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It Can Be Hard To Differentiate In An Over-Saturated Market

A report from the News Gazette in Illinois. “Although investors in private student housing have cited concerns about vacancy rates and overbuilding in the Champaign-Urbana market, even more substantial student housing complexes are slated to open this fall. ‘The overall occupancy rate in the area is 84 percent,” wrote appraisers for Latitude’s owners. ‘The subject (property) also has several first floor retail units. Demand is weak for these units and leasing is not occurring as projected.'”

“Meanwhile, more apartment units are on the local market this fall. And more units are in the development pipeline for years after that. But what the report didn’t address — and what for now is an uncertainty — is what happens when the higher education bubble bursts. What happens to university communities and their big inventory of student housing when there are fewer students and an overabundance of apartments?”

From Crain’s Cleveland Business in Ohio. “Recent rents have been coming in at just more than $800 per month, said Brian Gage, executive director of the Akron Metropolitan Housing Authority. Rents have been on the rise in Akron in recent years, and are up about 9% in the past decade, despite the city and region losing population, Gage said, adding he thinks the city overbuilt its student housing when it expected the University of Akron to grow. Much of that housing is not useful for families.”

The Daily Wildcat in Arizona. “Ward 1 City Council candidates and the three competing democratic Tucson mayoral candidates came together to discuss gentrification in Tucson. Luxury student housing developments have appeared at an incredible rate, causing concern and push-back within the community.”

“More high-rise, high-end student housing continues to be built in and around downtown– though candidate Lane Santa Cruz called the market over-saturated, developers would seem to disagree. ‘There are a surprising number of students with deep pockets looking for a certain lifestyle,’ said mayoral candidate and former developer Randi Dorman.”

“After community push-back, high-rises claimed the stage. Dorman said in this way, they’re a positive impact. She speculated that, especially with the Mark on Broadway, Tucson may finally be hitting saturation of luxury student housing.”

From Multi-Housing News on Colorado. “It can be hard to differentiate your apartment communities in an over-saturated market. Many prospective renters begin their search online, and often times their search criteria will return hundreds of options. So how do you set your community apart from the rest?”

“‘Same is lame, we need to differentiate,’ said Lisa Trosien, president of ApartmentExpert.com, during her session at the National Apartment Association’s Apartmentalize conference in Denver.”

The Real Deal on Florida. “A Miami-based private equity firm is doubling its fundraising goal to $200 million to buy up distressed commercial real estate loans. Besides Safe Harbor Equity. London-based Cheyne Capital and New York City-based Churchill Real Estate Holdings are among the private equity firms looking to profit from the distressed loans.”

“One recent foreclosure was initiated by Madison Realty Capital over $40.6 million of allegedly delinquent construction debt for Costa Hollywood Beach Resort, a new 326-unit condo-hotel in Hollywood.”

The Wall Street Journal on New York. “Buyers have been racing to close on purchases of expensive Manhattan homes to avoid higher taxes that take effect July 1. Yet the surge of closings wasn’t enough to offset weakening apartment sales in the second quarter, according to a Wall Street Journal analysis of city property sales.”

“‘Rich people didn’t get rich by wasting money,’ said Kirk Henckels, the vice chairman of brokerage Stribling & Associates.”

“But overall sales of existing apartments fell 2.3% during the second quarter. Other measures of the strength of the market also deteriorated. Inventory rose and the number of luxury contracts signed fell. Closing prices were sold at an average discount of 9% from initial asking prices, the highest such discount in many years, said Garrett Derderian, managing director for market analysis at brokerage CORE.”

“Donna Olshan, a Manhattan broker who compiled statistics on the luxury market, found that the number of contracts signed for apartments listed or $4 million in the second quarter fell by 16.1% compared with the same quarter last year, to the slowest pace in seven years.”

“Lisa Lippman, a broker at Brown Harris Stevens, said she had seven closings last week. ‘There won’t be a closing for the next two or three months,’ she said.”

This Post Has 58 Comments
  1. ‘Closing prices were sold at an average discount of 9% from initial asking prices, the highest such discount in many years…te number of contracts signed for apartments listed or $4 million in the second quarter fell by 16.1% compared with the same quarter last year, to the slowest pace in seven years’

    After falling for three years, it just gets worser and worser.

  2. ‘Santa Cruz called the market over-saturated, developers would seem to disagree. ‘There are a surprising number of students with deep pockets looking for a certain lifestyle,’ said mayoral candidate and former developer Randi Dorman’

    Randi here shows how we got into this mess. They focus on the amount of money they can stuff in their pockets and overlook little things like supply and demand.

  3. There are a surprising number of students with deep pockets looking for a certain lifestyle,’ said mayoral candidate and former developer Randi Dorman’

    Can you say access to student loans which the Democrats running for president want to forgive?

