A report from Senior Housing News. “Pam Kessler joined LTC Properties and has not looked back, becoming CFO in 2007. The last few years have once again brought industry dislocation in the form of oversupply and new payment models, she said during a recent interview for Senior Housing News. Q: Have there been other moments of challenge or change since that dark time in 2000?”
“A: It’s been pretty steady up until recently. We’ve had a lot of change recently…So, we have a new product, standalone memory care, and we were one of the first out of the gates on that…Certainly, the first developments we had out of the gate were leasing up, were beating pro forma, which spurs you to do more, right? And then —- we were not the only geniuses. Everybody was on to it. We’re all rushing to meet this projected demand, and certainly the cost of capital was very low. So, the green light was on for development. Then, we hit the wall of oversupply.”
“Q: With the tough operating environment, we’ve heard from providers that lease escalators are a problem. A: It’s the capital structure that kind of brought them down. The over-leveraging of the leases … the operator over-monetized. They pulled out all the money from their real estate and all the money from their operations — for the most part, their operations were getting a real estate multiple, so they got a healthy payment — and then they’re left with this company that’s completely leveraged with these high leases. That’s not sustainable, especially in this environment that maybe revenue isn’t growing as rapidly as projected.”
“Q: What do you make of all the capital coming into senior housing from private equity and other sources? A: A lot of this capital, I’m calling it undisciplined, because I think they’re allocating capital into the space without really understanding the space. So, capital providers that haven’t been through multiple [skilled nursing] reimbursement cycles, development cycles from the senior housing side, I think they’re mispricing their risk. They don’t have this high appreciation for the risk that’s involved in both asset classes, and therefore they’re willing to pay more than the property is worth. We certainly see that.”
“I don’t understand paying for a stabilized value on an asset that’s not stabilized. I’m not even saying close to stabilized — 50% stabilized, you’re halfway there, in this environment, you’ve probably got another 18 or 24 months. There are [lease-ups] that have been stalled for four years, they’re sitting at 50% occupancy. What’s leading you to think [this property] is going to get to 90% occupied and why in the world are you paying like it’s 90% occupied?”
From Bloomberg on New York. “Sales of New York City apartment buildings tumbled to near-decade lows last year, after new rent rules scared investors away from properties with regulated units. By every measure, it was a terrible 2019 for those in the business of owning and selling multifamily properties. The dollar value of purchases across all boroughs fell 40% from the prior year to $6.91 billion, the lowest total since 2011, according to a report by brokerage Ariel Property Advisors. There were 290 multifamily deals — a 36% decline, and the first year with fewer than 300 transaction”
“Apartments fell out of favor for investors last year as they digested New York’s new rent law, which governs about 1 million apartments in the city. The overhaul took direct aim at landlords’ income by making it almost impossible to raise rents, remove units from state regulation or even recoup the costs of capital improvements. In doing so, it upended a basic tenet of apartment investing: that spending on renovations could bring higher returns.”
“‘The fact that there’s no correlation between the amount you put into a building and the amount of rent you can charge has completely shifted investment interest in rent-stabilized buildings,’ Shimon Shkury, president of Ariel, said in an interview.”
From Boston.com in Massachusetts. “High-end market units close to Boston, with many more expected to come online this year, currently command monthly rents ranging from $5,000 to just over $10,000, said Carlina Nabatoff, co-owner of Abundant Real Estate Group in Cambridge. Nabatoff found 664 apartments for rent in Cambridge and Somerville on the Multiple Listing Service database, more than what she typically sees this time of
year — and some have been on the market for a few months.”
“‘Cambridge and Somerville have a ton of these new apartment and condo buildings,’ she said. ‘More inventory means that prices for older stock have evened out; they’re sitting longer and prices are dropping.’”
“Depending on the area, Nabatoff said, some listings drop the asking rent by up to $200 to compete with newly built apartments — a move many landlords haven’t had to employ for years.”
From Houston Agent Magazine in Texas. “Apartmentguide recently released their Annual Rent Report, which highlighted market trends and fluctuations experienced by renters in major cities across the United States. The report revealed a slight rent decrease in prices across Texas, and Houston was no exception. Overall, Houston’s rental premiums fell 15.5 percent for studio apartments, 7.5 percent for one-bedroom apartments, and 9.9 percent for two-bedroom units.”
“Apartmentguide.com predicted that these rental prices could have occurred because the supply for property in the Houston rental market is finally meeting the recent surge in demand.”
The Auburn Plainsman in Alabama. “Auburn City Council members are expected to vote on a student housing moratorium in the coming weeks. This moratorium comes after over a year of work from the student housing task force, which Mayor Ron Anders created shortly after he was sworn in as mayor in 2018. As the mayor explained his plan for the moratorium at the Dec. 3 meeting, he expressed concerns over the number of available student beds in Auburn.”
“‘We’ve got a large number of beds, and we believe that number could be anywhere from 37,000, around that number, of beds that have been dedicated and built for students,’ Anders said at the Dec. 3 City Council meeting. ‘There are some in this room that would argue that the number is greater than that, but we know that it is at least that.’”
“One concern related to the number of beds available for students already was Auburn University’s formal announcement of an enrollment cap at 25,000 undergraduate students. ‘There is an overabundance of student beds in our market,’ said City Manager Jim Buston. ‘Or if not an overabundance now, there soon will be an overabundance of beds in the market.’”
“Anders and Buston agreed that if the 90-day moratorium is approved, city staff would look to get a better understanding of what the absorption rate of student beds is with the enrollment cap in place. ‘With 31,000 students and 37,000 beds, I believe that that means that we need to make some determinations and some decisions about is this something that we need to address or not,’ Anders said at the Dec. 3 City Council meeting.”