Multi-Family Sector to Improve, Still in For a Rough Ride in 2010

by in News, Real Estate - · 11 Comments  

The outlook is slow but optimistic

multifamily apartment outlook Multi Family Sector to Improve, Still in For a Rough Ride in 2010According to Reuters, CB Richard Ellis (CBRE) expects apartment vacancy rates to remain high through 2010 hovering around 7%, and rent growth is not projected to resume until 2011. Apartment loan defaults are up (second only to hotels), rental rates are declining, and vacancy rates have recently been higher in multi-family than any other sector despite prospective homeowners turning into renters as a result of the credit crunch squeezing out people who can no longer qualify.

Obviously, some cities are doing better than others, but apartment management companies across the nation are frequently adding rent incentives and creative giveaways to draw renters. In my experience (long story), 3% occupancy is acceptable and even expected but beyond that, the boss upstairs (in another state) gets antsy. Vacancy rates are expected to do a little better next year nationally, but what about your market? Is multi family thriving or diving in your area?

Tagged with: • •  
KeepSum - real estate daily deals for business professionals
Share →
Columnist

Lani Rosales

in News
Full profile
Lani Rosales's website
+Follow Lani Rosales

AGBeat Chief Operating Officer: Lani, named one of Real Estate's 100 Most Influential, as well as 12 Most Influential Women in Real Estate, is a business writer hailing from the great state of Texas in the city of Austin. As a digital native, Lani is immersed not only in advanced technologies and new media, but is also a stats nerd often burried in piles of reports. Lani is a proven leader, thoughtful speaker, and vested partner at AGBeat.

Email Lani Rosales
Post comment as
twitter logo facebook logo
Sort: Newest | Oldest
Antelope Valley Real Estate

The thought of owning rental property does not appeal to me at all. Now it is even more unappealing. I'm just not cut out for it. Good article though.

share
  • spam
  • offensive
  • disagree
  • off topic
 Like
Artur | AZ Apartment Investor

Lani, Tricky is an understatement. On the one hand there are all these people losing homes, but they usually move in to homes next door just purchased by investors, not apartments. Although we've seen some people scale down into apartments that's not a trend. Rental rates seem to have stabilized, but they are down double digits in true numbers from early last year. I don't see them going down more then current rates. On the other hand, savvy brave investors can get a spectacular return on some properties. Imagine a 14 unit property for $400,000 and a current market 11 cap rate or a four-plex for $130,000 with repairs with monthly income of $2,500 less 38% expenses.

share
  • spam
  • offensive
  • disagree
  • off topic
 Like
Artur | AZ Apartment Investor

In Greater Phoenix apartment vacancies exceed the national numbers by quite a bit. Overall 14% vacancy while some segments are as high as 26% vacancy. For small multifamily properties the fight for tenants is tough. It's not only physical vacancy, but economic vacancy that's having a grave influence on the market. There are concessions and rents are down. This lower income has resulted in a deluge of small multifamily properties entering the market, mostly thrashed and vacant. The medium and larger complexes are right behind. I can't see any improvement until the unemployment rate decreases which will probably take longer here then the U.S average. 2010 still looks like a weak year and it won't be until 2012 that it may improve. The good thing is, that there not much supply being added to the stock, so once the stronger market returns it will be a very good one, at least that's what the crystal ball said.

share
  • spam
  • offensive
  • disagree
  • off topic
 Like
Lani Rosales

Artur, Phoenix is a tricky market, isn't it?? Do you think that with it being so tough for people to qualify for mortgages that rentals will become increasingly mainstream living? Some project that will be so. You're lucky in that supply isn't being added, Austin (where we are) still have more multi-family coming online and our condo market which got approval and got started back in 2005 is just now coming live with units and we're in a tight spot. How are rental rates in Phoenix, are they going up, down or are they stable?

share
  • spam
  • offensive
  • disagree
  • off topic
 Like
Duke Long

Lani, We do a lot of property management The market here is very stable.One main reason is the Big Ten university out our back door.You may think it is because of the students.I think it is because of the stable employment base that the university provides.

share
  • spam
  • offensive
  • disagree
  • off topic
 Like
Lani Rosales

Sidenote/two cents: That makes sense on a small scale and I say small because in Austin (home of the University of Texas, one of the largest colleges in the nation, along with 4 other colleges in the city) struggles despite DIVERSE mass employment- we're the capital, so government jobs have been seen as stable (although hiring and raises are frozen since last year), the universities have provided renters (although only on the bus routes and nearby), we are the silicon valley of the South (although layoffs and company closings have hit us in the gut), etc. So I feel you on the "we have stability" front, but Austin was deemed "recession proof" a few years ago and everyone scoffed as the world crumbled around us and we stayed strong... now, we don't take stability for granted.

