Explaining the Breakdown of One Dollar of Rent

With so much discussion around rent payments and the prevailing misconception that rental housing owners enjoy large margins, the National Apartment Association (NAA) has released an explanation of the breakdown of one dollar of rent for 2022.

Because education is an effective way to counter harmful public policy and negative industry stereotypes, NAA offers this explanatory infographic breaking down a dollar of rent into its component parts.

The apartment industry must help society understand the benefits of rent payments for all Americans, whether or not they reside in rental housing.

From supporting 17.5 million jobs to the dollars reinvested into apartment communities to ensure quality living for more than 40 million residents, and through paying property taxes that finance schools, emergency services and other local needs to investor returns that include public pensions and 401(k)s, rent payment is much more important than one might otherwise realize.

 

Source: Explaining the Breakdown of One Dollar of Rent | National Apartment Association

https://www.creconsult.net/market-trends/explaining-the-breakdown-of-one-dollar-of-rent-national-apartment-association/

10 Common Themes Amongst Apartment REITs In 3Q22

10 Common Themes Amongst Apartment REITs In 3Q22

As fall earnings season comes to a close, we take a look at the 10 themes apartment REITs and REIT analysts discussed. From economic pressures to resident retention, here are the themes that illustrate how apartment performance has changed, including a few refreshed themes from the fall 2021 earnings season, and what it means as we head into 2023.

1. New and renewal lease rent growth is beginning to invert. As we head into the slower winter leasing season, new lease rent change has moderated considerably (as is consistent with RealPage Market Analytics data) while renewal lease rent change has continued to increase leading to lower loss to lease heading into 2023

2. Resident retention remains elevated. As leasing traffic has cooled and we return to more normal seasonal patterns, more residents are choosing to renew their leases, bolstering back-end occupancy and allowing for stronger rent rolls heading into the slow winter leasing season.

3. Move-outs to home purchases are down year-over-year. The Fed’s interest rate increases have pushed 30-year mortgage rates above 7%. Consequently, would-be first-time home buyers have pivoted, keeping many in the renter pool and bolstering resident retention rates.

4. Concessions are back… sort of. Overall concession value of about 2-4 weeks of free rent has remained fairly consistent throughout 2022. However, REIT executives reported strategic use of concessions to move certain unit types, compete with nearby lease-up properties, or as a marketing tool to boost front-end leasing.

5. Resident incomes are up. REIT executives, echoing our own data and analysis, confirm that their resident incomes are up, and despite increasing rents, that rent-to-income ratio remains very healthy in the low 20% range. This is well below the long-held 33% affordability threshold and illustrates that market-rate renters are keeping pace with market-rate rent increases.

6. Resident payments remain healthy. Resident payments and rental collections maintain strength. REITs are not seeing an increase in bad debt or delinquency while working through their backlogs and COVID relief money from the beginning of the pandemic.

7. No signs of recoupling… yet. With resident incomes keeping pace with rent increases, REIT executives have not yet noticed any signs of a “flight to affordability” via recoupling or doubling up. REIT executives will certainly keep a keen eye on any movement, but nothing has materialized on this front yet.

8. Expenses are up across the board. REITs noted that the largest expense item – property taxes – remains elevated heading into 2023. Large increases in utilities due to energy prices have emerged as inflationary pressure keeps maintenance, labor, and material costs stubbornly high. All said REITs anticipate elevated expenses to persist into 2023.

9. Cap rates are expanding. How much and to what degree is hard to tell as regional variations and slowing transaction volume have clouded the overall picture. Many REITs have slowed their own activity, pausing acquisition and disposition plans to take a wait-and-see approach, while the Fed continues its plans to fight inflation via prolonged interest rate hikes.

10. Slowing development starts in 2023. With uncertainty in the capital markets environment, many REITs are slowing or pausing their development pipelines in 2023, as development yields clash in a tug-of-war situation with cap rates and rising interest rates. The staggering volume of units under construction across the U.S. – over 900,000 at the end of 3rd quarter of 2022 – has likely peaked for the near term.

