USC forecast: Rents expected to climb in SD

Written By Lily Leung

April 4, 2012

Average rents in the San Diego area rose 4.3 percent in 2011 and are expected to rise at a slower rate in the next year, according to a preview of USC's multifamily report on Wednesday. Vacancy rates locally also are expected to go up.

Some of the factors in play that may impact rental rates this year include high gas prices and an overall decline of San Diego home prices, based on a presentation by Tracey Seslen, an assistant professor of clinical finance at USC's school of business. 

"Things are not doing well for SoCal for the first couple of months in employment; we have to keep an eye on that," said Seslen, who presented a sneak peek of the multifamily report from USC's Lusk Center for Real Estate, at the Lodge at Torrey Pines on Wednesday.

The report said vacancies in the San Diego area are expected to rise 0.7 percentage points over the next year and 1.3 percentage points over the next two years.

Last year, San Diego showed a stronger growth in rental demand as unemployment fell. Average rents increased 4.3 percent, the second largest increase in the Southern California markets analyzed in the report. Los Angeles was first, with an increase of 6.2 percent. San Diego had the highest occupancy rate at 96.8 percent.

That was the case in almost all of the 40 submarkets tracked in the report, which shows a vast improvement in rental demand from two years ago, when only 3 out of 40 submarkets showed rental increases, Seslen said. 

It's still unclear if falling home prices will take away from rentership. A key factor is employment.

The full Casden report will be available next week as preliminary numbers are ironed out.

Source: UT San Diego 

Are apartments good investments?

San Diego County market relatively healthy, spurred by returnees from Riverside, wariness to buy

 Written by Roger Showley

Nov. 15, 2011

Ocean Village apartments in Oceanside were one of the largest and most recent multifamily projects to change hands in the third quarter, CoStar Group reported. The sale price on the 33-unit project, including retail space, was $11.75 million. The project was originally built as condos but is expected to be handled as a rental for the time being, said the buyers, MG Property Group. — CoStar Group

San Diego County's apartment market is looking up for investors for next year, analysts say.

They point to rising demand, falling vacancies, higher rents and more projects in the pipeline.

"The apartment market is going to be very strong," said Russ Valone, president of MarketPointe Realty Advisors. "There's a lot of demand out there because people are shy about the for-sale marketplace today."

He said younger renters want to be flexible in case job prospects draw them away. Young families are interested in renting foreclosed houses and townhomes rather than buy as they normally would in their late-20s and early-30s. And former owners are settling into apartments.

Valone said some of the increasing demand derives from people who moved to Riverside and Imperial counties for affordable housing and commuted to work in San Diego. Many are renting back in the county to be closer to work.

"So you've seen a repatriation of a lot of households who had left the county for housing but continued to be employed in the county," he said.

Vacancies have not reached the low 2-3 percent range seen in the mid-2000s, since so many singles doubled up or moved back home with relatives. But the present vacancy rate of 4.5 percent is considered a healthy one, as measured in a survey in September of more than 117,800 units in 803 projects.

Economists generally say a 5 percent vacancy rate represents a desirable balance point between supply and demand.

Looking to supply trends, Valone said the number of apartment projects is likely to increase next year after a three-year slump. Only three projects with 185 units are under construction now but seven with 1,051 units have received their final go-ahead and 26 with 5,091 units have received tentative approval.

"We'll see increased supply in the marketplace," he said.

The Construction Industry Research Board in Burbank reported that through September, the number of multifamily units authorized locally was 2,329, more than double the 1,022 approved for the same period last year. That indicates many more new apartments are likely to be available in coming months.

By contrast, single-family homes were virtually unchanged for the same period, 1,744 in 2010 and 1,742 this year.

For existing owners, refinancing of their rental projects has loosened up with money available from Fannie Mae and Freddie Mac, the two government-sponsored enterprises that stumbled in the secondary for-sale market three years ago.

According to real estate attorney, Gordon Gerson, who advises clients seeking financing, both companies are on tap to complete more than $40 billion in multifamily financing and refinancing. Owners previously relied much more on commercial mortgage-backed securities offered by commercial lenders.

"This is a good thing because it means the capital markets have opened the gates of funding in the area of multifamily housing," Gerson said. 

Refinancing means owners can free up capital with lower rates and look for more investment opportunities. They also will not face the need to raise rates on tenants as much, since their cost of borrowing will be lower -- "all of which is good for the economy," he said.

Alejandro Lombrozo, a broker at Cushman & Wakefield, said institutional-grade deals, involving 100 or more units, have drawn many potential buyers. He cited one recent example, Woodbend Shadowridge, a 240-unit project in Vista, that sold for $44.3 million last month -- $185,000 per unit. 

"That had a lot of interest," Lombrozo said, "over 30 tours at the property and close to 20 offers."

He said 10 such sales are expected to close this year, about the same as last year and about what 2012 will bring. But he said things could slow down if interest rates rise significantly or Freddie Mac and Fannie Mae pull back on lending. 

But he said other lenders, particularly life insurance companies, are showing greater interest in San Diego apartments. 

For tenants, the current market has meant rising rents.

Valone said his latest survey showed that the average monthly rent surpassed the previous record, set in September 2008, to reach $1,364 in this past September survey. That represents a 1.3 percent increase since the March survey and 2.2 percent year-over-year. 

The highest rent was $1,719 in downtown San Diego, ahead of the submarket leader in the North County Coastal market, where the average was $1,697.

Gerson said rents are rising partly in reaction to the relatively better economy San Diego than in other markets. 

"As employment increases, you have an increase in rents," he said. But he said they are not rising as fast as in the San Francisco Bay area.