share
  • spam
  • offensive
  • disagree
  • off topic
 Like
Susan

I've heard the same thing from investors who are worried about buying complex' and not being able to fill them with tenants. Everyone who can buy is buying, but there are still so many people with bad credit, that with the right advertising and a rental price that can compete well in whatever area the property is in, it can get rented quickly.

share
  • spam
  • offensive
  • disagree
  • off topic
 Like
Antelope Valley Real Estate

The thought of owning rental property does not appeal to me at all. Now it is even more unappealing. I'm just not cut out for it. Good article though.

share
  • spam
  • offensive
  • disagree
  • off topic
 Like
Artur | AZ Apartment Investor

Lani,
Tricky is an understatement. On the one hand there are all these people losing homes, but they usually move in to homes next door just purchased by investors, not apartments. Although we've seen some people scale down into apartments that's not a trend.
Rental rates seem to have stabilized, but they are down double digits in true numbers from early last year. I don't see them going down more then current rates.
On the other hand, savvy brave investors can get a spectacular return on some properties. Imagine a 14 unit property for $400,000 and a current market 11 cap rate or a four-plex for $130,000 with repairs with monthly income of $2,500 less 38% expenses.

share
  • spam
  • offensive
  • disagree
  • off topic
 Like
Artur | AZ Apartment Investor

In Greater Phoenix apartment vacancies exceed the national numbers by quite a bit. Overall 14% vacancy while some segments are as high as 26% vacancy.
For small multifamily properties the fight for tenants is tough. It's not only physical vacancy, but economic vacancy that's having a grave influence on the market. There are concessions and rents are down.
This lower income has resulted in a deluge of small multifamily properties entering the market, mostly thrashed and vacant. The medium and larger complexes are right behind.
I can't see any improvement until the unemployment rate decreases which will probably take longer here then the U.S average. 2010 still looks like a weak year and it won't be until 2012 that it may improve. The good thing is, that there not much supply being added to the stock, so once the stronger market returns it will be a very good one, at least that's what the crystal ball said.

share
  • spam
  • offensive
  • disagree
  • off topic
 Like
Lani Rosales

Artur, Phoenix is a tricky market, isn't it?? Do you think that with it being so tough for people to qualify for mortgages that rentals will become increasingly mainstream living? Some project that will be so.

You're lucky in that supply isn't being added, Austin (where we are) still have more multi-family coming online and our condo market which got approval and got started back in 2005 is just now coming live with units and we're in a tight spot.

How are rental rates in Phoenix, are they going up, down or are they stable?

share
  • spam
  • offensive
  • disagree
  • off topic
 Like
Duke Long

Lani, We do a lot of property management The market here is very stable.One main reason is the Big Ten university out our back door.You may think it is because of the students.I think it is because of the stable employment base that the university provides.

share
  • spam
  • offensive
  • disagree
  • off topic
 Like
Lani Rosales

Sidenote/two cents:
That makes sense on a small scale and I say small because in Austin (home of the University of Texas, one of the largest colleges in the nation, along with 4 other colleges in the city) struggles despite DIVERSE mass employment- we're the capital, so government jobs have been seen as stable (although hiring and raises are frozen since last year), the universities have provided renters (although only on the bus routes and nearby), we are the silicon valley of the South (although layoffs and company closings have hit us in the gut), etc. So I feel you on the "we have stability" front, but Austin was deemed "recession proof" a few years ago and everyone scoffed as the world crumbled around us and we stayed strong... now, we don't take stability for granted.

share
  • spam
  • offensive
  • disagree
  • off topic
 Like
Susan

I've heard the same thing from investors who are worried about buying complex' and not being able to fill them with tenants. Everyone who can buy is buying, but there are still so many people with bad credit, that with the right advertising and a rental price that can compete well in whatever area the property is in, it can get rented quickly.

share
  • spam
  • offensive
  • disagree
  • off topic
 Like
Social Reactions
  1. Real Estate Feeds says:
    December 14, 2009 at 5:37 am

    Multi-Family Sector to Improve, Still in For a Rough Ride in 2010: The outlook is slow but optimistic
    According to … http://bit.ly/797ybR

  2. Residential Real Estate Sector Back on Track to Recovery? says:
    December 17, 2009 at 12:07 am

    [...] going with pig in a tutu… Multi-family construction starts skyrocketed 67.3% but with vacancy rates and values being less than desireable, what’s 67% of desolation? Celebrating might be a little premature for this sector but at [...]

  3. Multi-family real estate vacancies are up, rents are down says:
    April 7, 2010 at 10:30 pm

    [...] December 2009, CBRE projected rents to remain low and vacancies high throughout 2010 with potential improvement to resume in [...]

  4. AgentGenius says:
    August 13, 2010 at 1:17 am

    #agnow The thought of owning rental property does not appeal to me at all. Now it is even more unappealing. I'm jus… http://bit.ly/53CmXO

Grab Yours!

Limited FREE seats available right now...

The business camp you cannot afford to miss...