, that eliminates the competition. Either way it sounds like too much work.

      1. Iffin’ yer $3,000 Ma$tercard credit balance is $2986.00 U$D, you can still go try on $500.00 worth of new clothe$ & $hoes & walk out without any addition debt$ on yer Ma$tercard. See, $o $imple even a humanities $tudent get$ it!

      3. I’ve noticed that most online retailers, eBay, etc. are offering “payment programs.” My gawd this credit bubble can’t end soon enough.

          1. South America is the worst at installment payments, especially Brazil. They finance everything and pay way too much.

  10. Don’t worry about the persistent stream of gloomy data releases. Like an alcoholic who always has a reason to drink, the stock market always finds a reason to go up.

    Industrial production weakens further in March
    Published: Apr 16, 2019 10:15 a.m. ET
    Production falls 0.1%, fourth straight month of weak readings
    By Greg Robb
    Senior economics reporter
    Bloomberg News/Landov
    Snow covers Fiat Chrysler Automobiles NV Jeep brand sports utility vehicles in Detroit. Auto production fell 12.8% in first quarter.

    The numbers: Industrial production fell 0.1% in March, the Federal Reserve reported Tuesday. The gain was below Wall Street expectations of a 0.1% gain.

    This is the fourth straight weak reading for industrial production. Production rose 0.1% in February after a 0.3% decline in January.
    …

  11. Massive tax break for uber wealth college kids to live in uber luxury apartments while going to college. Cause it just seems right.

    For the struggling white middle class kids – you get NUTHING

    +++++

    “From Syracuse.com in New York. “Out-of-state developers spent millions of dollars buying Syracuse buildings just to tear them down, because there was money to be made putting up apartments for wealthy college kids. It’s a booming business. And it gets a lot of help.”

    “Luxury student housing in Syracuse is heavily subsidized by city taxpayers. The developers get some of the biggest tax breaks in town.

    1. Middle-class kids just take out college loans for these amenities. Developers know this full well. Why do think they’re homing in on college kids? Them kids gots money, either from Mom and Dad or from Uncle Sam.

      1. ‘Them kids gots money’

        Plus student airboxes are recession proof, as the Ohio foreclosure demonstrates.

        1. Lots of reasons for the foreclosures. Mainly, you have fewer students overall, those students have GenX parents who had trouble during the recession and therefore aren’t falling for the student loan crap, and kids themselves (Gen Z) who aren’t falling for the student loan crap either.

    2. This is one of the more bizarre developments in the RE market, luxury student housing. How big is that market? More foreign money? I remember sleeping on a futon, working a part time job, and scrounging for other students’ left over cafeteria meal tickets. And college is much less affordable now than it was then. Syracuse U tuition is 52k$/year. And luxury housing on top of that? Wow. I’m gobsmacked. The median savings account balance in US is 5200$.
      https://www.syracuse.edu/admissions/cost-and-aid/cost-of-attendance/undergraduate/#s:2019-2020-cost-of-attendance-for-students

      1. It’s all about student loans… “loan officers” with offices on campus push an almost unlimited amount on unwitting 18-year-olds. The fact that they are in an official building and semi-sanctioned by the universities makes the kids think it’s normal to be taking out $100k, $200k, $300k in debt. If you don’t have parents that understand money and provide guidance you are a fish in a barrel – and if you had those kind of parents you probably wouldn’t need loans. And as everyone knows you can’t bankruptcy your way out of them, so the banks just keep on giving.

        Just like there is a housing bubble there is a tuition/student housing bubble caused by this insane leverage. When it pops all the little administrators, deanlets, the $5 mil a year football coach, and etc. will lose their jobs.

        It can’t come crashing back to earth soon enough. The vast majority of the current crop of college students are screwed beyond repair. Maybe the next generation can get a decent product at a fair price. But this will require deep structural changes to the student loan system after the bust.

        1. It’s more capital looking for a place to die. Investors from Singapore and Malaysia are dumping $13 billions into US student housing as we type.

          1. Yes, I fully agree that crazy capital is chasing student housing.

            But tuition is a bubble as well and not caused by Asians. For that we can only thank our own government.

        2. Given their status as lifetime debt donkeys and the impacts on their lives it will entail, you’d think that student debt, rather than a fixation on racial, ethnic, and gender identity, would be paramount in the minds of most college students. And maybe it is, only we don’t hear about it. A new silent majority.

          1. The thing about student debt is that those who are the most in debt are often fine, because they are pursuing advanced degrees like law and med school. The real offenders with student debt are those who go to private, for-profit schools and who load up on debt for a degree that commands no earnings premium in the market. Even worse than those folks are those who take out a loan and never get their degree.

  12. “… And while you’re not likely to find a 10,000-square-footer with a saltwater pool on Craigslist, mansions for rent are easier to come by than you might think.”

    Likewise in Santa Barbara. No, you won’t see a Craigslist ad for a 10,000-sqft rental with a saltwater pool. But Zillow lists a Channel Drive charmer (Montecito) for rent at the rate of $100,000/month. The downside: the pool is freshwater.

    In the meantime, newly built condos (Estancia Santa Barbara) in SB’s largely commercial uptown district are selling at prices up to $1,350,000. At that particular price a buyer got a 2/2 1,451-sqft unit with no amenities to speak of. The upside: Estancia is located directly across the street from a car wash and a Jack-in-the-Box.

