A report from Multi-Housing News. “‘It’s a great time to be a quality sponsor,’ Stephen Rosenberg, CEO of Greystone, told Multi-Housing News. ‘Right now, the market is extremely frothy and awash with capital. While Greystone hasn’t loosened its underwriting standards to compete, there is a concern that risky loans from other lenders may enter the market and defaults could rise, impacting the sector as a whole.’”
From KVUE in Texas. “Thomas Ingle first noticed it in the fall: rent prices leveling off in West Campus and especially in the Downtown area. The licensed real estate broker also owns Apartment Pros, a company that helps people find available apartments so he keeps track of rentals on a daily basis. Ingle said this is the first time in years he has seen rent go down. ‘A lot of people assume every time there’s a new luxury property, that means rents go up somehow,’ he said. ‘This is bad for the people trying to get something cheaper but the reality is the more places there are, even the nice ones, the more availability there are.’”
“Grey Huffines is a University of Texas senior, told KVUE’S Jenni Lee about the great deal he got at his place on 23rd Street in West Campus. He thinks more development means better deals. ‘It’s good because rent will finally go down ’cause now that there’s so many buildings … like my rent last year was like $1,000 and some change and it dropped like $350 because people weren’t resigning leases, so that’s a great thing,’ Huffines said.”
“In Downtown, Ingle showed us an example at The Bowie, where he said a 448-square-foot studio usually goes for around $1,800. But just a couple of months ago, the price for the same space was $1,338. ‘We get messages whenever we advertise the lowest rents in around Downtown and people a lot of time don’t believe us,’ Ingle said. ‘I’ll have people messaging me, ‘these prices don’t exist.’ l have to send proof they do.’”
The Dallas Morning News in Texas. “North Texas apartment renters took a holiday during the final months of 2019. Net leasing slowed to a crawl, with only 168 additional apartment units occupied during the fourth quarter. While renters didn’t show at the end of 2019, there was no slowdown in new rental units hitting the market. Almost 6,000 new apartments opened their doors in D-FW during the fourth quarter. And for all of 2019, 22,688 rental units were added to the North Texas area, according to RealPage. That made D-FW the top U.S. market for new rental units, with almost twice as many apartments completed as the No. 2 construction leader, New York City, which had 10,262 new units during 2019.”
“‘Ongoing construction totals 42,987 units, remaining at about the level seen for quite a while,’ said RealPage chief economist Greg Willett. ‘That’s again the most future supply coming anywhere across the country, with Washington, D.C. (32,171 units), in the second position…The luxury properties in the construction-heavy northern suburbs likely won’t be able to push rents at the levels recorded of late.’”
The Greater Baton Rouge Business Report in Louisiana. “With fewer developments coming online in 2020, those looking to rent should begin putting an absorption dent in the oversupply that’s been plaguing the Baton Rouge market, ending a several-year pattern of declining occupancy rates. But make no mistake: It’s still going to be a renter’s market. Baton Rouge already has 4,600 vacant units on the market—nearly double what the area historically absorbs over a 12-month cycle. Not included in the vacant tally are the 2,429 units that have been proposed so far for 2020.”
“‘If we continue to pour new units in a market that isn’t growing at the pace of population, then we’re going to get a hangover,’ says Wesley Moore, an appraiser with Cook, Moore & Associates. Much of the oversupply problem can be traced to LSU-area student housing. While 9,000 beds have been added to that market since 2010, LSU’s enrollment has gone up by only 3,300 students—nearly half of whom study online—over the same period.”
“Where that catch-up might begin this year is in the high-end submarket. But luxury developments like The Heron—which has had to ramp up the concessions it offers residents since recently joining the downtown mix—reveal a softening market. ‘We definitely don’t need to add more units,’ says Moore.”
From Real Estate Weekly on New York. “A new report from PropertyShark analyzing multifamily sales recorded in the month of November in Manhattan, Brooklyn, the Bronx and Queens, shows the city’s multifamily slowdown is ongoing. The PropertyShark report found that city-wide sales volume was down 60 percent year-over-year to $412 million from November 2018’s $1.04 billion. At the same time, sales activity dropped, too – just 71 transactions closed this November. And the size of traded properties was also smaller. While NYC’s multifamily sales activity contracted 30 percent year-over-year, unit volume fell at more than twice that rate, plunging 65 percent.”
“‘Rent regulated buildings with low average rents made up most of the multifamily transaction volume in NYC over the past several years. Buyers who were actively purchasing those assets had a business plan in place that would allow them to move legal rents up by investing in individual apartment and building wide improvements,’ said Matt Fotis, senior director of the National Multi Housing Group at Marcus & Millichap. ‘This created an opportunity where an owner could sell a building for a low return and reinvest in a building with a higher return. Anyone with a rent stabilized property could sell and do a 1031 exchange into something that was producing a much higher yield, so it made sense. Today, things have changed.’”
