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The Hole Is Getting Deep in Chicago

While apartment occupancy in the Midwest basically lines up with the national norm, most markets in the region have contained rent cuts at comparatively small levels. Effective monthly rents in June were 1.8 percent off the year-earlier figures across the 10 Midwest metros that MPF Research studies most closely, sliding at about half the pace recorded for the nation as a whole. However, there's an exception to that generally more modest pattern of rent cuts in the Midwest, and it's a big one. Chicago, which is twice the size of any other market in the region, suffered rent reductions of 3.4 percent in same-store properties between mid-2008 and mid-2009.It's certainly not surprising to see sizable rent backtracking in Chicago's top-tier, newest apartment product. Most of those properties are found inside the Loop, and they face tremendous competition from individually-owned condos offered for lease. However, the metro's steepest rent cuts over the past year actually have occurred in the 1980s-generation properties and the 1990s-era units, with much of that stock not downtown but in the suburbs around O'Hare International Airport and westward into Naperville and other sectors of DuPage County.While numerous factors have played a part in shaping the struggle seen in Chicago's apartment market recently, one number really stands out. That figure is 200,000, the approximate volume of job loss recorded over the past year, with Chicago now whacking positions at an absolute level more severe than in Detroit, Los Angeles, Phoenix and Atlanta, which ranked as the nation's key job......
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Blake Ratcliff
I wonder how markets like Atlanta, Orlando, Jacksonville, Tampa, Birmingham, Charlotte compare. Also, I am curious what folks vie... Read More
Sunday, 27 September 2009 21:56
Scott Schneider
For low-occupancy communities(maybe 75% or less?), could you rent out some of the unused rooms as storage space? Perhaps there ar... Read More
Tuesday, 29 September 2009 01:16
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Buying Occupancy in Nashville's Apartment Market

In normal times, neighborhoods registering the tightest apartment occupancy tend to likewise post the strongest rent change performances. But we all know these aren't normal times. Today, then, it's not unusual to see areas with comparatively strong occupancy taking the biggest hits to rent positioning. Apartment owners and operators in those locales, then, are essentially buying occupancy. A look at metro Nashville's stats on the neighborhood level provides one of the clearest examples of that pattern.The strongest occupancy figure logged across Nashville as of mid-2009 was the 94.1 percent rate in Williamson County, the largely upscale suburbs like Spring Hill and Franklin that lie southwest of the urban core. Williamson County occupancy topped metro Nashville's average performance of 91.5 percent by 2.6 percentage points as of June. However, effective rents in Williamson County came down by 5.9 percent during the year-ending June. That was a meaningfully bigger hit than the 3.6 percent effective rent loss recorded for the metro as a whole.Similarly, the more blue-collar suburbs in Sumner County -- places like Hendersonville and Gallatin -- at the northern edge of the metro realized higher than typical occupancy of 93.3 percent, but effective rents took a bigger annual cut of 6.4 percent.Reversing that pattern, mid-2009 occupancy was just 88.4 percent in Rutherford County, the growing suburbs like Murfreesboro that are found along Nashville's southeastern periphery, where much of the metro's recent construction has occurred. Even with that considerably lower occupancy, annual revenue change in Rutherford County looked pretty much like the......
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Returning Job Growth Will Be Good for the Apartment Market...Maybe

The recession is over. That's essentially what the Fed said last week, and everybody who is supposed to know about that sort of thing seems to agree. The return of job creation will take a while, but most economists have penciled in mild employment additions for the last half of 2010 at the latest. We need jobs - lots and lots and lots of them - to stimulate new household formation and, in turn, provide the engine that will lead to burn off of the nation's excess housing inventory.Improved job prospects clearly represent good news for the apartment sector in the big picture. But the initial impact of more jobs might not be as beneficial as you perhaps expect.MPF Research's concern is that the first wave of employment additions could unleash a surge of single-family home purchases among households who, though qualified to buy, have been waiting on the sidelines until feeling better about the prospects of keeping their jobs through the recession.Single-family home prices have dropped so much that the monthly cash outlay to buy actually is well under the average apartment rent in fully half of the 64 metros that form the core of MPF Research's analysis. Looking at one of the most extreme examples, Atlanta's median price of single-family homes sold during 2nd quarter was just $121,400, according to the National Association of Realtors. Assuming a 20 percent down payment and a 30-year mortgage at a fixed rate of 5.2 percent, the monthly cost to cover principal and......
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Kansas City's Loss of Momentum Has Been Fairly Slow