    1. Dan i really think my time will come cancel your degree cancel your debt… Hand it back throw in the towel but any job that requires a degree you can not apply for, or keep. But there are lower tired jobs you can get. hand in your JD, well become a highly qualified debt free paralegal.

      1. A lot of jobs don’t even require degrees anymore. Microsoft and Google both stopped requiring degrees years ago, and even stodgy Ernst and Young dropped their requirement:

        https://www.timeshighereducation.com/news/ernst-and-young-drops-degree-classification-threshold-graduate-recruitment

        This is a trend that bears watching. In the future, education will be an ongoing thing, you won’t just spend four years at some brick-lined place and then go off into your job.

        1. But in the mean time, unions civil service require a degree, and i am totally opposed to just forgiving loans without some serious penalties, talk about a moral hazard.

          1. A tremendous moral hazard indeed.

            Like most new systems, there will quickly be people looking to game it. Why use all the money in the 529 your parents set up at birth and go the starving student route working in the bookstore in the evenings, when by being creative on the forms, you can use cancelable loans to live it up ‘Back to School’ (Dangerfield) style for 4 years and then walk away from the bill? Sure you handed back your degree, but you went in knowing it was a field that didn’t always require a degree to get in the door, and what they couldn’t take away was your actual education which you did show up for and pay attention to. You were able to find and convince an employer to hire you on, you did a good job, and now it’s your experience and resume, not your degree that will get you your next job. Contrast that with your co-worker in the same positions who was dumb enough to play by the rules and spends his 20s and 30s paying off his student loans. But hey, he has a degree on the wall.

          2. “…totally opposed to just forgiving loans without some serious penalties, talk about a moral hazard.”

            How about waving $10k for each year of military service with a four-year minimum commitment?

        2. Google and MS probably dont want to deal with the hassle of validating all those fake degrees their H1B employees claim. MS is dying anyway, headed for the ash heap of history (linux is killing it now) and Google has gone full Orwell for its business model.

          Boeing planes are dropping out of the sky due to idiotic, greedy management and a reliance on incompetent (but cheap!) foreign engineers. Its the microsoft tech/business model applied to planes and we can clearly see the result. Remember the joke about if a car operated like a computer with windows, requiring the driver to pull over and restart? No reboots at 30K feet.

    2. Are college students being overcharged on loans to pay for ‘Obamacare’?

      When the health-care law was passed in 2010, Democrats slipped in massive changes to student-loan programs, essentially cutting banks out of the business. In the official score of the health-care bill by the Congressional Budget Office, ending federal guarantees for federal loans and replacing them with direct loans made by the Education Department would yield $58 billion between 2010 and 2019.

      All federal money is fungible, but with such a large pot of money suddenly (theoretically) available, Congress wanted to spend it on other things. Here’s the breakdown of where the money went:

      $36 billion on increases in Pell college grants for low-income students.

      $10.3 billion for deficit reduction.

      $8.7 billion to support the health care law.

      $3 billion for historically black colleges and minority-serving institutions.

      https://www.washingtonpost.com/blogs/fact-checker/post/are-college-students-are-being-overcharged-on-loans-to-pay-for-obamacare/2013/07/16/ce0d3794-ee3f-11e2-bed3-b9b6fe264871_blog.html

  4. first floor retail units. Demand is weak ……..personally i would love a first floor unit with some outside space not only for us but for the cat too…i have friends on a 52nd floor apartment fantastic views but a little unnerving sitting on a balcony so high up…

  5. “From Multi-Housing News on Colorado.”
    Article title: “Leasing in a Saturated Market”
    June 28, 2019 | By Meeghan Fuhr

    – That title speaks volumes. I read “overbuilt and continuing to overbuild.” That’s accurately describes Denver, and many other USA MSAs currently. “Differentiation” isn’t going to change the outcome. Misallocation of capital/malinvestment, courtesy of cheap credit from the Fed. End result: falling rents + some investor/builders going BK when the recession hits. The current mainstream view is “keep building”. Builders gotta build, and they overbuild every cycle, but this one’s a monster. I’m sure this will end well though. /s

    1. And the shortage of Denver renters who can pay $4,000 a month for a one bedroom airbox, as was mentioned here recently.

      1. Assuming ~30% of gross income to housing (rent): $4K/mo.*12mo./yr.=$48K/yr/0.30=$160K/yr annual salary req’d.

        So, what’s the median income in the Denver MSA? I seriously doubt is $160k. More like $60k. Does anyone (i.e. builder/developer) “do the math” anymore, or don’t historical housing to income metrics still apply? Must be the “new” math of Common Core starting to kick in, or something.