"Not only the Silicon Valley but in other suburbs of San Francisco are doing very well," he said.

Source: SignOnSanDiego

Apartment on Iowa in North Park sold

November 9, 2011

The five residential units in North Park at 4342 Iowa St., San Diego 92104, have been sold for $561,000.

The buyer was Draper LLC, 7011 Draper Ave., La Jolla 92037. The members of Draper are Anthony John Henry Pauker and Kristee Anne Beres Pauker.

The acquisition was financed by a $350,000 loan secured by La Jolla Capital Group through Mission Federal Credit Union.

The sellers of the property (assessor's parcel) were David and Nicola Fiedler.

James V. Carter, senior managing director/principal of Apartment Realty Group (ARG) negotiated the transaction.

The rental units total 3,374 square feet and were constructed in 1956 on a 7,000-square-foot lot.

The rentals consist of three single-level detached units, and two units located in the rear building above four garages.

The unit mix consists of one two-bedroom/one-bathroom unit and four one-bedroom units, all with the original hardwood floors.

In November 2001, the property was sold for $450,000, with financing of $315,000.

Source: San Diego Source The Daily Transcript

5 things to know about commercial real estate

Written by Lily Leung

Oct. 27, 2011

Civita, a new project in Mission Valley will feature a mix of condos and apartments. — John Gastaldo / Union-Tribune staff

I spent Wednesday at the Urban Land Institute fall meeting, a gathering of nearly 6,000 people in the real estate market, representing sectors that include land development, lending and planning.

Here are five must-know takeaway points from the convention, which covers housing but has a prominent commercial market slant. The weeklong function is being held at the Los Angeles Convention Center.

1) There's an air of uncertainty about the commercial market. Stephen Blank, senior fellow at the Urban Land Institute, used the word: "tenuous" or lacking in clarity. Part of that is due to erratic domestic policies, where U.S. government officials went from the "too big to fail" period of fall 2007 to current Dodd-Frank legislation that's "too big to read," Blank said.

2) Those in the commercial field feel over-regulated, impeding progress and growth, they say. Some suggested a more middle-of-the-road approach in financial rules. Mark Gibson, executive managing director of Dallas-based commercial real estate capital company Holliday Fenoglio Fowler, suggested the industry identify municipalities that are in the best spot to "enhance job growth."

3)Which takes us to the next point: employment. Blank, the ULI leader, said the key out of the country's real estate slump is job growth. Locally, certain sectors are showing stronger hiring potential than others. Among the in-demand jobs include nurses, internet developers and retail, show recent numbers from the state Employment Development Department. 

4) The overall commercial sector has been stagnant, but apartments are a bright spot. Rents are rising while vacancies are dropping, a scenario seen locally. Hessam Nadji, a veteran real estate analyst who's widely quoted, called retail the "dark horse" of the pack, with office and industrial at their bottoms.

5) Demographics will be very important in the coming years. The Social Security Administration says almost 80 million baby boomers will file for retirement benefits within the next two decades. Nadji says it will be important for industry people to pay attention to this group's needs and wants, as many plan to downsize and relocate. Another important demographic is what he calls the "echo boomers," also known as Generation Y. Both groups will represent great spending power.

Source: SignOnSanDiego

The lone bright spot in the commercial market

A longtime real estate expert gives his take during an industry event

Written by Lily Leung

Oct. 26, 2011

The commercial real estate market is going through a period of stagnation, with the apartment sector standing as the lone bright spot, said a veteran real estate analyst Wednesday at an industry gathering in Los Angeles.

"I think we're stuck," summarized Marcus & Millichap Real Estate Investment Services executive Hessam Nadji, who kicked off a market update session at the Urban Land Institute fall meeting.

The annual event brings together the who's who of the real estate industry, from researchers to mortgage bankers and multifamily investors.

The market pause is a result of good and bad conditions, said Nadji, who's often cited by several publications including The Wall Street Journal and Bloomberg/Businessweek.

The bad first: Home prices continue to slide across the country, the European economy is in turmoil and distressed homes sales continue to account for about 20-30 percent of all transactions.

The good, which often gets overlooked: Retails sales have rebounded, as well as corporate profits, which is important because they are the underpinning of investment and hiring. Still, even profitable companies are reserved about any "aggressive expansion," given market conditions, Nadji said.

Slice by slice, apartments have recovered quickly, while the office and retails sectors have reached their bottom, Nadji said.

Nadji predicts "a very gradual recovery" but says we won't see meaningful progress until after the presidential election. He added that the chances of the country falling into another recession within the next 12 months is 20-25 percent.

What could help the recovery along?

Some panelists at Wednesday's market update talk mentioned easing regulation that affects those in the real estate industry. They said we were once too lax and now are too strict.

Source: SignOnSanDiego

Mortgage rates sink to low not seen since '50s

Average rate on 30-year-fixed loan is 4.15 percent, but many can't take advantage 

AP Associated Press

updated 8/18/2011 12:52:01 PM ET

WASHINGTON — The average rate on a 30-year fixed mortgage has fallen to its lowest level on records dating to 1971.

The rate on the most popular mortgage dipped to 4.15 percent from 4.32 percent a week ago, Freddie Mac said Thursday. Its previous low of 4.17 percent was reached in November.

The last time long-term rates were lower was in the 1950s, when 30-year loans weren't widely available. Most long-term home loans lasted 20 or 25 years.

Few expect record-low rates to energize the depressed home market. Over the past year, the average rate on the 30-year fixed mortgage has been below 5 percent for all but two weeks. Yet prices and sales remain unhealthy and are holding back the overall economy.

