January 9, 2015

Rents Rising Faster Than Home Values in '15

There's been a structural change over the past few years where housing recoveries are usually fueled by first-time home buyers leaving the rental market. Now we're seeing a shift in lifestyle as the young and old prefer renting.

The upside of that is stellar rent growth (especially in San Fran, Denver and Pittsburgh), Marcus & Millichap's Hessam Nadji shared with Bloomberg's Erik Schatzker and Betty Liu on “Street Smart.” In 2014, US renters paid $441B in rent, a $20.6B increase from 2013, according to Zillow research. "Over the past 14 years, rents have grown at twice the pace of income due to weak income growth, burgeoning rental demand, and insufficient growth in the supply of rental housing," says Zillow chief economist Stan Humphries.

Zillow expects rents to rise even faster than home values over the next year, especially in growth markets like Denver, San Jose, San Francisco, Houston, Austin and Dallas. Those cities haven't had a steady supply of new housing built in the last three to four years, yet they are experiencing tremendous job growth. Rent jumps will be at a slower pace than 2014, though, for major metros. "Given the tepid pace of the job growth on a national average, and the tepid pace of household income growth, we don't believe the type of double-digit rent growth we have seen is sustainable," Nadji explains.

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TEXAS: Radco Enters With Portfolio Buy

Atlanta multifamily giant The Radco Cos entered Texas with a portfolio grab, acquiring three multifamily properties totaling 916 units, two in Houston and one in San Antonio. Founder/CEO Norm Radow tells us all three properties were foreclosed on in 2011 by Fannie Mae, which was the seller. They're well-located with good bones and modern features, but are underperforming, which gives him a compelling execution opportunity. Radco will invest $12.2M (or about $13,300 per unit) into upgrading the portfolio.

In addition to a rebrand, Norm says Radco will also have to re-underwrite the existing resident base because lease audits showed a lack of documentation in the properties. PCCP and Oklahoma Fidelity Bank provided debt for the acquisitions. Norm tells us he's targeting the Southeast and Midwest for more value-add acquisitions; Texas, Oklahoma and Colorado especially fit his pro-growth and low-tax state criteria.


MIAMI: The Ultimate Barriers to Entry

The Florida Keys' 1,700 islands don't amount to a lot of land. That's why investors are so keen to get a piece of the action, State Street Realty president George Pino tells us. (Unless there's a freak underwater volcano, no one is making more land down there.) The Keys, which have seen a strong recovery in visitor numbers since the end of the recession, are delivering multifamily yields more commonly associated with much larger top-tier markets, such as New York, George says. Investors, including large institutional players, have taken notice.

Highly restrictive rate-of-growth ordinances are also a major factor making properties attractive. George says he expects to see more deals this year as investors strive to get in. Recently State Street Realty, along with the Ocean Reef Club Real Estate Co, repped the private buyer of a three-acre property in Ocean Reef Club in Key Largo, which includes 750 feet of waterfront and consists of eight large two-bedroom rental properties. Russell Post Sotheby's International Realty also participated in the deal. The buyer plans to redevelop into a 30-unit condo property.

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NYC: Condopocalypse 2015

Expect Manhattan condos to increase from 2,500 units in 59 buildings last year to 6,500 units in 100-plus buildings this year, The New York Times reports. This includes the already buzzed about towers popping up on Billionaires' Row, according to Gothamist

Rumors of slowing sales at ultraluxury One57 (pictured) have not scared brokers. They say high-end buyers are just holding out for the newer developments, especially since the increased demand will drive prices down, says Curbed. Better yet, Terra Development Marketing president Steve Kliegerman tells the Times the increased competition is pushing developers to focus on better architecture and design.

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