RubinBrown Apartment Stats 2011

Market Trends Compared with the past few years, the financial market has experienced a significant turnaround. While debt availability has drastically increased, it is still limited in many respects. Since the real estate bubble burst, lending institutions have been predisposed to low-risk, high-quality assets in top-tier markets with stable supporters, leaving a large portion of the market with fewer debt options and a more challenging qualification process. Similarly, a great number of property owners looking to refinance and extend or alter mortgage terms have been faced with struggles in doing so. Per a recent survey, an estimated $77 billion of multifamily mortgages are maturing in 2011, flooding the debt market and increasing the difficulties of refinancing. As was noted in 2009, life insurance companies continue to increase their presence in the lending market as well. Life insurance company lending rose by 150 percent in 2010, commanding about 6% of the industry’s outstanding mortgage debt. However, the majority of the outstanding debt remains with such governmental entities, such as Fannie Mae and Freddie Mac, who continue to provide apartments with a financial advantage that has been difficult for other lending entities to match. In fact, Fannie and Freddie’s mortgage portfolios have maintained delinquencies of less than 1 percent, resulting in their continued involvement in the market despite discussions surrounding their potential reform. Apartment owners can also expect a strong sales market with rising property values and intense market pricing. Average pricing per unit rose as cap rates trended downward in 2010, although both measures are still below from levels reached during the market’s peak. Sales volume was up nearly 65% in 2010 from 2009 activity and dollar volume is expected to rise into 2011. Institutional investors have comprised the majority of this increase. On a side note, 2010 marks a noteworthy year for the real estate industry -- the 25th anniversary of the low- income housing tax credit program. A true picture of the public-private partnership, the success of the program throughout the years of its existence has been unfounded. Improving communities and living environments across the country, it has given many individuals places to call home.

As permanent financing has become more cumbersome to obtain and certain incentives, such as the homebuyer tax credit, have expired, many young professionals are beginning to see renting as a viable option in today’s market. Slight interest rate increases and rises in downpayment requirements have also contributed to this trend. Likewise, those homeowners displaced by growing foreclosures have entered the rental arena, creating much more demand across the country. The 2010 homeownership rate dropped approximately 2.3 percent from 2009 levels. According to economists, every 1 percent drop in homeownership equates to more than 1 million in new renters. And, with 2010 showing a decline in apartment project completion, supply has been stagnant across the industry, leading to industry opportunities in the future. Given the rising interest in renting, pricing power has also returned. While the latter quarters of 2010 began to see this effect, the impact will be more notable in 2011. In fact, gross rents are anticipated to increase 3.5% next year. Coupled with the lowest vacancy rates expected in years, a significant boost in effective rents is anticipated through 2011. According to a Wall Street Journal article published earlier this year, first quarter 2011 vacancy rates stood at 6.2 percent, down from 8 percent the previous year, resulting in the strongest first quarter in the last ten years. As tightened credit markets delayed or, in some cases, halted development activity into 2010, apartment owners and developers are now beginning to ramp up construction in an effort to chase the rising demand. However, 2011 project completion is expected to fall 46 percent below 2010 numbers given the effects of the construction cycle and timing. In the meantime, apartment owners can expect to keep occupancy high and cash flow strong through superior property management, apartment upgrades and attractive amenities. For instance, many of the repairs and upgrades previously stalled due to weakened market conditions are now being completed to enhance property values and appeal. Also, promoting property location and access to surrounding communities has proven to give some apartment complexes a competitive edge.

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