Five years ago, the average 30-year fixed rate was near 6.5 percent. In 2000, it exceeded 8 percent.

Most homeowners are paying rates more than a full percentage point higher than the current average. The average rate on all outstanding mortgages is 5.3 percent, Freddie Mac said, citing data from the Bureau of Economic Analysis.

After previous recessions, housing accounted for 15 percent to 20 percent of overall economic growth. This time, in 2009 and 2010, housing contributed just 4 percent to the economy.

"The housing market is not going to turn around because of this, because it isn't the mortgage rate that matters," said Joel Naroff, head of Naroff Economic Advisors. Naroff blamed the "horrendous" process of qualifying for a mortgage despite tougher lending standards. He said trying to sell a home in many markets is just as difficult.

Many would-be buyers can't take advantage of the low rates. The unemployment rate is 9.1 percent, few Americans are getting raises and many are struggling to shrink their debt loads.

Banks are also insisting on higher credit scores and larger down payments for first-time buyers. Many repeat buyers have too little equity invested in their homes to qualify for loans. Others are too nervous about the economy or their job security to invest in a home.

The average rate on a 15-year fixed mortgage, which is popular for refinancing, fell to 3.36 percent, also a record low. It's the third straight week of record lows for the popular refinancing option. Freddie Mac's records date to 1991, but analysts believe the new low on the 15-year mortgage is the lowest ever.

Borrowers who qualify have rushed to refinance and take advantage of the low rates. Refinancing accounted for 70 percent of mortgage applications in the first half of the year, Freddie Mac said. Refinancings tend to provide less benefit to the economy than home purchases do.

Mortgage rates typically track the yield on the 10-year Treasury note. Economic fears have drawn investors to the safety of Treasurys, driving down the yield on the 10-year note to barely above 2 percent. That helped lower mortgage rates.

The Federal Reserve offered a dim outlook of the economy last week, saying it expects growth will stay weak for two more years. As a result, the Fed said it expects to keep short-term rates near zero through mid-2013.

Roughly 14 million Americans remain unemployed. And the economy isn't creating enough jobs to rapidly trim that figure. The economy grew at an annual rate of just 0.8 percent in the first six months of this year, the slowest such pace since the recession officially ended more than two years ago. In June, consumers cut spending for the first time in 20 months.

Fewer Americans bought previously occupied homes in July for the third time in four months, the National Association of Realtors said Thursday in a separate report. It said sales fell 3.5 percent last month to a seasonally adjusted annual rate of 4.67 million homes. That's far below the 6 million that economists say must be sold to sustain a healthy housing market.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each week.

The average rate on a five-year adjustable-rate mortgage fell to 3.08 percent, its lowest level on records dating to January 2005. Last week's reading of 3.13 percent also was a record low. The week before was, too.

The average for one-year adjustable-rate loans fell to 2.86 percent, the lowest on records going back to 1984. Last week's average of 2.89 also set a record.

The rates do not include extra fees known as points. One point is equal to 1 percent of the total loan amount.

Source: MSNBC.com

The Debt Deal Viewed Through Real Estate’s Prism

By Erika Morphy

August 3, 2011

 

Capitol Hill

 

WASHINGTON, DC-So it happened. Within hours of an apparent default, Congress came together and delivered a bill that would raise the debt ceiling and work towards reducing spending.

The impact to commercial real estate is still a work in progress: more cuts to government spending will be identified under the deal, as will additional sources of revenue. So yes, carried interest is most likely back, yet again, on the table. Still, with the deal closed, the industry has been able to come to a few conclusions about the next two years will bring. Some thoughts as expressed to GlobeSt.com.

We always knew there would be a debt deal...

"I don’t think a default was ever viewed as credible," Kevin Finkel, executive vice president, director of acquisitions at Resource Real Estate, a New York-based real estate asset manager, tells GlobeSt.com. "That is why the markets never fluctuated that dramatically even when talks seemed to break down."

…But we didn’t know how brutal it would be.

That said, the way the political drama played out with the extreme brinkmanship, took a lot of people by surprise. "Especially with the new crop of Congress people from the Tea Party that didn’t want to compromise,” Finkel says. “To me as a businessperson, that was scary and I think it scares investors too."

Does this mean that every issue that comes up in Congress will result in a bloodletting sprawl, Finkel wonders. "I am afraid so and that is no way to run a country," he remarks.

The US will still be a safe haven for investors…

There are 17 countries in the world that sport the AAA rating, Eric Michael Anton, executive managing director and principal of Eastern Consolidated in New York, points out, a list that includes such tiny locales as Isle of Man. “Foreign capital is still coming here,” he tells GlobeSt.com. Even in the run up to the midnight hour agreement, so to speak, the bond returns showed that investors continued to seek out US debt, he says.

…But the bifurcation of trophy and second-tier markets will step up.

Lately there have been signs that investors are interested in Middle America again--particularly multifamily investors that are finding prices too rich on either coast. Foreign investors, albeit more slowly, have been following suit. However, if the US does suffer a credit downgrade the distinction between the gateway global cities and the rest of the country will surely sharpen, Anton also says. “Top cities such as New York, Washington, San Francisco, Boston and Los Angeles will continue to pull in tremendous debt and equity.” Foreign capital, however, stayed away from the Rust Belt, and other secondary cities, and if the US does get downgraded, this will be an additional reason for them to stay away, he said.

We got a commitment to slow spending…

This had to be done, Finkel says. "The country had to deleverage and perhaps just as importantly, it had to tell the world that our debt would not grow anymore."

…But at what cost?

