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The Break Is Already Here

A report from National Real Estate Business. “Lenders are understandably exercising caution when it comes to financing multifamily housing development projects, says Robert Murray, chief economist for Dodge Data & Analytics, which tracks construction starts across commercial real estate. ‘Notwithstanding the pickup in activity we had in 2018 and notwithstanding the fact that millennials are still looking at apartments as opposed to single-family homes, we view multifamily housing as one of the more vulnerable parts of the construction industry right now.'”

From Connect Florida. “Connect Media asked Marc Suarez, Director of Hunt Real Estate Capital’s Miami office, who specializes in multifamily lending ransactions throughout Florida, to share insights about what he’s seeing in the market right now. Q. As the population of South Florida grows, what does the market-rate multifamily pipeline look like?”

“A. The pipeline continues to be strong, and that is a concern for most when looking at oversupply. For now, anything you can build that is three to four stories with surface parking gives you a strong position in a potential over-supply environment because you have more flexibility in your rent ask, versus mid-to-high-rise development where you have to ask and get a higher number to justify your yield on cost.”

The Denver Post in Colorado. “Rent concessions are a sign that an apartment market is seeing supply outstrip demand. Four years ago, they were fairly rare in metro Denver, and then mostly limited to high-end units downtown. Concessions have become more widespread, but they remain absent or minimal in large swaths of the metro area.”

“And in those bustling growth pockets like downtown, where developers are looking to fill hundreds of new units, concessions of a month or more of free rent are common, said David Pierce, a senior market analyst at the CoStar Group.”

“Developers have focused heavily on luxury units in the urban core, and less so on affordable apartments in the suburbs. All that has boosted demand for older units that a larger share of households can afford and now appears to be contributing to what is emerging as excess supply of the most expensive units.”

“‘There is some weakness in the ultra-high-end market,’ Pierce said. ‘There is a limit to how many people are willing to pay $4,000 a month for a one-bedroom apartment.'”

From Bisnow on California. “Perhaps life is too great for landlords in the City by the Bay, where some investors foresee unfavorable political tides being added to rising construction costs, leading to a possible market cool-off. Add labor shortages and sky-high land prices to the mix, and profitable projects are hard to come by, according to some lenders and developers.”

“Related California is currently developing $2.5B worth of projects in San Francisco, Chief Development Officer Gino Canori said, including 1,800 homes. But Canori thinks it makes sense to slow investment. ‘I think the break is already here,’ he said, adding that he wouldn’t be looking to buy a project in the next 12 to 18 months.”

From The Real Deal. “New York’s slow multifamily market has continued into the spring, according to Ariel Property Advisors. The market saw a total of 28 deals across 35 buildings worth $636 million in April. This was a 6 percent drop in transaction volume, a 42 percent drop in building volume and a 34 percent drop in dollar volume compared to the trailing six-month averages from October to March.”

“In Manhattan, there were nine deals across 11 buildings worth about $284 million. Transaction volume stayed flat, while building volume dropped by 25 percent, and dollar volume dropped by 33 percent. The market in Brooklyn saw declines across the board with just four trades across four buildings for about $91.9 million. These were drops of 38 percent, 64 percent and 49 percent for transaction, building and dollar volume, respectively.”

“Queens only saw three deals across three buildings in April for about $26.1 million. This marked a 25 percent decline in transaction volume, a 49 percent decline in building volume and an 85 percent decline in dollar volume.”

“The real estate community has placed almost universal blame for New York’s slow family market on the Democrats taking full control of the state government following November’s elections. Activity had been slow throughout the year largely due to uncertainty over how the party would change rent laws in New York. The government officially passed dramatic changes to the rent laws in mid-June, and brokers say it could take a while before the multifamily market picks up speed again given how pro-tenant many of the new laws are.”

This Post Has 55 Comments
  1. ‘There is some weakness in the ultra-high-end market…There is a limit to how many people are willing to pay $4,000 a month for a one-bedroom apartment’

    You guys really have no idea how fooked you are.

