Multifamily Still Holds Top Perch Despite Supply Household Formation Concerns

 

Despite inflation and rising rates, multifamily maintains many of the same strong fundamentals as it did at the end of 2021.

Apartment rents have surpassed pre-pandemic levels in many cities across the US, pushing investment sales numbers in the segment to historic highs. And they are expected to remain strong despite increasing concerns about household formation numbers and the lure of single-family rental home investments.

According to Walker & Dunlop’s new multifamily outlook, nearly $290 billion in transactions were logged in 2021, more than double the total from 2020. That activity centered most in the first quarter of this year in Atlanta, Houston, Dallas-Fort Worth, and Phoenix, as interest “firmly” shifted away from coastal markets to the Sun Belt, following pandemic-era trends. Cap rates for the sector are also at record lows, with per-unit pricing rising 11 percent over the past four quarters to $239,000.

“Part of the rebound in the multifamily market reflected a return by many renters who had vacated their urban apartments during the height of the pandemic, but vacancy levels were also flattened by the lack of new multifamily completions,” Walker & Dunlop notes in the report, adding that data also suggests that new completions are likely to be higher in 2022 than last year. “This sets the stage for more multifamily completions over the next three years than any comparable period dating back to 1988, with an above-average concentration in the suburbs,” analysts note.

But as supply ticks up, so do concerns over household formation numbers, which could weigh on absorption. Home sales are also predicted to slow due to rising mortgage rates; according to Fannie Mae’s housing market forecast in April, total home sales are expected to slump by 7.4 percent in 2022 and by another 9.7 percent in 2023.

Walker & Dunlop also pointed to data from Zelman & Associates noting that annual population growth is forecast to increase by just 0.39 percent growth per year for the 2020-30 decade as opposed to a prior decade average of 0.71 percent per year.

Still, Walker & Dunlop goes on to note that even with institutional investors absorbing an increasing share of single-family home purchases, multifamily fundamentals have outperformed Zelman’s recent forecasts, leading them to increase 2022 economic revenue growth to 7.8 percent from 5.8 percent.  “Despite inflation, rising rates, and war in Europe, the multifamily industry maintains many of the same strong fundamentals as it did at the end of 2021 and remains the top-performing commercial real estate asset class.”

---

Source: Multifamily Still Holds Top Perch Despite Supply Household Formation Concerns

https://www.creconsult.net/market-trends/multifamily-still-holds-top-perch-despite-supply-household-formation-concerns/

eXp Commercial Explained with Randolph Taylor

 

Every Thursday at 8 a.m. PT eXp Commercial eXplained highlights exceptional Agents, Brokers, and Partners of eXp Commercial. The event is hosted by Commercial President James Huang and Director of Operations Stephanie Gilezan.

On June 2nd, 2022 Randolph Taylor, Senior Associate and Multifamily Investment Sales Broker with the Chicago-Naperville eXp Commercial office was featured to speak about his Commercial Real Estate practice servicing Multifamily Buyers and Sellers throughout the Chicagoland area and Suburbs. As well, Randolph spoke about his recent experience joining eXp Commercial and how this has benefited his practice and service to his clients. 

Below is a recording of this discussion:

 

How Can We Help You?

Are you looking to Buy, Sell, or Finance/Refinance Multifamily Property?

contact us

https://www.creconsult.net/market-trends/exp-commercial-explained-with-randolph-taylor/

Ancillary Revenue’s Winners and Losers

Pet fees are up while late fees are down.  

As the COVID-19 pandemic continues to cast a long shadow over the rental housing industry, ancillary revenue would seem to be a low priority. In previous years, collecting ancillary fees was an important — though legally fraught — concern. But now, with job losses mounting around the country, many apartment operators are simply focused on collecting rent on time.

For example, Haven Realty Capital, based in El Segundo, Calif., is sacrificing the flow of one ancillary revenue stream in exchange for trying to keep its residents in place. “Month-to-month premiums were waived to allow flexibility for residents who had lease expirations during the pandemic months,” says Sudha M. Reddy, Managing Principal of Haven.

In a recession, apartment operators are justifiably focused on just “keeping heads in beds.” Operators may even need to think twice about imposing ancillary fees.

But in the longer term, the COVID-19 lockdown may present new revenue opportunities, if residents receive financial relief and the unemployment situation stabilizes. If trends such as teleworking become commonplace, the COVID-19 lockdown could change the way residents use energy and bandwidth and give operators the chance to consider residents’ high-speed connections to the outside world.

Not Pressing the Issue

The general rule for multifamily ancillary revenue is about 5 percent of total income, but many of the fees are also accompanied by attendant costs. In the short term, Max Sharkansky, Managing Partner of Trion Properties, based in West Hollywood, Calif., is more concerned about on-time rent payments.