The price of this deal was substantial cuts in government spending, Dennis Russo, co-chair of the commercial real estate department at Manhattan-based law firm Herrick, Feinstein LLP, tells GlobeSt.com. That will lead to slower growth, given the sluggishness of the private sector.

“Economic sluggishness plus austerity tends to equal a less-than-fertile environment for vitality and growth in commercial real estate," says Russo. “The health of most sectors of the commercial real estate economy--office leasing, for example, and sales-investment--depends on growth and the vitality of the gross domestic product, and for the time being, I just don’t see where that growth will be coming from.”

The impact of Washington’s austerity is already being felt outside of the debt ceiling negotiations. The Centers for Medicare and Medicaid Services just announced an 11.1% cut in Medicare rates set, according to the Wall Street Journal - an announcement that promptly sent health care REIT prices tumbling. 

Property valuations could be affected in the near term as well, Michael A. Torres, CEO of Adelante Capital Management LLC, a REIT investment manager in Oakland, CA, tells GlobeSt.com. The rest of the cuts and their subsequent effects will remain in doubt until the “Super” Congress decides on cuts, or they don’t.
 
Source: GlobeSt.com

Normal Heights apartment complex sold

By JAMES PALEN, The Daily Transcript

Thursday, July 14, 2011

The lender-owned apartment complex at 4963 35th St. in the Normal Heights neighborhood of San Diego has sold for more than $1 million cash.

Apartment Realty Group represented the seller, 4639 35th Street LLC, which, according to ARG Managing Director James V. Carter, was the San Diego-based private lender that took possession of the property around four years ago. ARG procured more than 10 written offers on the 5,500-square-foot, eight-unit property before closing escrow with the all-cash buyers, Gerald G. Gossman and Rose M. Gossman, for $1,087,500.

Built in 1962, the complex contains six two-bedroom, one-bathroom units and two one-bedroom, one-bathroom units.

Carter spearheaded the sale, while Don Warfield of Donald Warfield & Associates represented the buyer.

Source: San Diego Source The Daily Transcript 

Rents Rise, Vacancies Go Down

By WESLEY LOWERY 

July 7, 2011

Apartment landlords are enjoying rising rents and falling vacancies.

The average effective rent, the amount paid after discounting, was $997 in the second quarter of the year, up from $974 a year earlier, according to a report scheduled for release Thursday by Reis Inc., which tracks leasing data for 82 markets. Second-quarter rents rose in all but two markets.

Rent levels rose fastest in San Jose, Calif., to $1,501 in the second quarter. The average effective rent in San Francisco was $1,806; Wichita, Kan., $495, and New York, $2,826.

Vacancies, meanwhile, fell in 72 of the 82 markets during the second-quarter vacancy rate to 6%, the lowest since 2008 and compared with 7.8% a year earlier, according to Reis. Vacancies declined fastest in Charleston, W.Va., Greensboro/Winston-Salem, N.C., and Richmond, Va.

"Rising rents and falling vacancies are the perfect situation for landlords," said Rich Anderson, an analyst for BMO Capital Markets. "It's like drinking without the hangover."

But there were some cautious signs in the data. Landlords filled a net 33,000 units in the second quarter, a slowdown from the 45,000 units they filled in the first quarter. That was somewhat surprising because typically, the net "absorption" rate falls faster during the summer as college graduates leave campus and descend on cities in search of jobs. Some analysts said the slower absorption rate could be linked to slower job growth, although it is too soon to know for sure. The peak apartment renting season runs from May to September.

"When you're going from big numbers and getting gradually smaller it's tough to determine if things are in fact cooling," says Haendel St. Juste, an analyst at Keefe, Bruyette & Woods.

Meanwhile, supply remains constrained. Roughly 8,700 new apartment units opened during the second quarter, the second-lowest quarterly tally for new completions since Reis began collecting data in 1999.

But there is new construction in the pipeline. The CoStar Group, a Washington, D.C.-based real-estate research firm, expects about 22,500 units to be added this year, followed by 94,600 in 2012 and more than 109,000 in 2013.

But as long as employers keep adding jobs to the economy, analysts say, they expect vacancy rates to keep falling and rents to keep rising. "Barring some unexpected shock from the global economy, we expect the recovery to continue through 2011," Reis wrote in the report. "Vacancies should continue to decline while rents rise at an even faster pace than we observed in the first half of the year."

Source: The Wall Street Journal

 

Apartment Market Pushing toward 6 Percent Annual Rent Growth

By Joshua Pringle, Online News Editor

Jun 30, 2011

Dallas–Axiometrics Inc., a multifamily data and analysis providor, released a research report today that shows the national apartment market continuing to heat up in May, with effective rents (rents net of concessions) increasing 0.7 percent from April levels. Axiometrics estimates that effective rents will rise 5.9 percent in 2011, which would be the largest annual increase since a rate of 5.8 percent in 2005.

Year-to-date, effective rents nationally have risen 3.17 percent, as compared to 2.55 percent in 2010. Top performing submarkets for annual effective rent growth in May included San Jose (13.0 percent), San Francisco (9.7 percent), Austin (8.7 percent), Seattle (8.5 percent), Boston (7.4 percent) and Dallas (6.5 percent).

Axiometrics President Ron Johnsey says, “With year-to-date increases in effective rents, and continued strong occupancy levels, renters who are able might be wise to sign longer term leases as property owners in most markets will maintain pricing power at least through the rest of 2011.”

Additionally, the national occupancy rate increased for the 12th time in the past 16 months, rising from 93.3 percent in April to 93.96 percent in May. From January through May 2011, the occupancy rate has increased 86 basis points (bps), which is below the rate of 136 bps for the same period of 2010. Axiometrics says that the slowdown in absorption can be attributed partially to the increase in effective rents year-to-date. But occupancy in May was still above the previous peak of 93.5 percent reached in August 2008.