    1. On a long enough time frame, I would agree with you. In the short term there is still a shocking number of people moving here, renting and buying places sight unseen, for ungodly prices. Something has to give at some point, but as long as there is a steady stream of new suckers eager to live “The Colorado Lifestyle” at any price, I don’t see the market really changing.

      1. To each their own, but I’ll never understand the appeal to Denver, let alone the desire to pay 4 grand a month for a rental there.

        1. I visited Denver once. My first impression was that it was more like Kansas, with the mountains far, far away. Next, I found the downtown area to be very seedy. This was in the late 90s, so things may have changed for the better since then.

          1. That’s a fair assessment. The city itself was/is more like Kansas City than San Francisco. Downtown, well, still seedy, lots of homelessness and crime, but with the Rockies park downtown, plus revitalization in Lodo and now Rino/5 points, the area is trendy, if not exactly cleaned up. It’s mostly being somewhat adjacent to mountains that blows people’s minds.

      2. “…eager to live “The Colorado Lifestyle” at any price, I don’t see the market really changing….”

        I must not of gotten the memo.

        What is it about Colorado that the “everybodys” want to move there?

        BTW, I live in So-Cal (South Orange County) and have been told for years that the “everybodys” want to live here too.

        1. Everybody wants to live everywhere, dontcha know? I think it’s called “hurry up and buy, because I need to make my leased Lexus payment.”

        2. My perception is people think Denver is actually in the mountains, that it’s a laid back, affordable city, and you’ll spend all your time hiking, skiing and smoking weed. It also seems like a lot of people think a change of scenery will change who they are, so “moving to Colorado” is used as a substitute for having a personality.
          In the past several weeks I’ve talked to:
          A. Pseudo-hippie from Florida who “dreamed her whole life of moving to Colorado.”
          B. white collar family man from Sunbelt, quit his good job and rented a house in Denver for $3k/mo with no job lined up, and moved his family out without visiting the city beforehand, because he’s “a laid-back, open minded, liberal person.”
          C. Late 20s woman from New England who works three part time jobs plus uber and doordash to afford a room in a house with 4 other 20/30s single people.
          D. Lawyer from New York who moved here because they were tired of the rat race, bought a house for almost as much as they would’ve paid in New York, but still work 80 hours a week.

          1. All four were totally stupid. They could have gotten the “flavor of Denver” by spending 20 minutes on GoogleMaps and 30 minutes on Zillow.

            I’m waiting for the story of some obese person going to Denver to lose weight because Denver is the thinnest city in the country.

          2. “My perception is people think Denver is actually in the mountains, that it’s a laid back, affordable city, and you’ll spend all your time hiking, skiing and smoking weed.”

            The interesting thing is … that perception was true in the past. People were laid back and it was easy to go hiking, skiing, and other outdoor activates.

            The more people that arrive here the more it destroys what Colorado was. It is choking in traffic, you have to leave at 5 am and still sit in 2 or 3 hours of traffic to go skiing and it is impossible to move around after work. By the time traffic dies down it is kinda late to start a hike.

            Not to mention all the people flooding in has changed the culture significantly and wound this city up like New York or San Francisco. Colorado used to have a culture of people eating very healthy, staying very active, and a noticeable amount of high performing athletes. While some of this still exists it is no longer a noticeable part of what Colorado is.

      3. “The Colorado Lifestyle”

        In Denver, defined as sitting in traffic, waiting in line at Snooze, overpaying for mediocre beer (just because you can brew beer doesn’t mean it’s good, panhandlers everywhere…

    2. ‘There is some weakness in the ultra-high-end market…There is a limit to how many people are willing to pay $4,000 a month for a one-bedroom apartment’

      Yeah, I was gonna say…a very very low limit as soon as there are lots of almost as nice places for 3k. And lots of reasonably nice places for 2k.

  2. ‘The real estate community has placed almost universal blame for New York’s slow family market on the Democrats taking full control of the state government following November’s elections’

    NYC airboxes have been sinking like a turd in a well for at least three years.