Apartment market fundamentals in Kansas City are moving in line with the pattern seen across most of the Midwest - down, but at a more modest level than is typical for the country as a whole. As of June, revenues were off by slightly less than 3 percent on an annual basis in Kansas City's apartment stock, compared to the average decline of 5.5 percent seen nationally.Kansas City's more moderate pace of decline for apartment market conditions, not surprisingly, for the most part reflects that the metro's economy hasn't gone off the edge of the cliff. June's employment tally of just over 1 million jobs was off by roughly 20,000 positions since mid-2008, translating to 1.9 percent downsizing. Among the metro's headline-grabbing employers, Sprint, which is headquartered in the Kansas City suburb of Overland Park, is in the process of shedding about 8,000 jobs during 2009. The company's metro Washington, DC campus is feeling the most pain in this downsizing, but meaningful losses also have been suffered in the Kansas City area. In contrast, the Ford and GM auto plants in metro Kansas City lately have been boosting head counts again, after positions were trimmed and the facilities were briefly idled in late 2008 to early 2009.The average occupancy rate for apartments in Kansas City came in at 91.3 percent as of June. Occupancy remained a little above the metro norm throughout the key Johnson County suburbs, with rates at 92 percent to 94 percent across Overland Park, Olathe and Lenexa/Shawnee.......
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Increasing Property Values

No matter how big or small your budget is, there are always ways to increase the value of your investment property. Whether you’re looking to make updates for efficiency, improve aesthetics, or just make general miscellaneous upgrades, following are some ideas for boosting your property’s worth. Roofing If you suspect you may be selling your property any time in the near future, consider your roof’s condition. Yes, this is a high-ticket item (approximately $10,000 to $15,000 to replace your current roof), but it’s also one of the first thing inspectors, real estate agents, and potential buyers will look at. Even if your roof isn’t in need of repair at this precise moment, chances are your property value will go down if buyers think that they may have to re-roof within the next few years. If your roof is on the older side but not quite ready for replacement, consider getting a roof certification. For the comparatively inexpensive price of about $250, a roofer will guarantee that your roof will not leak for two years—and if it does leak within that period, he will make the necessary repairs free of charge. Energy Efficiency When the time comes to replace unit appliances, you should strongly consider installing energy-efficient upgrades (such as EnergyStar). This is a great selling point for tenants and buyers alike and it will also pay off on a month-to-month basis that really adds up in the long run. If you are covering your property’s electric bills, energy rates can be......
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Location, Location, Location

NeighborhoodWhen it comes to locating the investment property that’s right for you, you’re shopping not only for the perfect property but also for the neighborhood that best suits your financial goals. In fact, before you even beginning to hone in on potential properties, it’s wise to first narrow your options by targeting a few specific neighborhoods in your desired area of purchase. Begin by asking yourself what your ideal tenant pool looks like. Do you want to target the evergreen student population? If so, you’ll want to make sure that you’re looking in areas that offer easy access to nearby colleges and universities. Are you looking to cater to young professionals? Consider trendy or up-and-coming areas that are in close proximity to business districts and local restaurants and shops that will likely appeal to 20- and 30-somethings. If it’s families you’re after, narrow your search to quieter neighborhoods in desirable school districts. Once you have the generalities out of the way, it’s time to drill down to some specifics that take both your current budget and your long-term investment goals into account. Long-term prospects Choosing just the right neighborhood requires that you are both a good historian and a good forecaster. Remember, this is an investment so you want to hedge your bets and utilize any resource possible to ensure that this neighborhood is not just a good fit today, but that it also will be five, ten, fifteen, or even twenty years down the line. Ask yourself these questions: Does......
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Loans options for owners of small multifamily properties