“We [could] charge higher pet rates and higher lease-break fees, but we’re just not pressing that issue because it’s tough out there,” Sharkansky says. “We’re signing leases, we’re doing fine, our collections are in the mid-90s. But we’re also in a 12 percent unemployment market, so I don’t know if this is an optimal time to start increasing our fees.”

As the amenity wars heated up during the past decade, ancillary revenue took a back seat to services, such as dog walking. But as the recession lingers, those services are also in jeopardy.

“It’s so hard to compete on what has become a commodity,” says Brian Zrimsek, Industry Principal of the tech firm MRI Software, based in Solon, Ohio. “The apartment can only be so big; the pool can only be so grand. So we found operators moving to adding services, dog-walking services, laundry pickup services and yoga classes — amenities as a service. But when a recession comes, that’s the first thing to go.”

This strategy is a throwback to the 2008 housing market collapse. “In 2008 they lowered prices and increased terms to lock people in,” says Zrimsek. “They’d rather have sure but thin revenue. In good times, it’s okay to have a little nickel-and-diming for things. We’re also seeing concessions come back. It would not surprise me if things that people charge for in the best of times they change their mind on now.”

Sorry, You’re Late

Early in the pandemic, municipalities, states, and the federal government moved to curtail evictions and late fees to help keep residents in their homes. Now, six months into the crisis, what were once seen as temporary measures are being extended in many parts of the country as the apartment business takes the hit.

At Haven Realty Capital, late fees have traditionally been a large revenue stream, followed by pet rent and admin fees. “[But] late-fee revenue has dropped to zero since April,” Reddy says. “The moratorium on late fees has also eliminated the incentive to pay on time, resulting in a delay in our collections at some of the properties.”

It’s the same story at Trion Properties, as Sharkansky simultaneously eyes what’s happening in collections and the state legislature. “We’re in California, and not allowed to charge late fees,” he says. “In California, it’s open-ended. It’s a function of when they remove the emergency order. In Oregon, it was set to expire but was then extended to Sept. 30. We still get the majority of our rents in the first week [of the month], but the next 20 to 25 percent are paying in the following three weeks.”

Future Opportunities

As many residents have been hunkered down for months now, apartment operators are seeing an increase in their energy and data consumption. Even before the pandemic, says Todd Richman, Senior Vice President at Morgan Properties, based in King of Prussia, Pa., marketing contracts with cable providers and Internet providers did well for his company.

Richman is predicting that addiction to Netflix and Zoom dependence is going to raise the income from fees. “I would assume that once we see the numbers, we might have higher income from these services,” he says. “With people working from home, they may have had to upgrade to a better Internet service, they may have ordered more services. It’s possible it’s remained the same. But I’m expecting Internet penetrations to be higher than they’ve ever been.”

Laundry rooms are another small but reliable revenue source for Morgan, and Richman is expecting to see an uptick — again because people are spending more time at home.

Trion’s Sharkansky also is bullish on laundry. Trash collection, water usage, pest control, and sewage fees are also looking up. “Ratio utility billing [RUBS] is huge,” he says. “Although I don’t know if you can qualify that as ancillary income; it’s more of an expense reimbursement, but it’s on the income side of the P&L.”

Doggy Day Care

The pandemic has been a huge boon for pet adoption, according to a number of sources. The consensus is that people who had been putting off getting a dog or cat because they didn’t spend enough time at home suddenly have no excuse.

In April, Kitty Block, CEO of the Humane Society, told the Chicago Tribune, “I think it’s a combination of reasons. We’re going through a global pandemic and its anxiety-provoking and it’s isolating. Those who are fortunate enough to work remotely are doing it from home, so people have the time now and the desire to open up their homes to a pet, to give that animal a chance.”

The trend is confirmed by the numbers Trion Properties is seeing. “In April, May, and June we had an uptick in pet fees,” Sharkansky says. “Looking at year-over-year for June, portfolio-wide, we did about $9,400, and last year [it] was around $7,000, so we’re seeing a 34 percent increase.”

But even enforcing pet fees will likely get some pushback from residents, demonstrating, once again, that at this point in time, fees are a touchy issue

“I don’t know that the first thing a resident does when they get a pet is call the office and let us know,” says Richman of Morgan Properties. “We’re trying not to be intrusive to residents about being in their apartments. We’re not doing walk-throughs of each apartment; it would be very hard to do that.”