 

Source: 10 Common Themes Amongst Apartment REITs In 3Q22

https://www.creconsult.net/market-trends/10-common-themes-amongst-apartment-reits-in-3q22/

Mainstreet | 12.7.22 Market Report on Canadian Markets

Join the Mainstreet Global Council virtually as we get an update on Canadian markets from the Manitoba Association of Real Estate, while we give their members our market report. Enjoy this meet-and-greet opportunity with members of this Association and learn about real estate opportunities within this region of the world. You will have the opportunity to share your contact info, and network after when we break out into small groups.

For Mainstreet members who are attending the NAR Conference in November, you will also have an opportunity to meet many members of this association at our joint reception together on Friday, November 11th from 5 - 7 p.m.

 

Date & Time

Wednesday, December 7, 2022
10:00 AM - 11:45 AM CST

Format: Live Stream

Price: Free

Register

Source: Mainstreet | 12.7.22 Market Report on Canadian Markets

https://www.creconsult.net/market-trends/mainstreet-12-7-22-market-report-on-canadian-markets/

Mainstreet | 1.13.23 Commercial Economic Outlook Breakfast

Date & Time:
Friday, January 13, 2023
09:30 AM - 11:30 AM CST

Location:
Lorena's Banquet
543 W. Lake St.
Addison IL 60101
View Map

Format In-Person

Price: $35 Member $45 Non-Member

Register

Dr. Chan received his BBA in Finance & Investments from Baruch College in 1979. In 1983, Anthony received his M.A. in Economics followed by his Ph.D. in Economics in May 1986 from the University of Maryland. In addition, Anthony also spent time at the Board of Governors of the Federal Reserve in Washington, DC as a Doctoral fellow from 1985 to 1986. Upon graduating, he became an Economics Professor at the University of Dayton from 1986 to 1989 and successfully published many academic articles. Next, he joined the Federal Reserve Bank of New York as an Economist from 1989 to 1991. Anthony also joined Barclays de Zoete Wedd Government Securities, a Government Securities Primary Dealer, from 1991 to 1994 as a Senior Economist.

Anthony joined JPMorgan in1994 and retired in 2019. During his tenure, Anthony addressed over one hundred thousand clients each year and delivered presentations to many Central Banks around the world, including China’s PBOC, the Bank of Korea, and almost every Central Bank in Latin America. Currently, Anthony also spends a great deal of his time traveling around the world (e.g., to Asia, Europe, and Latin America) and in the United States delivering Client Presentations that focus on the Global Economy/Global Financial markets. Anthony is also a member of the prestigious Blue-Chip Monthly Forecasting panel. In addition, he served on the Economic Advisory Committee of the American Bankers Association from 2001-2002. One of his most important responsibilities of this ABA group was to brief Alan Greenspan and the rest of the board members in Washington, DC twice a year in an off the record session.

Anthony has also been quoted in media outlets such as The Wall Street Journal, Barron’s, The New York Times, The Washington Post, The Chicago Tribune, The Los Angeles Times, and Investor’s Business Daily. He has made over 650 live TV appearances in media outlets such as CNBC, CNN International, Fox Business News and CGTN, Chinese Television.

Deeper Personal Background
From Public Housing to Banking Royalty
Turning Adversity into Impact

Dr. Anthony Chan spent a quarter of a century as chief global economist for JPMorgan Chase, driving imperative dialogue around world markets and their impact on consumers and global communities. He’s fluent in the needs of different cultures and geographies; able to tailor his talks to industries, sectors, and convenings that are looking for insight and inspiration from someone who built their career from the ground up.