From May 2010, eight major markets increased occupancy by more than 100 bps and have rates above 95 percent: New York, Minneapolis, Austin, San Jose, Cleveland, Orange County, Chicago and Denver. Some of the most overbuilt markets are recovering rapidly as well. Six major markets that had low occupancy rates in May of 2010 have increased their occupancy levels between 142.5 and 333.4 bps: Charleston, Charlotte, Dallas, Orlando, Phoenix and Houston.

Source: Multi-Housing New Online

Employers Are Occupying More Space, but at a Slower Pace

By Eliot Brown

July 7, 2011

In a sign the economic recovery's recent stumbles may be spilling over into the real-estate market, employers took on less office space during the second quarter than earlier in the year.
In all, the amount of occupied office space rose by 3.7 million square feet from April to June, according to real-estate research firm Reis Inc. While that was the third consecutive quarter in which firms added space, the gains were down from the first quarter, when occupied space rose 5.5 million square feet. Reis tracks the office markets in 79 U.S. metropolitan areas.
Rents, meanwhile, rose an average of 0.2% during the second quarter. The office data come as U.S. job growth—always a prerequisite for improvement in the office sector—has been slower than anticipated. In May, the economy added just 54,000 jobs, according to the Bureau of Labor Statistics, and economists predict the figure for June may not top 100,000.
The measured pace of growth in the office sector has only begun to chip away at the vast quantities of unfilled space across the country. Between January 2008 and September 2010, tenants emptied out of 138 million square feet, pushing the vacancy rate from 12.6% to 17.6%, according to Reis. Since October 2010, the amount of occupied space has grown by just 11.9 million square feet.
The amount of new leasing, "relative to the overall inventory, it's not a large amount," said Ryan Severino, an economist at Reis. "We are generally trending in the right direction, even if it is a slower, more inconsistent recovery than market participants would like to see."
The sector's improvements have been led by resilient markets such as New York and Washington, where job growth has been relatively steady and outpaced that of the nation.
"We had a big first quarter from a leasing perspective, and it still was solid for the second quarter," said Ric Clark, chief executive of Brookfield Office Properties, which owns office buildings in many major U.S. cities. While many firms are keeping to their existing sizes, Mr. Clark said some energy and law firms have been looking to expand. "It's not huge expansion, but it's some," he said.
Late last month, Nomura Holding America Inc. signed a lease for 900,000 square feet of space at Worldwide Plaza in Midtown Manhattan, opting to leave its home in the World Financial Center in lower Manhattan. The move, which is slated for 2013, speaks to the ambitions of expansion in Manhattan for the Japanese investment bank, which currently has 545,000 square feet in New York. Overall, rents in the New York City region were up 0.6% from the first quarter, and 3.6% from a year earlier, according to Reis.
Washington, with the nation's lowest vacancy rate of 9%, has benefitted from government-fueled job growth, which has spurred growth in a variety of related industries. In April, law firm Skadden, Arps, Slate, Meagher & Flom LLP announced it was signing new leases for about 415,000 square feet, expanding its presence by about 50,000 feet.
New office construction—which was all but nonexistent for the better part of three years—has also begun to emerge in the stronger markets. Multiple developers have announced projects in the Washington, D.C., area, including a venture led by office landlord Hines Interests LP, which this spring announced a groundbreaking on a mixed-use development slated to contain 520,000 square feet of office space.
In New York, Boston Properties Inc. in May announced its intention to start construction on a 39-story Skidmore Owings & Merrill-designed office tower on Eighth Avenue, after signing law firm Morrison & Foerster LLP as a tenant.
While major coastal cities have been performing well, some of the cities hardest hit by the recession have yet to see conditions hit bottom. Las Vegas, which has one of the highest vacancy rates in the nation at 24.9%, saw rents paid by tenants fall by 0.3% compared with the prior quarter, according to Reis. Rents in Phoenix, with a vacancy rate of 26.5%, fell 0.1%.

Source: The Wall Street Journal

Multifamily market limps forward; small uptick seen in rents

By ANDREW KEATTS, The Daily Transcript

Friday, June 24, 2011

 

 

The news isn’t all good in San Diego’s multifamily housing market, but it’s better than in many other markets, and it’s only going to improve, according to a panel of local experts.

The San Diego chapter of the California Apartment Association hosted a panel discussion on the state of the local multifamily market on Thursday, with panelists essentially saying, “Things could be a lot worse.”

Rents here are expected to increase between 2 and 4 percent this year on an annual basis, according to Darcy Miramontes, executive vice president of Jones Lang LaSalle.

That would lead to more pronounced growth in 2012 and 2013, she said, citing a Moody’s estimate of rent growth in those years approaching 5 percent. Even if that estimate is a bit aggressive, property owners can be sure rent growth wouldn’t fall below its 2011 level.

Renters who’ve moved in with family members during the lean years of the recession are expected to uncouple and look to live on their own again, according to Nathan Moeder, principal of London Group Realty Advisors. Since there’s been virtually no new projects delivered to the market recently, those renters will put upward pressure on rents.

“Even if only 20 percent of the people who’ve doubled and tripled up return to the market, that’s still a significant amount of demand,” he said.

Josh Harnett, senior manager of asset management for Irvine Company Apartment Communities, marked Escondido and Carlsbad as markets poised for an uptick in traffic and leasing, leading to rising rents.

He expects Torrey Hills to continue as one of the region’s strongest markets, but said Mission Valley will see the biggest year-over-year increase in rental rates.