  3. ‘Related California is currently developing $2.5B worth of projects in San Francisco, Chief Development Officer Gino Canori said, including 1,800 homes’

    Wa? Build in California?

    ‘But Canori thinks it makes sense to slow investment. ‘I think the break is already here’

    Remember a while back that the SF Chronicle reported a Related guy saying every single commercial project in downtown SF was for sale. The market was dead in the water then.

  4. “…now appears to be contributing to what is emerging as excess supply of the most expensive units….”

    Hey David Pierce, What ever happened to your “shortage”?

  5. Not sure how you justify paying off everyone’s student loan when you can use the money for a new mtn bike and a vacation in HI. USA should help pay off a lot of the tuition expenses, not living expenses.

    1. “…how you justify paying off everyone’s student loan when you can use the money for a new mtn bike and a vacation in HI….”

      That dovetails into what I consider the biggest scam in the known universe – namely “luxury” student housing.

      Can anyone give just one reason why you would want to pay for 24*7 access to a pool table or massage room or party kitchen with borrowed money?

      When you calculate compounding effects and the true future cost of money so early in a students life , your looking at the most expensive Friday beer busts in history.

      1. Lazy Rivers and Student Debt

        Kellie Woodhouse
        June 15, 2015

        “There’s not much Elizabeth Warren and Chris Christie agree on. But last week they struck a similar chord in speeches that knocked increasingly common and luxurious college amenities like climbing walls and lazy rivers.”

        “Such features, Warren said in a June 10 speech, contribute to rising tuition. A day later, Christie criticized colleges that are “drunk on cash and embarking on crazy spending binges,” including the building of amenities like climbing walls.”

        https://www.insidehighered.com/news/2015/06/15/are-lazy-rivers-and-climbing-walls-driving-cost-college

      1. Nope, we won’t get a refund, but our tuition was a third less or more than today’s cost. Helping others is a good thing for a smarter America.

        1. I see no reason to “help others” get soyboy BAs from no-name private colleges whose only specialty is charging $60K tuition.

          1. Agreed. The plan needs real tweaking for those who went to fake-schools. As usual, nothing changes for fear of abuse (rightly so).

        2. My alma mater has jacked its tuition up to eight-fold what it had been. The state never subsidized more than half, so 4x is pure waste (administrators rather than faculty).

          Government-guaranteed student loans have done a lot of damage.

          1. Government

            Yet they tell us more government cheese is needed to fix what the government already did.

          2. And yet it is private, for-profit colleges that are the shackle students with the most worthless degrees and leave them high and dry with mounds of debt.

        3. So, DemoRATS will just pull numbers out of their azz like you just did, making ASSumptions about what other people paid and determining them undeserving? I see….

  6. Here in the Dallas area there’s a invasion of apartments around the nicest residential area. Here’s the kicker:

    “Starting in 2012, the agency(HUD) sweetened Section 8 voucher payments, and pointed inner-city recipients to the far-flung counties surrounding Dallas. As government-subsidized rentals spread in all areas of the Metroplex (163 ZIP codes vs. 129 ZIP codes), so did crime.

    Now Dallas has one of the highest murder rates in the nation, and recently had to call in state troopers to help police control it. For the first time, violent crime has shifted to the tony bedroom communities north of the city. Three suburbs that have seen the most Section 8 transfers — Frisco, Plano and McKinney — have suffered unprecedented spikes in rapes, assaults and break-ins, including home invasions.”

    1. Crime and poverty go hand in hand. Look for an absolute explosion of violent crime as the meltdown begins in earnest.

      1. It works the other way too crime causes poverty. No one wants to live or run a business in a high crime area. People are willing to pay much higher prices for homes in low crime areas.

  7. Here in the Dallas area there’s an invasion of apartments, around the nicest residential areas. Here’s the kicker:

    “Starting in 2012, the agency(HUD) sweetened Section 8 voucher payments, and pointed inner-city recipients to the far-flung counties surrounding Dallas. As government-subsidized rentals spread in all areas of the Metroplex (163 ZIP codes vs. 129 ZIP codes), so did crime.