While Anthony retired at the top of his game, he didn’t get there through luck or leverage. His story is one of sheer grit. Born in New York City, to a Puerto Rican mother and Chinese father, his parents were blue collar; the former a maid, the latter a waiter at a Chinese restaurant. Their drug infested neighborhood tested Anthony but the powerful work ethic instilled by his parents kept him focused, dodging the perils of drugs and other risky behaviors. He worked the fryer at a local KFC which left him with scars on his arms from hoisting lard in and out of the scalding hot french fry machines - scars that, mistaken for track marks, earned him street cred and a wide berth from menacing neighborhood youth.

Sadly, Anthony’s dad died of a brain aneurysm when Anthony was in elementary school; an event that rocked his mom and caused her to dissuade Anthony from pursuing higher education and a demanding career for fear he would meet the same demise. She wanted him to stay the course: stick to his working class roots and help keep the family afloat. Anthony wanted more out of life. After becoming intrigued by a segment about economics on tv, so he told his mom he was going out partying but he snuck off to the New York Public Library to learn more about his new found passion. He studied courses on his own since no one - not his mom or his teachers - would support him in his quest to be and do better. He was told he was a half breed and that kids like him would never make it into the higher levels of society.

Anthony went on to become the first person in his family to receive his high school diploma and his bachelor’s degree, all on public assistance. Let that sink in.

He would go on to get his master’s degree and then his PhD. His thirst for knowledge is boundless; his desire to engage and move the world forward unstoppable. And now, in the next chapter of his life, Anthony is putting his vast experience to work for your audience: sharing insights, information, and inspiration that will accelerate innovative thinking and results for organizations and the communities they serve.

Dr. Anthony Chan was Managing Director, Chief Global Economist at JPMorgan Chase & Co. (1994-2019) in New York City. He earned his B.B.A. in Finance and Investments degree from Baruch College in 1979, and his master's (1983) and doctorate (1986) from the University of Maryland. He has worked as a professor at the University of Dayton, and was an Economist at the Federal Reserve Bank and at Barclays. From 1985 to 1986, Chan was a Doctoral fellow at the Board of Governors of the Federal Reserve in Washington, D.C. Anthony also serves as the Treasurer of the Skyhook Foundation.

 

 

Source: Mainstreet | 1.13.23 Commercial Economic Outlook Breakfast

https://www.creconsult.net/market-trends/mainstreet-1-13-23-commercial-economic-outlook-breakfast/

 

'We've Got To Figure Out How To Turn That Around': Multifamily CEOs On The Industry's Image Problem

CBRE's Laurie Lustig-Bower, TruAmerica Multifamily's Bob Hart, BRIDGE Housing's Kenneth Lombard, Langdon Park Capital's Malcolm Johnson and Avanath Capital's Daryl Carter.

Multifamily landlords are feeling the burn of unfavorable perceptions of their industry.

Affordable and market-rate apartment CEOs speaking at the Bisnow Multifamily Annual Conference this week in Los Angeles agreed that their industry had an image problem.

"We have to change the perceptions of the industry," Avanath Capital CEO Daryl Carter said. Avanath owns and operates about 16,000 apartments across 14 states. More than 80% of their units are affordable in the traditional sense, including tax-credit or Section 8 properties.

Carter said the AMI in the markets where his company is increased by around 12%, but he didn't think that he would be increasing rents that much, even though that measure dictates how much rents at his largely subsidized affordable apartments can go up.

"We have to think about the fact that we could do a 15 or 20% increase doesn't mean that it's responsible to do that," Carter said.

The pandemic brought a roughly two-year streak of runaway rent growth that now seems to be coming to a definitive halt. Stories of how well large multifamily owners did financially during the pandemic were a stark contrast to the tales of families with mounting rent debt.

"I think landlords, unfortunately, have become pariahs," TruAmerica Multifamily CEO Bob Hart said. "And now, we've got to figure out how to turn that around."

Langdon Park Capital CEO Malcolm Johnson, however, had a different perspective, saying that, over the last two years, "I've been met with more optimism and interest from great talent in joining a company like ours."