    Cheers,
    Barb

    1. $4,872,1945 bd6 ba6,254 sqft
      1417 E Mountain Dr, Santa Barbara, CA 93108
      Pre-foreclosure / auction

      3/21/2019 Foreclosure auction $1,605,412 unpaid balance
      12/11/2018 Home in default $47,276 past due
      11/15/2016 Loan issued $2,050,000

      https://www.zillow.com/homedetails/1417-E-Mountain-Dr-Santa-Barbara-CA-93108/15880641_zpid/

      $774,1125 bd4 ba2,118 sqft
      4741 Avalon Ave, Santa Barbara, CA 93110
      Pre-foreclosure

      6/7/2018 Foreclosure auction $623,371 unpaid balance
      Home in default
      12/27/2006 Loan issued $575,000

      https://www.zillow.com/homedetails/4741-Avalon-Ave-Santa-Barbara-CA-93110/15905763_zpid/

      $518,3693 bd2 ba1,150 sqft
      2527 De La Vina St, Santa Barbara, CA 93105
      Pre-foreclosure

      12/20/2018 Foreclosure auction $1,014,371 unpaid balance
      Home in default
      12/14/2004 Loan issued $600,000

      https://www.zillow.com/homedetails/2527-De-La-Vina-St-Santa-Barbara-CA-93105/15885963_zpid/

      1. $4,872,1945 bd6 ba6,254 sqft
        1417 E Mountain Dr, Santa Barbara, CA 93108
        Pre-foreclosure / auction
        3/21/2019 Foreclosure auction $1,605,412 unpaid balance
        12/11/2018 Home in default $47,276 past due
        11/15/2016 Loan issued $2,050,000

        This one is interesting because the property history shows the last sale in 2010 for 650k. Maybe the loan was a construction loan to build a mansion estate for the luxury market? It also shows the property sold for > 3 million$ at auction. Looks like the lender got lucky on this one with the luxury market crumbling.

        1. “This one is interesting because the property history shows the last sale in 2010 for 650k… It also shows the property sold for > 3 million$ at auction.”

          Somebody got majorly duped. Like the Winner’s Curse on steroids…

    2. Fires and mudslides, Montecito mansions are not selling at all. SB lost it charm years ago, locals avoid downtown on weekends and the homeless pop is blowing up.

    3. Great car wash! (no illegals working there 😉 ) And that Jack in the box was a good stopover before you got on the pass, back in the day.

  16. For anyone interested in Nevada. The Senate will be voting on SB256 tomorrow or Thursday.

    SB256 is bad for Nevada homeowners, tenants
    Kevin Sigstad March 26, 2019 (realtor opinion)
    https://www.rgj.com/story/opinion/voices/2019/03/26/sb-256-bad-nevada-homeowners-tenants-sigstad/3281363002/
    (Add’l story in right side column – “Reno no longer affordable for native Nevadans”.)

    Shocking Changes Will Increase Homeless & Tent Cities In Las Vegas & Henderson (realtor opinion):
    https://youtu.be/fUgkypui5mg

    SB 151 Overview
    https://www.leg.state.nv.us/App/NELIS/REL/80th2019/Bill/6188/Overview

    SB 256 Overview
    https://www.leg.state.nv.us/App/NELIS/REL/80th2019/Bill/6434/Overview

    1. We had a similar measure last year try to pass but got voted out. It was fun watching all the greedbag landlords sweating and a large number rush to the exits to sell there dilapidated shacks.

      This part of the measure was a bit over the top and probably why it didn’t pass:

      “Housing Providers lose the ability to use a rental agreement to limit the number of renters below the federal maximum for the house. Which is that each dwelling must have at least one room measuring at least 120 square feet; and all other habitable rooms excluding kitchens must be at least 70 square feet. The size determines the maximum occupancy rate. Two people can occupy a minimum-sized dwelling. For each additional occupant, the minimum must increase by 50 square feet. This means the limit for an average three bedroom house is around 16 people. “

      https://www.santacruztogether.com/faqs

      1. Each of the bills have a notation in the overview links “Amend, and do pass as amended”. If that means they’re a done deal, I’m dying to see which group the unintended consequences that result will benefit.

  17. “It’s all about student loans… kids think it’s normal to be taking out $100k, $200k, $300k in debt.”

    In 2019, average student loan debt is roughly in the mid-$30Ks:
    https://www.valuepenguin.com/average-student-loan-debt
    https://www.nitrocollege.com/research/average-student-loan-debt

    Yeah, that’s a lot of debt to start out one’s adult life with, but it’s not necessarily apocalyptic. That’s about the average cost of a new car. If the borrower gets a decent-paying job, they can handle it. But if they get stuck in the gig or contract work economy, or even worse, part-time or minimum wage work, they’re effed. Same if they get hit with unexpected major expenses, such as medical expenses.

    Pew Research projects a big change in the higher educational landscape within the next twenty five years or so. The growth of online education puts financial pressure on institutions with large campuses to maintain, when a lot of the students seldom or never actually set foot on campus. A growing number of employers will accept skills certification instead of demanding college degrees. As a result, a lot of colleges will end up shutting down.

    1. As a result, a lot of colleges will end up shutting down.

      Before that you would expect to see a lot of austerity and price cutting in an attempt to compete. It wasn’t so long ago that they could provide the same service for much less. There ought to be some fat there…

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