Multifamily Monday: What Should Worry You
Are we becoming victims of our own success? (Are apartments the Justin Bieber of real estate?) Multifamily rents are skyrocketing across asset classes, and Apartment Data Services prez Bruce McClenny says affordability is really becoming an issue.
Bruce says the booming economy means you can’t build cheaply, so almost all new deliveries are luxury (with land and construction costs, affordable units are nearly impossible to build). “We’re creating a different class every day we deliver new supply,” he says, and existing assets are being bumped down the hierarchy. New Class-A units average $1.82/SF, or $1,700/month. That’s a big bump from stable Class-A properties—$1.64/SF, or $1,560/month. People moving here (even just from Austin) aren’t fazed by those top-level rents, but many current residents are being driven down the ladder.
Exacerbating the problem is the phenomenal resurgence of the Class-C sector. It was in distress a few years ago, but now those properties are 93% occupied and getting 8% rent growth annually. That’s putting money in the pocket of owners, which they can use to upgrade units—and push rents even more. Bruce believes some people will go to rental condos and single-family homes as an alternative to availability and pricing issues in multifamily.