---

Source: Ancillary Revenue’s Winners and Losers

https://www.creconsult.net/market-trends/ancillary-revenues-winners-and-losers/

A Blended Approach to Resident Prospecting

For some companies, ILS and Craigslist still offer the best way to get in front of prospects.

While geo-mapping and SEO optimization are apartment marketers’ shiny new toys, going back to the basics can serve managers well.

“We are going old school,” FPI Vice President Vanessa Siebern says. “We are spending a lot of money in ILS and we are going to back to the basics with Craigslist. We are really sharpening our curb appeal and putting up some great banners.” Shortly after talking about her low-tech strategy (great banners), Siebern acknowledges that FPI is making a major foray into geo-targeting and SEO at selected communities, especially lease-ups. That balance of traditional and cutting-edge is something other firms are also implementing. Heading into spring, Trion Properties sent out an email blast with a limited time only “Spring Special” concession to all leads it received during the past three months through its various leasing platforms. Make no mistake, Trion still leans on grassroots outreach to find new residents.

“Our property managers are heavily involved in outreach, staying on the pulse of their local communities and handing out flyers at local events,” says Max Sharkansky, Managing Partner at Trion. “We are also running a Resident Referral Program, which includes a $500 rent credit to each existing resident who refers a new one.”

Time sensitivity also still sells. Trion is running a “Look & Lease” special at its lease-up properties. “Prospective residents receive an extra concession for touring a unit, applying, and getting approved in the same day,” Sharkansky says. “This has helped us to ‘lock-in’ residents faster than we would otherwise, and reduces the chance of losing prospects who have toured our community to a competitor.”

Part of the necessity for marrying both types of marketing comes from the sheer age range of people who rent now. With Baby Boomers, Gen X, Millennials, and now Gen Z renting apartments, a one-size-fits-all strategy will not work.

“We have to understand our audience and how to communicate with them,” says Tina West, CPM, Chief Operating Officer for Capstone Real Estate Services. “Specifically, with Millennials, we have to work on how responsive we are and creating opportunities for online chat, text messaging, and online call centers that are really the digital call centers. We are really trying to capture their values in short videos and chats—trying to connect with them in the way they communicate today.” But having great curb appeal and traditional forms of marketing also matter.

“We are always doing our tried-and-true and what works for the rest of the audience,” West says. “We have to spread our net wide and far and create any opportunity we can to get in front of our customers.”

---

Source: A Blended Approach to Resident Prospecting

https://www.creconsult.net/market-trends/a-blended-approach-to-resident-prospecting/

While rents grow at an unprecedented pace so do payrolls

 

While rents grow at an unprecedented pace, so do payrolls. Apartment operators are fighting to retain and hire talent, and that's a win for community managers, leasing agents, and maintenance technicians. Apartment payrolls have surged by 12.6% in 2021 -- lifting the average increase in the COVID-era to 8.9%. By comparison, payrolls grew by an average of 3.2% annually pre-COVID.

Property management is certainly not unique in that regard. For all the (much warranted) talk about inflation, it's often lost that WAGE GROWTH plays a key role in inflation. Businesses are spending more on their top asset -- their people. And while salaries do not necessary keep pace with costs for every worker in every sector, most apartment staff are likely seeing wage growth above the national norms. We're hearing all the time how much property managers are fighting for talent. Your competitors are trying to lure away your best people. You're sometimes pulling from hospitability sectors to find potential leasing agents with no direct industry experience. And you're doing all you can to incentivize your best people to stay. Pay is a big piece of it, but not the only piece. It's also work/life balance and job duties -- relying more on technology and centralization to free up your on-site teams to focus on the highest-value tasks: leasing out units and taking care of residents. On-site teams are people/people ... this is what they want to do. Back-office work is burnout work.

Many property management companies are also operating with fewer people on-site, but that makes those remaining roles all the more valuable (and more expensive).

---

Source: https://www.linkedin.com/posts/jay-parsons-a7a6656_propertymanagement-apartments-wages-activity-6909501365589319680-1QiQ?utm_source=linkedin_share&utm_medium=member_desktop_web

 

https://www.creconsult.net/market-trends/while-rents-grow-at-an-unprecedented-pace-so-do-payrolls/

Free NCREA Introduction to Commercial Real Estate Training Course

 

Are you interested in learning more about Commercial Real Estate? eXp University is in collaboration with NCREA, The National Commercial Real Estate Association to present the Introduction to Commercial Real Estate Training Course on March 28-30th. This 3-day virtual training course, valued at $600, is offered for FREE through eXp! You do not have to be an eXp Agent to attend the training. This event is open to EVERYONE!