Langdon Park Capital's focus is on naturally occurring affordable housing in higher-cost areas like Los Angeles and Washington D.C., attempting to fill in the so-called missing middle housing for those who make too much to qualify for low-income housing but who are still renters by necessity because of the high cost of housing.

"I think today's worker wants to have some sort of passion about what it is they do and what it is we do presents that opportunity," Johnson said.

The public's negative views on apartment landlords are more than just words. Carter noted that these negative sentiments have undoubtedly fueled legislation in the Los Angeles area, like Measure ULA, and nationally, as rent cap laws have made a strong showing in markets where they were on the ballot, NBC News reported.

Some panelists acknowledged local legislation was a direct response to that anti-landlord sentiment, one that could have an impact on a big part of their business.

"It's going to affect buying and selling patterns in Los Angeles," Hart said of Measure ULA. It would likely, in the near term, be good for brokers, as some sellers push up their timelines to sell buildings before the tax goes into effect, said Hart, whose firm has over $10B in assets under management.

Panelists also discussed changes to the market that have come from rising interest rates, namely the return of negative leverage, or the phenomenon of interest rates on a property's mortgage being higher than the property's return rates.

"The reality is, we've had a universe where we've done lots of business at higher interest rates and at negative leverage," Carter said. "I think, to me, what stands out in the housing business is that we have an undersupply of housing that is chronic, and the fundamental demand drivers are very, very strong."

Hart said that prior to the Great Recession in 2008, doing deals with negative leverage was not uncommon. Hart said it remained to be seen whether that will once again become normalized and people will find a way to do deals again in similar circumstances.

"We're going to be banking on growth," Hart said. "That's what's driving the durability of this business, and you're going to suffer in the short term from less cash flow. Whether the investor wants to take that ride, time will tell."

BRIDGE Housing CEO Ken Lombard said that he fully expects people with well-capitalized projects to continue to wait for conditions to improve, knowing that the cyclical nature of the business means that conditions will, eventually, improve.

"If you've been around the block, you've seen numerous cycles similar to the one we're in now," Lombard said. Lombard is at the helm of one of California's largest affordable housing developers with a $3B portfolio and 14,000 units under management.

 

 

Source: We’ve Got To Figure Out How To Turn That Around: Multifamily CEOs On The Industry’s Image Problem

https://www.creconsult.net/market-trends/weve-got-to-figure-out-how-to-turn-that-around-multifamily-ceos-on-the-industrys-image-problem/

Rising Rents? Blame the Supply Shortage

Much has been made about rising rents in recent months, often with the implication that they are the result of price gouging. In fact, the explanation is much simpler. It’s simple Econ 101—the U.S. does not have enough housing to meet demand.

How do we know? Because the data tell us so. Double-digit rent growth recorded in late 2021/early 2022 coincided with record-low apartment vacancy rates (i.e., the number of empty and available apartments).

As demand continues to outpace supply, the apartment vacancy rate in the U.S. has been on the decline for over a decade.

Recent research from NMHC/NAA found that the U.S. needs to build 4.3 million apartment homes by 2035 to meet both future demand and an existing shortfall of 600,000 units. That shortage means there are too many people competing for not enough apartments, which drives prices up.

More recent data show what can happen when the supply-demand relationship changes.  In the latter part of the year, apartment demand has slowed because of economic uncertainty and as expected, apartment vacancies are increasing.  Households are doubling up, moving back home, or deciding not to create new households at all. We see this in multiple data sources

• RealPage’s national vacancy rate for professionally managed apartments rose from 2.4% in 1Q 2022 to 4.1% in the third quarter.
• CoStar similarly reported a 30-basis point increase in the national apartment vacancy rate in 3Q 2022.

The result? Apartment owners have begun to offer lower rents to fill those vacant units.

• RealPage’s data show annual rent growth during this period moderated from 15.3% to 10.5%, while rents actually decreased for the past two consecutive months.
• Similarly, CoStar’s data show a 0.4% decrease in asking rents over the past quarter.

