A weekend topic starting with two reports from the Wall Street Journal. “Builders are expected to complete some 371,000 new apartments in 2020, compared to 247,000 in 2019 and 119,000 in 2010, according to RealPage. The problem is that many of the new apartments will be too expensive for lower- and middle-class families. Bernie Sanders blames this on ‘corrupt real estate developers’ who are ‘gentrifying neighborhoods’ and replacing affordable homes with ‘fancy condominiums and hotels that only the very rich can afford.’ Elizabeth Warren says ‘developers can usually turn bigger profits by building fancier new units targeted at higher-income families rather than units targeted at lower-income families.’”
“Their solution is more government control of the rental market. But what if that is already the main problem?”
“A new state rule preventing real-estate firms from charging broker fees on apartment rentals is causing chaos and sudden panic in the industry. The Real Estate Board of New York and the New York State Association of Realtors, two large industry groups for brokers in the state, said Friday that they would sue the New York Department of State for ‘usurp[ing] its role by engaging in improper rulemaking…resulting in losses for brokers and landlords alike,’ the groups said in a joint statement.”
“‘There’s lots of little firms, and I don’t know how they’re going to do the business,’ said Donna Olshan, founder of Olshan Properties. ‘A lot of these brokers don’t make much more than teachers.’”
From Market Watch on New York. “Community banks that financed swaths of New York City’s rent-regulated apartment buildings in recent years now face questions about potential fallout to their loan portfolios seven months after state legislators overhauled tenant-protection regulations. Christopher Maher, OceanFirst’s president, pointed to a ‘giant’ jump in capitalization rates across New York’s rent-regulated apartments to as high as 6%, on the bank’s earnings call. Cap rates are a popular gauge for returns in real estate, after considering a property’s value and expected rents. They plunged to the sub-4% range on Manhattan buildings as property prices hit new records, but tend to climb when risks rise.”
“‘This is not a situation where there should be panic over the asset class,’ Maher said in a follow up call with MarketWatch. ‘You will see some defaults,’ he said. ‘But I think you’re going to see it more in non-regulated lenders, the shadow-banking market. I don’t expect you’re going to see a significant problem in bank balance sheets.’”
“Last year, the value of apartment transactions in Manhattan dropped by 41% to $5 billion from a year earlier, according to Real Capital Analytic data, while the city’s other boroughs saw a 47% plunge to $3.4 billion over the same period. While those figures don’t separate for individual sales of rent-regulated buildings, brokers told MarketWatch that investment activity in the sector has cooled significantly in recent months and that prices likely are 25% to 30% lower.”
“‘The apartment sector fundamentals have been stellar for most of this cycle,’ said Yardi’s Paul Fiorilla, in an interview with MarketWatch. But in New York the concern is that property expenses, including upkeep and repairs at rent-regulated buildings, could outpace rent growth under the new rules, and drag down the appeal and prices of real estate in the process. ‘If you have to sell for less than a property was worth a short time ago, that’s not something a lot of people are eager to do,’ he said.”
The San Francisco Chronicle in California. “New development in Oakland is stabilizing rents and may start driving rental costs down, Oakland Mayor Libby Schaaf said in a State of the City address Friday evening that packed the Oakland Museum. As protesters held signs that read ‘Stop all evictions’ and ‘Housing is a human right’ outside the museum, Schaaf spoke of the homeless crisis, renter protections, anti-eviction efforts and safety on city streets. The mayor said the city exceeded its housing goal of adding 17,000 units by 2024. The city has added 22,000 new units.”
“The new housing units are starting to stabilize rents in Oakland, she added. ‘Rents have stopped going up and many predict next year, they will start going down,’ Schaaf said. ‘Rents are at an expensive place in Oakland, where the average worker cannot afford them. We have much work to do.’”
From Socket Site in California. “As we outlined back in the fourth quarter of 2017: ‘the contentious plans for a five-story building with 28 condos over 6,300 square feet of new retail space and a 19-car garage to rise upon the Oil Changer site at 198 Valencia Street have been approved and newly rendered below. But rather than preparing to break ground, the 198 Valencia Street site and plans are now on the market with a $9.25 million price tag.’ Permits for the development were subsequently approved and issued, but the project has yet to break ground. And with that in mind, the entitled parcel is now back on the market with a reduced $6.95 million list price.”
From The Real Deal on Florida. “Five years after completing 321 Ocean, developer Aria Development Group and its contractors are being accused of widespread faulty construction at the South Beach luxury boutique condominium. The 321 Ocean Condominium Association sued Aria’s development entity 321 Ocean Drive LLC, project architect Revuelta Architecture International, general contractor Coastal Construction and 16 companies involved in building the 24-unit beachfront complex in Miami Beach’s South-of-Fifth neighborhood.”
“Filed last month, it’s the latest lawsuit involving allegations of massive construction defects at a condo building completed during Miami’s most recent development boom, as such suits have become increasingly common.”
“After taking control of the building, 321 Ocean condo association discovered construction defects in the common areas, individual units, the roofs of the complex’s two buildings, the garage and the structural elements, the complaint alleges. Attached to the lawsuit is an 11-page itemized list of all the defects, which run the gamut. For instance, there are cracks in the floor slabs of the service areas of the east tower, as well as cracks to the concrete slab in some stairwells. Stucco was improperly applied on the balconies of all the units. There are also cracks in the stucco of the garage entrance and the roof of the east tower, according to the list. And in more than a dozen units, sliding glass doors are not aligned with the jambs, the suit alleges.”
From Curbed Boston in Massachusetts. “Once upon a time, bidding wars were common in the Boston-area housing market. Prospective buyers vied to one up each other at crowded open houses, leading to closing prices well over the originals that buyers and their brokers had put out there. Tips for winning bidding wars abounded. (Come with cash seemed to top most lists.) That’s all in the past. Or at least it certainly looks like it.”
“‘The housing market took a breather in 2019, after years of red-hot sellers’ markets,’ Zillow economist Jeff Tucker said. ‘Many sellers were caught off-guard by the changing conditions, and ended up accepting offers at or below list prices that were dreamed up during the height of the frenzy.’”
The Post and Courier on South Carolina. “More than 3,000 additional student beds in private dormitories are coming to Columbia, where numerous new student complexes already have changed the flavor of the city. But, for some, enough is enough. ‘I think we are past the saturation point,’ Columbia City Councilman Howard Duvall said. ‘I think we have overbuilt for student housing.’”
“Duvall worries that, as newer private dorms acquire residents from other complexes, the city will struggle to find new uses for the structures that fall out of favor, because of the designs, which frequently have four bedrooms sharing one common area. ‘These buildings will be hard to repurpose to other things because of their design,’ Duvall said.”