  6. Demand is weak for these units and leasing is not occurring as projected.’”

    “As projected” by who? Paid REIC touts and shills? How on earth are tapped-out middle class parents, who can’t even afford ever-rising college tuition, going to pay for “luxury” student apartments when they’re already being sucked under by a financial undertow?

  7. “The United States has 45 million more people and 20 million more households than it did in 2000. But home sales are lower than they were two decades ago and there is a deficit of about 5 million to 6 million [affordable] housing units, estimates Lawrence Yun, chief economist with the National Association of Realtors. ‘Something is not right,’ said Yun, who spoke on a midyear economic forecast panel at NAREE.”

    https://www.attomdata.com/news/market-trends/home-sales-prices/q2-2019-u-s-home-affordability-report/
    Median-Priced Homes Not Affordable for Average Wage Earners in 74 Percent of U.S. Housing Markets
    “IRVINE, Calif. – June 27, 2019 — ATTOM Data Solutions, curator of the nation’s premier property database and first property data provider of Data-as-a-Service (DaaS), today released its Q2 2019 U.S. Home Affordability Report, which shows that median home prices in the second quarter of 2019 were not affordable for average wage earners in 353 of 480 U.S. counties analyzed in the report (74 percent).”

    And yet it’s apparently difficult to “connect the dots.”; it’s nothing that lower housing prices won’t fix.

    1. More dots connected.

      https://www.zerohedge.com/news/2019-06-29/vancouver-housing-unaffordability-due-foreign-ownership-chinese-funds-migrant

      See first chart. Only 4% foreign buyers correlated with more than doubling the home price to income ratio in Vancouver.

      I tried to make an offer a place in San Diego about three years ago on the day of the first open house. The agent didn’t answer any calls for two days following. A few days later got a return call. Some one from a ‘foreign country’ went to the open house placed an all cash offer well over the asking price, waived the inspection, and put down a larger non refundable deposit. The owners accepted immediately. It only takes a few of these transactions to significantly skew the comps in a zip code.

      1. Reminds me of John Templeton who quipped, “Investing is all about helping people. When people are desperate to sell, you help them by buying. When people are desperate to buy, you help them by selling.”

      2. No attention paid to there being a lot of people whose livelihood is better off not connecting the dots…

        1. These are strange days. The financial alchemists seem to have mesmerized the populace with mumbo jumbo hocus pocus voodoo acronym-based economic magical thinking. But as others have observed..,you can ignore reality, but you can’t ignore the consequences of ignoring reality.

          1. Actually, although attributed to her, this quote never appeared in Ayn Rand’s writings. Perhaps paraphrasing something she wrote.

  8. “Buyers have been racing to close on purchases of expensive Manhattan homes to avoid higher taxes that take effect July 1. </em

    Have these lemming buyers not been paying attention? The Gimme Dats are now the majority in NYC, thanks to changing demographics courtesy of the open borders promoted by the self-same corrupt corporate Democrats who are now getting bilged by AOC-style socialistas because they don't "represent the community" (several shades too pale). The far-left "progressives" taking over the governance of the city, lifelong underachievers steeped in a culture of envy, will look at all those "ultra-luxury" apartments and their wealthy owners as cash cows to be taxed, taxed, and taxed some more – "redistribution of the wealth" is the first principle of any good collectivist comrade, after all. Forward!

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

    1. We’ll just sell the rest of the country to foreign buyers to go along with all the farmland and businesses that have been sold to them. Simple. Solved. No problems at all. /s

    1. When foreign money affects the housing prices to the point that American buyers are pushed out as a result, than it’s time for a rethink on foreign investment. Maybe a foreign tax .

      A bunch of these foreign bought houses are sitting vacant. American buyers drive up the prices in other countries leaving the locals priced out.

      Countries have to be protected from foreign invasion by any means.

      1. Maybe a foreign tax

        +1. I’d say that it makes sense to have a surtax on any property (residential/commercial) or land that cannot be tied back to a US tax return. This also gets at the problem that Canada has with “satellite families” living in the US but the breadwinner resides in another country.

        1. This also gets at the problem that Canada has with “satellite families” living in the US but the breadwinner resides in another country.

          One thing that doesn’t get talked about much is that at least some satellite families are actually second families. It’s a Chinese thing. Their modern laws officially forbid it but culturally they are still a harem society.

      2. It’s Chinbabwe. They have been printing money like there’s no tomorrow – enough money that it has driven the price of real estate across the entire globe to stratospheric levels.

    2. Saw it 20 years ago in climatology where in order to get funding you had to sell the notion that there was some sort of crisis. It was a nuisance that most researchers at the time tolerated, understanding that was the game they had to play in order to do some “real” science on the side. The biggest snake oil salesmen of the time produced meaningless/inconclusive results but nonetheless wined and dined with heads of state and were treated like rock stars.