North County beach markets are expected to remain the tightest in the region, Miramontes said, pointing to the area’s comparatively low 3.7 percent average vacancy rate.

She added that the vacancy rate downtown is artificially high. More than 600 units came into the market at the same time, due to the Vantage Point building, skewing the statistics.

The only large-scale project of note on the horizon is Sudberry’s Civita in Mission Valley, the three panelists agreed.

The master-planned community just north of Friars Road will bring nearly 5,000 housing units to market. After being discussed for more than a decade, it broke ground earlier this year. Two townhouse buildings by Shea Homes, and an apartment complex by Sudberry are scheduled to be delivered this year.

Other than Civita, the only other projects breaking ground are for affordable housing, according to Moeder.

“There’s just not a lot of inventory we’re going to see built immediately,” he said.

Small investors looking to purchase apartment buildings in the area are learning they need to get farther away from San Diego to find deals that make financial sense, according to Moeder. Some are now looking as far as El Centro.

But San Diego is largely seen as a safe market, and multifamily units in general are seen as a safe investment nationwide, he said.

Miramontes said investors like that San Diego development is constrained by its three physical borders, Camp Pendleton, Mexico and the Pacific.

“Investors like that, because it helps keep the area in check,” she said. “During the darkest part of the recession, San Diego wasn’t going too bad.”

Driven by the cost of debt the current state of capital markets, cap rates are low, according to Miramontes.

Roughly speaking, she said core, A-level product carries a 4.5 percent cap. That’s closer to 5 percent for class B, and it ranges widely after that. Class C could be anywhere from 5 to 7.5 percent.

“It depends on the individual story, and the position you want to take it to,” she said.

The apartment market fared far better than the for-sale housing market during the recession, according to Moeder. It’s currently down 4 percent from its peak, while the housing market remains 20 to 30 percent lower than its peak years, he said.

Diversity in San Diego’s employment market allowed it to fare better as well, he said.

Victims of foreclosure ended up in the rental market, according to Harnett, softening the effect of the downturn on the multifamily market.

Moeder said cities in the county are much more approachable when it comes to entitling projects.

“You can get the cities’ ears these days,” he said. “You can go back to the city and re-entitle for more economic uses. They’re interested in asking what they can do to revive a project.”

But he was highly skeptical that SANDAG’s estimations that 85 percent of new home construction will be multifamily. Historically, 60 percent of the county’s housing has been single-family homes.

“You can’t force people into that product,” he said.

Source: The Daily Transcript 

Survey: County has lowest apartment vacancy rate in nation

By THOR KAMBAN BIBERMAN, The Daily Transcript

Thursday, June 23, 2011

 

A new PricewaterhouseCoopers and Reis Inc. investor survey states San Diego has the lowest apartment vacancy rate of any major metropolitan area in the country and even has a strengthening office market.

The investor survey report subtitled "Optimism Prevails Despite Economic Unease" said the average apartment vacancy rate here was 3.9 percent during the first quarter of 2011 -- a full percentage point stronger than the 4.9 percent recorded during the like period a year earlier.

The 3.9 percent figure was stronger than all other major metropolitan areas surveyed. It was followed by Los Angeles at 4.5 percent and Baltimore at 4.7 percent, according to the survey that examined 18 of the largest metropolitan areas in the United States.

The survey said San Diego County's apartment investment market is in a strong recovery period for this year and next and will see a significant growth in demand in 2013 and 2014 -- likely fueling significant construction in those years.

San Diego's MarketPointe Realty Advisors has reached similar conclusions, but placed the average vacancy rate at 5.06 percent as of the end of March, with a 5 percent level considered to be ideal by the industry. Even at that, San Diego would still rank among the top five apartment markets in the country.

The PricewaterhouseCoopers report said the county absorbed 446 rentals in the first quarter of 2011, compared to 679 units in the fourth quarter of 2010 and 422 in the first quarter of 2010.

The report didn't stop at apartments. It said San Diego's office market, while decidedly less impressive, demonstrated some surprising strength during the first quarter of the year.

"Strengthening economic conditions, positive net absorption and a decline in sublease space are creating momentum in the San Diego office market," the report states.

The report adds that the technology services, hospitality, and education/health employment sectors are showing signs of growth in San Diego.

"In particular, the biotechnology and renewable energy sectors are attracting attention from venture capitalists, leaving these sectors poised for near-term expansion," the report continues.

It also helps that the unemployment rate has been on a slow but steady decline, currently at 9.6 percent, according to the state Employment Development Department.

The office vacancy rate tightened by a full 100 basis points to 16.8 percent year-over-year in March, according to Cushman & Wakefield. The amount of sublease space declined by 26.2 percent, while the total net absorption increased by 17.3 percent during the same one-year period.

Not everything is as office landlords would wish, however.

"The leasing market is remarkably slow for owners marketing 2,000- to 10,000-square-foot spaces," describes a survey participant.

That hasn't stopped landlords from seriously considering significant rent increases to augment their balance sheets.

"Further evidence of investors' optimistic outlook for this market is the growing use of rent spikes. The percentage of surveyed participants using rent spikes in their cash flows rose from 60 percent to 80 percent over the past three months," the report said.

San Diego's office market is presently in a recovery mode that will strengthen in 2013 and 2014, according to the report.

Retail is a mixed bag. Although many formerly empty large retail boxes continue to be refilled by such retailers as Kohl's, Best Buy, Dick's Sporting Goods and Discount Tire, the PricewaterhouseCoopers report said the retail market is still effectively in recession here and will continue to be so through next year. The report is projecting a retail recovery happening in San Diego County in 2013 and 2014.