About the NCREA

The National Commercial Real Estate Association (NCREA) is a leader in commercial real estate training, coaching, and consultation. It was founded by Michael Simpson and has helped thousands of real estate agents, brokers, investors, and associations receive the training and coaching to navigate commercial transactions and build a successful career. Their programs are designed exclusively for residential, commercial, and resimercial agents.

This 3-day training event is geared towards those at the beginning of their career in commercial real estate. Agents who attend all 3 days of training and pass the test will receive the NCREA designation.

What You’ll Learn

• Commercial real estate fundamentals
• How to prospect and stand out
• The NCREA patented GRID system, a lead generation program

 

Learn more about the event and register HERE: https://bit.ly/38XLTGn

---

Are you interested in joining exp commercial?

Become an Agent

Enjoy more earning potential, more networking opportunities, more flexibility, and more access to the latest tools and technology when you become an eXp Commercial broker.  

CONTACT US

 

No Desk Fees, Royalty Fees, or Franchise Fees

Commission & Caps

• 80/20 Commission Split
• $20,000 cap
• After that earn a 100% commission for the remainder of the anniversary year

$250 capped transaction fee. Once capped transaction fees total $5000, the agent qualifies for ICON status. The transaction fee remains at $250 per transaction.

Standard Costs

• $250/month tech/cloud fee
• $250 broker review
• $100 management risk

$250 Monthly cloud brokerage fee includes Reonomy national access, Buildout Elite CRM,  Marketing Center Listing Syndication. and skySlope Transaction Management.

 

CONTACT US

 

Equity Opportunities

Agents can become shareholders at eXp commercial. NASDAQ: EXPI

 

Sustainable Equity Plan

• Earn Shares on your first transaction
• Earn shares when you fully cap
• Earn shares when an agent you sponsor closes their first transaction

 

Icon Agent Award

• Up to $20,000 in stock upon the achievement of certain production and cultural goals within your anniversary year

 

Agent Equity Program

• Enroll to be paid 5% of every transaction commission with stock at a 10% discount

 

CRE TOOLS/BENEFITS BROUGHT TO YOU BY eXp COMMERCIAL

included in $250 monthly fee:

ENTIRE DEAL CYCLE

PROPERTY INTELLIGENCE

MARKETING AUTOMATION

23M PROPERTY RECORDS

LEGAL TEMPLATES

TRANSACTION MANAGEMENT

 

CONTACT US

 

https://www.creconsult.net/market-trends/free-ncrea-introduction-to-commercial-real-estate-training-course/

Suburban garden-style apartments are 2022’s comeback kid

 

Everybody loves a good comeback story, whether in sports, the entertainment industry, politics, or business. And there’s no bigger rental real estate comeback story in 2022 than that of the garden-style apartment – from both a new-build and investment perspective. According to Cushman & Wakefield, garden-style apartments had a $60 billion influx of capital in 2021, or 28% more than in 2017-2019, far outpacing other styles like suburban mid- and high-rises.

So, what exactly is driving this resurgence? Why now and not five years ago? To understand the present surge in garden-style rentals, we must first understand their past.

From Boom to Backburner Garden-style apartments first rose to prominence stateside after WWI, influenced by England’s Garden City approach to urban development, which emphasized self-contained communities with lower-density residences, industry, and agriculture, plus green space, according to CUNY historian Joshua B. Freeman. One of the country’s earliest examples is Sunnyside Gardens, in Queens, New York.

By the late 1960s, garden-style apartments were the most popular style of rental option in the suburbs, according to Samuel Paul in his book Apartments: Their Design and Construction, and remained popular through the 1970s and 1980s.

But as all commercial assets have their ups and downs, the suburban locales and low-rise architecture of garden-style apartments began to take a backseat from the ‘90s through 2020 as urban renewal took hold and developers followed renter demand to cities and suburban downtowns where walkability and density reigned supreme. From 2010-to 2020, Chicago’s Loop saw a 45% increase in residents and became not only the fastest-growing neighborhood in Chicago but the fastest-growing downtown in the country, per a report from the Chicago Loop Alliance.

The Roaring ‘20s  Then, the COVID-19 pandemic arrived and soon the same fundamentals that made garden-style apartments so attractive to renters 50 years ago, such as easy access to the outdoors and less density, suddenly became very in-demand once again. But unlike in decades past, today’s garden-style apartments are more likely to resemble their high-rise brethren with Class A amenities like resort-style pools, commercial-grade fitness centers, designer finishes, an in-unit washer and dryer, demonstration kitchens, coworking areas, and pet spas.

According to many of our clients, demand for garden-style suburban apartments has never been higher – whether building new or buying an older asset with long-term value.