      Most of the honest researchers have since retired and their ranks replaced by “muh diversity” types that are far less intelligent – just read their doctoral theses, they’re an embarrassment – and are true believers in the “sell crisis” business model.

  9. Anybody that thinks that globalism has any merits in terms of creating stable economic Countries is not realistic.

  10. “But what the report didn’t address — and what for now is an uncertainty — is what happens when the higher education bubble bursts. What happens to university communities and their big inventory of student housing when there are fewer students and an overabundance of apartments?”

    Which reminds me, I’m trying to convince one of my sons to complete his degree online while living at home and working. If lots of families save education expenses by this approach, what will become of on campus housing demand?

    1. I’m trying to convince one of my sons to complete his degree online while living at home and working.

      Good for you. Is he amenable to your suggestions? Media has sold the college experience for decades so even though your suggestion is wise, it might be difficult to sell the younger crowd. Just look at the college admission scandal:

      “I don’t really care about school as you all know” @ 1:20

      https://www.youtube.com/watch?v=gZMKH4wjoZc

    2. I really like the idea of first 2 years at a community college (or online), then transferring to a “place with a name.”

      Can you get fully online BAs now at places with a decent rep? That would be nice.

    1. Yet everything on the low end is pending, with flippers still extremely active. Can’t wait until a year from now when the bust is undeniably horrific.

      1. I read that half of the under 200k houses sold in Philly last year were purchased by investors. I. Can. Not. Wait.

    1. I have been trying to think of when the American middle class prosperty started changing in the USA. I come up with around 1978.

      Prior to the 80,s we were more nationlistic with the corporations willing to give a greater share of the pie to workers. Than the “greed is good ” decade came . Than what followed was the corporations getting the politicans to make laws that allowed the Corporations to decouple from American workers. Me

      Profit became the highest goal when before 1978 the Nation and it’s workers were in sink with each other.

      Post World War ll the USA was rah rah America and the Corporations wouldn’t dare betray the people’s share of the pie. I’m just saying it was a attitude

      Wages doubled between 1950 and 1960. Any growth resulted in the worker bees getting the benefits. Free market capitalism was operative and that only served to make companies want to do better. Now Companies want to charge more and give you less.

      I’m just saying between 1945 and 1978 let’s say the power balance in USA was pretty good. Wall Street was kept in check by the Glass-Steagal Act from the 30,s.

      How could Globalism, outsourcing, price fixing monopolies, open borders, and fake bubbles be the ticket to prosperty for the majority USA worker.

      1. I dont think you can discredit the power and effectiveness of labor unions during your goldilocks era. Also, I think the decline begins in the 1950s with the merger of CIO-AFL. Then the final blow was the Motor Carrier Act of 1980.

        1. Yes, the decline of labor has had a negative effect in the race to the bottom where employees are treated as replaceable widgets.

        2. That what I mean by the power balance being good and that included Unions.

          The workers can get to greedy also.

          1. Definitely. The pendulum can swing too far in either direction. Right now the redistribution is in full effect funneling all the wealth to the top.

      2. “I have been trying to think of when the American middle class prosperty started changing in the USA. I come up with around 1978.”

        Likely earlier in the seventies: “On August 15, 1971, President Richard M. Nixon announced his New Economic Policy, a program “to create a new prosperity without war.” Known colloquially as the “Nixon shock,” the initiative marked the beginning of the end for the Bretton Woods system of fixed exchange rates established at the end of World War II.”

        But don’t forget these costly events, 1965 – The Great Society program; 1967 – Israel captures the West Bank Territory; 1968 – Tet Offensive; 1971 – End of the Gold Standard; 1972 – The Clean Water Act; 1973 – The Yom Kippur War; 1973 – OPEC Oil Embargo; etc. And the seventy’s recessions were brutal.

      3. I come up with around 1978.

        Like almost everyone in Wyoming around that time I liked Reagan because he said what I wanted to hear. I have an uncle that STILL has his 1976 primary campaign sticker on a vehicle.

        But I gotta admit people make a pretty good case for a lot of these issues starting with him, despite how fun he was to listen to. Or else it was baked into the cake once we went off the gold standard a few years before?

        1. a lot of these issues starting with him

          An attempt on his life 69 days into his presidency and his VP was who? The same family behind Nixon?

          1. I’m open to the idea that it wasn’t him as an individual but “him” as a presidency.

  11. “‘Rich people didn’t get rich by wasting money,’ said Kirk Henckels, the vice chairman of brokerage Stribling & Associates.”

    Eat yer Crows D00med!

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