Nationally, the report says stabilized real estate investment trust retail assets are faring the best in this economy, though malls have had their troubles. While there are many high-quality assets, few high-quality retail properties are being placed on the market -- at a time when "a flood of lower quality malls are being offered for sale ..."

In one case, Fashion Valley mall owner Simon Property Group (NYSE: SPG) has placed four malls for sale in Florida and Tennessee that have an average age of 27 years. What's more, it has been an average of 13 years since a major renovation occurred at the malls.

Power centers have been trading. In one of some 70 power centers that have traded thus far this year, Rancho Bernardo-based Excel Trust acquired the 325,431-square-foot Gilroy Crossing in Gilroy for about $210-per-square foot.

Source: The Daily Transcript

 

5 signs a Craigslist rental listing is fake

By Lily Leung

5:24 p.m., June 10, 2011

Screenshot of the Craigslist landing page for San Diego, taken June 10, 2011.

You're on Craigslist looking for a rental. As you're skimming listings in the $2,000 range for one particular area, you suddenly see one for $1,200 a month.

Too good to be true? In many cases, yes.

Real estate agents and property managers in San Diego County come across scammer listings on Craigslist and other websites from time to time. What usually happens is someone lifts the information from an existing sales or rental listing and makes a duplicate featuring a drastically lower price and different contact number.

Sometimes, the scammer asks respondents for cash up-front or an application with their Social Security number and other sensitive information -- then never follows up. The ads often are taken down after the consumer inquires about the status of the transaction, agents and property managers say.

Century 21 Award agent Nancy Beck, who specializes in University City properties, came across this just three months ago. Someone cloned one of her sales listings in that area, taking everything from the specs to property photos. What changed was the home's price and its status from a sale to a rental.

"People would call me after seeing my listing for a super-low price," Beck said. "It would create a frenzy, and people would drive by the listing, see that it was for sale" and follow up with a phone call to Beck.

"That's how I became aware," said Beck, who went through two other similar incidents within a year.

The Union-Tribune talked to Kayla Roeder, vice president of Cambridge Management Group in San Diego, who shared some signs that a rental listing is likely a scam.

The person renting out the property:

1. Does not have the keys to the home and cannot show it to you.
2. Doesn't do credit checks.
3. Deals only in cash, which makes fraud untraceable.
4. Tells you to fill out an application without letting you see the home first.
5. Lists the property at a price that's drastically lower than those of comparable homes in the area.

What others are saying:

This is a terrible scam. (Renters) go out to properties thinking they're going to get something for $1,000, and they're disappointed when they don't.

--Marilyn Lewis, office manager at Park Place Realty & Asset management in San Diego, who's recently come across cloned listings of her company's properties.

These scams drastically reduce the rent and make the rentals way below market value. People are not thinking with their heads and instead with their wallets. They have this need to snap (the deal) up. It's out of desperation.

--Jennifer Newton, president of Walters Home Management in San Diego.

Craigslist did not respond to a request for comment.

Some agents and managers said they normally flag the cloned listings, and they're usually taken down within a timely manner.

Source: SignOnSanDiego

Quote of the day: California's housing market

By Lily Leung

6:37 p.m., June 13, 2011

A year ago we were talking about sales reaching a four-year high as buyers rushed to take advantage of expiring federal homebuyer tax credits. Now sales are stuck at a three-year low. The government stimulus is long gone and some of the fundamental drivers of housing demand have yet to strengthen enough to lift sales to even average levels. Some of the key culprits are weak job growth, tight credit and a hesitancy among potential buyers and sellers, who question whether this is the best time to make their move.

 --John Walsh, president of San Diego-based DataQuick Information Systems, which culls and analyzes real estate data.

Source: SignOnSanDiego

Quote of the day: mortgage rates down, again

By Lily Leung

4:50 p.m., June 9, 2011

Long-term Treasury yields moved lower following a weak jobs report and mortgage rates followed suit. The economy added 54,000 jobs in May, the fewest in eight months, and factories cut payrolls for the first time in seven months. As a result, the unemployment rate rose to 9.1 percent, representing the highest rate since December.

Frank Nothaft, the chief economist of Freddie Mac, on this week's average mortgage rates, which fell to their lowest levels this year.

The 30-year fixed this week was 4.49 percent, down from 4.55 percent last week. A year ago, it averaged 4.72 percent.

The 15-year fixed this week was 3.68 percent, down from 3.74 percent last week. A year ago, it was 4.17 percent.

Source: SignOnSanDiego

Rental Demand Brightens Dark Housing Outlook

By Jann Swanson

Jun 7, 2:31PM

The gloomy picture painted by The State of the Nation's Housing report released yesterday by Harvard's Joint Center on Housing Studies has but one bright spot - the improving rental housing market. 

On virtually every other level it appears that a housing recovery is still months if not years away. Rather than leading the country out of the recession as it has done in prior downturns, the housing industry is holding back economic growth. The report details a number of housing areas where, rather than the outlook improving as the economy began to pick up, things actually got worse.

First of all, household growth has dropped precipitously since 2007.  In the four years since, an average of 500,000 new households have formed each year compared to the 1.2 million annual pace averaged between 2000 and 2007.  This is even more disheartening as the "echo boomer" generation, those born after 1986, is the largest generation in our history to reach its 20s, peak household formation years.   Instead of forming households, many in this age group have stayed in or returned to their parents' homes.  At the same time, for the first time in decade the rate of immigration as slowed.  From 2004 to 2007 the number of new households headed by foreign born citizens increased by 200,000 per year but since 2007 the number foreign-born non-citizen households have declined by the same amount. 