    Now Dallas has one of the highest murder rates in the nation, and recently had to call in state troopers to help police control it. For the first time, violent crime has shifted to the tony bedroom communities north of the city. Three suburbs that have seen the most Section 8 transfers — Frisco, Plano and McKinney — have suffered unprecedented spikes in rapes, assaults and break-ins, including home invasions.”

  8. No, no, you guys are all wrong — Skylar says we’re all going to pay more for it and we’re all gonna like it.

    Come on, drop your standard of living so that he can stick his hand into your wallets and get rich.

    1. We’re probably not going to like it, but in the near term she is probably correct. Housing prices and rents are up significantly over the last 10 years. With QT ending and the Fed now set to cut interest rates 3-4 times in the next year, they are trying to keep prices high. It is Nimby-ism and generational warfare.

      The problem with housing is that it is difficult to go on a buyer’s strike. Shelter costs are high in areas that have good job activity and the entire industry has become financialized.

      That is why I think an out-of-the-box solution is the best form of defense for individuals who are trying to outlast the bubble without succumbing to these prices. If you can live with family, in a vehicle, or in an RV, I consider that a pretty good option.

      1. I’m helping someone who needs to come up to speed on RVs for full time living right now. I expect it (people living in RVs) to become a flashpoint in some areas in the way that AirBnB / short-term rentals have.

        Hmmm… invest in new RV parks? Hmm…

      2. out-of-the-box solution

        Might mean outside the box.

        I have about 15 years experience living outside the box. I’ve enjoyed it and saved enough to retire. The system of debt/rent isn’t difficult to escape if you have not become a creature of it.

        1. … or if the Fed continues down the current path of insanity, we’ll all be living “inside the box”, under a highway overpass…

      3. Too late – the RV bubble has come and gone. People will be moving BACK into apartments and houses as they come down in price. We have reached peak rents and peak RV living.

        1. Largely agree.

          I think we have reached peak RV bubble with people having RVs parked in their extra dedicated RV garage spot or on the side of their McMansion. But I don’t think we have quite yet reached the saturation point of people actually choosing permanent RV shelter over apartment renting or having a mortgage.

          1. Yeah. Not everyone is cut out for that kind of life anyway, and some have to figure it out the hard way.

            The person I’ve been talking with this week has a situation where an RV makes an above average amount of sense, but they are not typical.

  9. I check real estate listings for a handful of west coast towns every once in a while, maybe a couple times a month at most. All of the cheapest houses are still pending, and the overpriced stuff sits. By the looks of sold prices on the lower stuff, it’s going to be 3+ years before anything is even remotely affordable or worth a look. Everything is outrageously overpriced.

  10. During the last crash I purchased a townhome in rancho mirage, CA for 75% off the highs.
    It will happen again

  11. “The real estate community has placed almost universal blame for New York’s slow family market on the Democrats taking full control of the state government following November’s elections.

    Well, ain’t this rich. Just when the REIC had the corrupt corporate Democrat Party machine bought and paid for, along come the far-left AOC progressives and their Gimme Dat supporters, flush with victory and ready to stick it da man! LMAO! Now the NYC progressives are going to install far-left authorities like the DA who will give them legal top cover to take their “redistribution of the wealth” to the next level. Now now the oligarchs that have had free rein to engage in the unfettered looting and asset-stripping of the 99%, thanks to their cozy relationship with the Fed and corporate Democrats, might now find the tables are turned as that “ultra-luxury real estate” will be low-hanging fruit for the progressives to tax, tax, and tax some more. Man oh man, I’m going to SO enjoy watching NYC go down the drain.

    https://www.nydailynews.com/news/politics/ny-tiffany-caban-ocasio-cortez-queens-da-20190626-5kwbs5mge5ealgz3ooeac6d6xq-story.html

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