Long-term, however, apartment demand is expected to rebound with improved economic confidence, which means we need to keep building new housing despite this temporary lull if we want to avoid large rent increases in the future.

To ensure that supply is built, however, we need to avoid the lure of “quick fixes” like eviction moratoriums and rent control. They do nothing to address the underlying supply shortage. More importantly, they eventually harm the very people they are trying to help by discouraging new housing construction and limiting the financial resources owners have to maintain existing housing.

The apartment industry stands ready to help meet the rising need for accessibly priced rental housing, but we cannot do it alone.

Our housing affordability challenges pre-dated COVID, but the market disruptions created by COVID worsened them. Fortunately, economics 101 and the lessons learned from the pandemic provide us with a guide to solving them. First, we need to build more housing to meet housing demand (the economics lesson), and (2) we need to provide rental subsidies and other emergency funding sources to help keep at-risk, lower-income households housed (the COVID emergency rental assistance lesson).

NIMBYism and antiquated, discriminatory land use policies have shut us out of some communities altogether. But even in communities that want and desperately need new apartment development, we face numerous hurdles that can drive up costs or halt development. While the barriers to housing production and preservation are primarily within the purview of local governments, federal policymakers can play a role by creating incentives for local leaders to reduce barriers and adopt policies that encourage private sector investment in housing.

Examples of actions the federal government can take include:

• Expanding and enacting federal tax credit programs that ease development affordability, like the Low-Income Housing Tax Credit and the Middle-Income Housing Tax Credit;
• Reforming and increasing funding for subsidy programs that address housing affordability, including HOME, Section 8, FHA Multifamily, and CDBG; and
• Providing regulatory relief to reduce development and operating costs by tying other federal dollars (like transportation funding) to incentivizing localities to reduce parking and other land use requirements, streamline the development and approval process and restrict the use of rent control and mandatory inclusionary zoning.

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Source: Rising Rents? Blame the Supply Shortage

https://www.creconsult.net/market-trends/rising-rents-blame-the-supply-shortage/

Mortgage Applications Jump as Interest Rates Finally Drop

For months, mortgage rates rose with no end in sight, and potential homebuyers backed off. Now the reverse is happening.

The average rate for 30-year fixed-rate mortgages fell for the second week in a row to 6.67 percent, according to the Mortgage Bankers Association. It is now down almost 50 basis points from a peak of 7.16 percent one month ago.

In turn, mortgage loan application volume increased 2.2 percent on a seasonally adjusted basis from one week earlier. Refinances increased 2 percent from the previous week, although they were still 86 percent lower than the same week one year ago when mortgage rates were much lower.

“The decrease in mortgage rates should improve the purchasing power of prospective homebuyers, who have been largely sidelined as mortgage rates have more than doubled in the past year,” Joel Kan, MBA’s vice president, and deputy chief economist said in a statement.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances — greater than $647,200 — decreased to 6.30 percent.

The turnaround may be fledgling and fragile but is nonetheless welcome in an industry that has suffered losses and layoffs this year.

Some signs of trouble in the nation’s housing market did emerge last month. The delinquency rate rose 12 basis points from September to 2.91 percent, driven by a 9.4 percent rise in 30-day delinquencies, according to Black Knight.

The firm noted that Florida led the jump in new early delinquencies, with the state’s delinquency rate rising 53 basis points to 3.42 percent. The rate’s 18 percent increase is likely attributable in part to Hurricane Ian.

The foreclosure process was initiated on 7 percent more properties than in September. But foreclosure starts are still 55 percent below pre-pandemic levels, according to Black Knight.

That is because lenders are going easier on troubled borrowers than they did before the pandemic. They began the process on just 4 percent of seriously delinquent mortgages in October, less than half the rate of the years leading up to the pandemic.

 

Source: Mortgage Applications Jump as Interest Rates Finally Drop

https://www.creconsult.net/market-trends/mortgage-applications-jump-as-interest-rates-finally-drop/