One developer that’s bullish about this multifamily sector is Wingspan Development Group. No stranger to building Class A rentals in suburban downtowns, Wingspan has two active garden communities that even in their early stages are performing ahead of expectations. Located near the intersection of U.S. 30 and Highway 126 in Plainfield, Illinois, about 40 miles southwest of Chicago, Sixteen30 consists of 284 units in eight garden-style buildings with neo-farmhouse exteriors surrounding a 7,500-square-foot clubhouse and pool, the social center of the community with its great room, coffee bar, fitness center with smart technology and cardio training, yoga studio, bocce court, demonstration kitchen, pet spa, and other luxe amenities. There is also a 24-hour package room. Stylish interiors that all demographics of renters have come to expect from new construction include 9-foot ceilings, vinyl plank flooring, kitchens with stainless, quartz, and ceramic tile backsplashes, space to work from home, and more.

Plainfield has experienced a steady rise in luxury single-family-home building in recent years, but not much Class-A rental – and there is a real appetite for it in the area, according to Chris Coleman, vice president of development for Wingspan. Demonstrating that demand, Sixteen30 surpassed the 30% leased milestone in just over three months and has waitlists for the next available buildings.

“With the rise of remote work allowing renters to work from anywhere, suburban living has become highly desirable, and we don’t see that slowing down anytime soon,” Coleman added. Chicago’s suburban rental occupancy rose from 95.3% to 97.8%, and median rents rose 12.6%, between Q3 2020 and Q3 2021, according to Integra Realty Resources. “The new work-from-home option has also prompted one of the biggest innovations in garden apartment design: creating coworking spaces in clubhouses, from shared tables and multiple scattered seating arrangements to dedicated private offices.”

Similarly, Wingspan’s Hub13, being built with Batson-Cook Development Company (BCDC) in Oak Creek, Wisconsin – just off Interstate 94 and near the Milwaukee airport – is one of the first Class-A rental communities in the area with resort-style amenities like a Zen Garden. It too has a highly curated amenity package for renters by choice, including immediate access to an adjacent 11.2-acre nature preserve and wetlands.

“That’s another change in recent years – how we’ve come to value outdoor space even more since the pandemic, for ourselves, families, and pets,” Coleman noted. “By design, garden-style apartments offer more access to green space than you find in a typical high-rise or even suburban downtown rental.”

Seconding Coleman’s stance on the uptick in low-rise apartments is McHugh Construction, one of the Midwest’s largest commercial contractors with a concentration in high-end multifamily projects.

“We’ve seen a lot of new bidding opportunities on low-rise apartment projects in the suburbs – certainly more than we saw pre-pandemic,” said Dave Bartolai, vice president of McHugh Construction. “Wood-framed apartment complexes are popular for wide-open land sites as well as stacked developments along Metra train lines.”

Illustrating the demand from investors for low-rise apartments, one community McHugh built-in 2017 for M&R Development – The Residences at Hamilton Lakes in Itasca, Illinois – recently sold to investor JVM Realty Corp. for $99 million in January 2022. An upscale wood-framed garden-style apartment with 297 units in three four-story buildings centered around a clubhouse with resort-style amenities, The Residences at Hamilton Lakes offered “a perfect blend of luxury and location,” according to JVM.

Investors Smell Sweet Returns with Value-Add Opportunity in Garden-Style Investor interest in vintage garden-style apartment rental properties with 100-plus units increase in popularity over the past two to three years, specifically in DuPage County. The population flight back to the suburbs from the city due to COVID-19 helped spur this interest among investors, he said, but there was already an appetite for these types of properties right before the pandemic started due to such things as the uncertainty over property tax escalation in Cook County.

There’s currently a great need for workforce/essential housing, especially in the suburbs. The garden-style apartment complexes built in the 1960s, ‘70s, and ‘80s are solid investments because they traditionally have very low vacancy rates due to the demand for affordable rents, which are typical for these types of buildings compared to newer construction luxury properties. The garden-style properties also provide value-add opportunities, which is a huge draw for multifamily investors.

They want that value-add where they can go in and make upgrades to some of the units. The short-term costs of these capital improvements lend themselves to longer-term gains by being able to collect higher rents in the future and retain long-term tenants. The risk tolerance for investors is low.

And in February, Ellyn Crossing (formerly Stonegate Apartments), a 1,155-unit vintage garden-style property in Glendale Heights sold for $137 million, making it the biggest suburban Chicago apartment deal ever, according to Real Capital Analytics, a New York-based research firm. Now that’s a comeback story.

---

Source: Suburban garden-style apartments are 2022’s comeback kid

https://www.creconsult.net/market-trends/suburban-garden-style-apartments-are-2022s-comeback-kid/