RubinBrown Apartment Stats 2012

Executive Summary

Industry Update Capitalizing on 2010’s multifamily housing industry economic turnaround, 2011’s portfolio performance showed continued improvement in a variety of operational and financial areas. Although faced with unemployment levels that remain fairly high and household creation that is stagnant, apartment owners have benefited from an increased pool of renters, which have aided in improving occupancy levels to highs that haven’t been seen in years. Likewise, according to the National Association of Realtors, it is expected that 2012 will bring some of the all-time lowest vacancy rates, while rental growth is anticipated to be anywhere from 3 and 7 percent. One major source of this forecasted improvement relates to overall renter demographics. Generation Y (those individuals born between 1982 and 1995) have shown a strong propensity to rent given the current wage and mortgage lending situations. Moreover, the multifamily rental market related student and campus housing as well as market rate rentals is expected to be very healthy in the coming years. However, a word of caution as with all real estate trends—these Generation Y individuals will eventually cycle out as the lending industry and compensation levels improve. Similarly, the continued decline in the homeownership rate has added to the growing renter population. The 2011 homeownership rate again dropped roughly 1 percent from 2010 levels, which were down over 2 percent from 2009 levels. Those hit hardest by this rate decrease were minorities, who alone experienced a 1 percent decrease in homeownership on average, according to the Department of Housing and Urban Development. Yet, as the market shifts to improve home values and, in turn, homeownership becomes more desirable, multifamily housing’s growth will once again start to slow. In response to this increased rental demand, multifamily housing permits, starts and completions have risen significantly in 2011 as well as into the first quarter of 2012. Indeed, permits alone in late 2011/early 2012 have shown a 61 percent surge over late 2010/early 2011. Yet, it is important to note that the absorption for the new apartment units has slowed approximately 64% from late 2010 to late 2011, which seems contradictory to demand and the increased renter pool. Much of this could be attributed to the fact that while more individuals are looking to rent, they are also looking to share the costs by living with roommates and family members. Likewise, analysts insist that oversupply is not a concern in the near term, but could become more apparent in some geographic markets by 2013.

With the sluggish job growth, tightened credit conditions and increased occupancy rates, apartment owners are finding themselves with the pricing edge and overall ability to strike while the iron is hot on rent increases. In fact, some owners have even welcomed move-outs to allow them to be released from old lease terms and to begin anew with higher monthly rents going into 2012. But, in the meantime, apartment owners can expect to keep occupancy high and cash flow strong in 2012 given the market conditions. Further, owners have been enhancing property values and curb appeal via substantial apartment upgrades and repairs, which had been delayed in prior years due to weakened economic performance. Market Trends 2011 has seen a lending arena that has improved compared to a few years ago. Indeed, banks have been focusing on the apartment market once again. The decline of vacancy rates, coupled with increased rental demand, has lured financial institutions to place monies in investments that can provide a “safety net” during times of economic uncertainty. Likewise, the multifamily market has also performed better than expected in regards to the timing of selling off distressed assets–another attractive feature to many lending institutions. In keeping with some of the trends noted in the latter half of 2010, Fannie Mae, Freddie Mac and the Federal Housing Administration concentrated lending efforts on preservation projects during 2011, offering low all-in rates. Similarly, Freddie Mac has enticed apartment owners and developers with bond credit enhancements, which has helped to spark interest and opportunity in the otherwise previously diminished area of tax-exempt bond financing. Likewise, the same characteristics that are attracting lenders back into the multifamily market are making a comparable impact on investors. As mentioned above, factors such as improved occupancies, decreased vacancies and surging demand are driving investors to grab deals as they come to market. Yet, most investors are focusing on properties with lower and middle rent price points rather than throwing monies at luxury units. Equity pricing for affordable multifamily housing investments has also rebounded, boasting mid-to-upper ninety cents per dollar of credit on the coasts. And, in some cases, deals have closed with pricing over a dollar per dollar of credit earned. Most often, this has been driven by financial institution investors looking to satisfy their community reinvestment appetite with quality properties.

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