“In Queens, sales volume tumbled 83 percent and year to date unit volume was down 65 percent. The Bronx was the only borough where price trends were negative in November. The average price per unit came in at $134,142, undergoing a 25 percent contraction year-over-year.”
The Wall Street Journal. “A high-end senior housing facility in Chicago has sold for double its 2012 purchase price, the latest sign that investors are increasingly eager to own properties catering to wealthy retirees. Senior housing development has ramped up in recent years to accommodate the more than 70 million baby boomers who are retired or approaching retirement. But seniors are staying at home longer than developers expected, creating the beginnings of a glut in senior housing and rising vacancy levels at these properties.”
From Senior Housing News. “Expect the winds of change to blow harder than ever through the senior housing industry in 2020. Independent living is not going to falter overnight. It’s a robust sector, with about 11,000 new units opening between 2017 and 2018, according to NIC data. Still, there are already challenges on the horizon. As of Sept. 2019, initial rent discounts in IL were at their highest level, on average, since NIC began reporting this data in 2015.”
“Heading into 2016, a survey showed that relatively few industry professionals believed that a serious oversupply problem was imminent. Even when it became clear that oversupply was a problem, many continued to underestimate its impact. As recently as May 2019, one seasoned leader in the field — Senior Living Communities’ Donald Thompson — warned, ‘I don’t think this overbuilding is going to go away as fast as people think.’”
“He appears to have been prescient, with Ventas already having revised its 2020 expectations in light of unexpected pricing pressures related to new supply.”
From Comstock’s Magazine on California. “The baby boom is now the silver tsunami. By 2030, the state’s over-65 population will almost double from 4.6 million to 8.6 million, according to state figures. But having the right mix of specialized housing for older adults requires investors and policymakers to project years out and make smart bets, given the huge investments required. On that score, the Capital Region may be in trouble. State numbers show Sacramento is on track for a shortage of nursing homes by 2030 and an oversupply of assisted-living facilities.”
“Nursing homes say what’s driving those trends is underpayment for long- term care patients who can’t pay their own way. Their residents fall into three main buckets. One group, paid for by Medicare, stays a short period for acute-care needs, such as follow-up services after surgery. Another group needs long- term care for chronic conditions but pay for it themselves or it’s paid by insurance, such as through a long-term care plan. The third group needs long-term care but doesn’t have the resources to pay, so they’re covered by Medi-Cal.”
“The underfunding of this last group is what nursing homes say drains their ability to stay afloat. On average, 70-80 percent of nursing home residents are Medi-Cal recipients, says Jason Belden of the California Association of Health Facilities. The state’s nursing homes lose about $15 a day on each Medi-Cal patient, according to 2015 data from the American Health Care Association. Facilities make up those losses with patients in the other two buckets, whose rates are higher.”
“For investors, that could be daunting. Belden says it costs at least $40 million to construct a 100-bed facility, about average size. But at current reimbursement rates, the repayment window on that in- vestment is 70 years. ‘We have a lot of our peer nonprofit providers in skilled nursing that are getting out of the business,’ says Sheri Peifer of Carmichael-based Eskaton, which runs a network of skilled-nursing facilities.”
“Comstock’s analysis of state data show that the six-county area jumped 85 percent, from fewer than 13,000 assisted- living beds in June 2015 to almost 24,000 beds in September 2019. Sacramento’s building boom is no anomaly, says Deborah Draves of Folsom-based LookingforCare.com, which connects families with assisted-living services. State data show almost 18,000 units in the construction pipeline for the next 12 months, a boost in supply of nearly 8.5 percent, she says. Nationally, the number of senior housing units built per year grew by 43 percent from 2012 to 2018 compared with 2006 to 2012, according to a report last fall.”
“Draves is skeptical all those units are going to be bought and points to Citrus Heights-based industry analyst Steve Moran, who also expressed skepticism of the idea that rising demand will soak up the new units. Nationally, senior housing occupancy rates are at their lowest level since 2011, according to second-quarter data from the National Investment Center for Seniors Housing & Care.”
“Draves cites several reasons she’s wary. People are waiting longer to move to assisted living: The recession wiped out many people’s equity, and boomers didn’t save as much as their parents, meaning those going into assisted living are older, frailer and have a shorter length of stay. Meanwhile, as competition for new residents has increased, the cost of recruiting them is going up and now is equivalent to the revenue from 6-9 months of occupancy, she says. All of that means lower margins. ‘I don’t know who this glut of available apartments is truly going to be able to serve at current pricing,’ she says.”