The rental and the homeowner market have diverged.  There has been a net shift of 1.4 single family homes from owned to rental property between 2007 and 2009, almost twice as many as in the previous two year period.  Still, rental vacancies are down, dropping from about 3.5 million to less than 2 million between 2009 and 2010, and rents have begun to move up.  At the same time homeowner vacancies, which dropped from over 9.5 million in 2008 to about 7.8 million in 2009 has declined only fractionally since even though new home construction has slowed considerably and banks appear to be holding large numbers of foreclosed homes off of the market.  Still, housing prices, unlike rents, have resumed their decline. Unusually large numbers of households are switching from owner to renter and the ownership rate has fallen from 69 percent in 2004 to 67 percent in 2010.  The report says that the continuing foreclosures and reluctance on the part of owners to buy as long as prices are unstable will cause home ownership to continue its decline through 2011. 

The Harvard report cites a Fannie Mae study showing that while attitudes toward homeownership have become more negative over the last few years, 74 percent of renters and 87 percent of the general population still view homeownership as safe investment.

While many households aspire to homeownership, tightened underwriting standards may stand in their way and the report speculates that the proposed 20 percent down payment requirement for qualified residential mortgages could sharply curtail homeownership unless the borrower obtains a government guarantee.  "Over the longer term, it is unclear how the impending reform of the housing finance system, (...) will influence the cost and availability of mortgage loans.

The number of rental households accelerated in the second half of the last decade, swelling by an estimated 3.9 million between 2004 and 2010 but rental vacancy rates increased and rents fell during the same period as new units were added and homes were converted from ownership to rentals.  In 2010, however, the rental market moved into high gear and the vacancy rate dropped from 10.6 percent to 9.4 percent over the course of the year.  MPF Research reported vacancy rates below 5 percent in almost one third of the 64 markets it studied and more than half had rates below 6 percent.   As vacancies declined, rents rose.  Rents in professional managed apartments were up 2.3 percent last year with most of the growth in metropolitan areas.  As employment grows, especially among younger persons, and homeownership continues to decline there will be pressure on the rental market, pushing rents up and encouraging multi-family construction.   Given the time line for new construction, however, rents are likely to remain tight in the short term and will present increased affordability challenges for low-income renters.

There is much uncertainty in the market regarding access to mortgage credit, home buying attitudes, immigration trends and laws, and household formation, but there is certainty about some factors related to demographics.  It is known that the aging baby boomers will drive up the number of older households by some 8.7 million by 2020.  This tends not to be a mobile population and will provide "ballast" for the owner market, offsetting in part the lower homeownership rates among younger households.

While the senior population is likely to age in place, if boomers follow the pattern of the preceding generation some 3.8 million will downsize their homes over the next ten years, lifting demand for smaller housing units and having a major impact on the housing markets in preferred retirement destinations.  The large pre-boomer population will create a similar demand for assisted and independent living developments.

The echo-boomer generation will have a less predictable impact on housing markets.  There are questions involving their homeownership attitudes and the net impact of immigration.  There is reason to believe that this generation will be large enough to boost household formation and the demand for starter homes and apartments.  The report states that if household formation (headship) rates return to their pre-recession average and if immigration is just half of what the Census Bureau projects, the number of households under age 35 will grow to nearly 26.5 million in the next decade.

Affordability is another challenge facing the housing market.  In 2009 10.1 million renters and 9.3 million owners paid more than half their income for housing.  While this hits low-income households the hardest, households with incomes under $15,000 pay over 80 percent of their incomes for shelter, the cost pressures have been moving up the income scale.  Households earning $30 to $45 thousand increased the proportion of their incomes spent on housing from 30 percent to 40 percent over the ten year period ending in 2010.

The recent crash has wiped out household wealth, ruined credit ratings and devastated communities with foreclosures and has left nearly 15 percent of homeowners in homes that are "under water".  This has reduced the amount that owners can cash out of their homes by selling or refinancing.

The report concludes by saying that the strength of the housing recovery, when it does finally occur, will depend on how fully employment bounces back, and then local markets will revive in proportion to the increase in jobs, the depths housing fell during the recession, and the amount of overbuilding that occurred before the downturn.  But the most critical factor for housing recovery in the resumption of household growth and it may be that the unemployment rates on top of the long-term housing affordability issues may have lowered the baseline trend of household growth itself.  "To match the 1.12 million annual rate average in the 2000s, household formation rates must return to their 2007-2009 average and net immigration must reach at least half of Census Bureau projections," the report says.

In the near term it will be rental markets that are likely to lead the housing recovery, but once consumers decide that a floor has formed under house prices, their reentry into the market could quickly burn through the lean inventory of unsold new homes and reduce the excess supply of existing homes on the market.  There is also the danger that government programs to address rent affordability and assisting distressed neighborhoods will feel the budget axe just as affordability problems are escalating.

Related MND comments....

From: HUD Focused on Rebuilding America's Dilapidated Housing Inventory

"Take note of HUD-sponsored initiatives aimed at rebuilding America's dilapidated housing stock." says MND's Managing Editor Adam Quinones. "This is where housing professionals will find the most opportunity in years ahead.  The FHA should reopen the 203(k) program to investors if they want to encourage private investment in the U.S. housing market."

From: Home Remodeling a Forward Indicator of Housing Bottom?

"With so many foreclosed properties sitting empty on the market we can expect remodeling and rehabbing to be a leading indicator of a bottom in the housing market", says MND's Managing Editor Adam Quinones. "We already know there is dearth of affordable rental housing available to low income renters. From that perspective, FHA should open its 203(k) program to investors if they want to accomplish their affordable housing goals."

Source: Mortgage News Daily