You hear in a lot of places that the only commercial loans available today are for apartments.  Apartment loans are available especially for larger apartment project (over $5 million) where the agency lenders, Freddie Mac and Fannie Mae, and HUD are keeping the market going.  These lenders are offering very aggressive rates and in some cases aggressive loans.   HUD loans are still available up to 85% LTV and Freddie and Fannie loans are available in the 75%-80% LTV range in most markets.  However, Freddie and Fannie do not generally service the smaller loan market.  You can get a loan from them in the $3-$5 million range, but only if you find the right correspondent lender.  For loans under $3 million its very tough to get a Freddie or Fannie lender interested in talking to you at all.So for smaller properties is there capital still available?  Thee quick answer is yes.  Owners of properties under $5 million still have choices.   There are fewer choices today compared to last year, but of coarse who has more choices today when compared to last year.  There are still some banks lending and some Fannie lenders are offering loans to borrower needing between $1 and $3 million.  Over the last week my office called over 100 banks in the Chicago area looking to see who is lending.  We found 21 banks (about 20%) who said they were willing to consider new loans.  A slightly smaller survey earlier in the year found almost 50% of the banks......
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Vacancy Rates, how high will they go?

historic vacancy rateschartEarlier today the census bureau issued a press release on second quarter residential vacancy and homeownership.    The report stated that residential vacancy has increased to 10.6%.   Based on this report the public press announced that residential vacancy was at an all time high.   This is true, but unfortunately this does not really tell the story.  You have to look farther into the data to see what's really happening. First the 10.6% vacancy is for all residential housing (single and multifamily) and not just multifamily housing.  For Multifamily (properties with over 5 units) the data is much worse.   The census multifamily vacancy shows at 12.1% eclipsing the historical high of 12% from Q2 2004.  This is truly a scary number, but I am afraid it's not going to drop for quite a while.    If you look at the long view of the data you see vacancy has generally increased over time.   And the volatility of vacancy has been relatively high over the last few years.The regional data is also quite interesting and shows a slightly different picture.  While vacancy is up it's mostly in the South and West .  Year of year data vacancy is actually down in the Midwest and Northeast.    Why is this?   I am not really sure, but the south has always been a volatile vacancy market with lots of boom and bust while the Midwest has always been relatively steady.  Also, the Midwest was hit by high vacancy earlier in the decade.    Most regions are currently seeing historical high vacancy......
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Asset Manager vs. Property Manager

Property ManagementI was interviewed by a potential client last week and one of the first questions that he asked me was: "How do you perceive the management style of your company? In other words, if I were to hire you, what do I tell people your company does for me?" My answer came quick: "We proactively manage and advise on your investment property. Think of us as asset managers, not just property managers." The client was pleased and we went on to schedule a face-to-face meeting.The interesting point to note here is not my answer - but the fact that the prospect actually asked such a question - and straight out of the gate! The question was to the point and he cared very little about the various other benefits we would provide. He simply wanted to know what we - as a company - thought of ourselves. The prospect was not looking for a company to collect checks and handle complaints - he needed someone to shed insight on and provide guidance for his $10 million asset.This appears to be an example of the shift in the way owners are approaching property management companies. Not only do owners need quality service, quick turnovers and fair management rates - they need a management company to take the reigns and drive the multifamily investment towards a profitable goal. This need (in my opinion), when fulfilled, establishes the property management industry as bottom line advocates, working for the betterment of the investment as a......
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FHA Multifamily Loans - 223(f) Acquisition or Refinance

With many lenders on hold the topic of the day has been FHA.The FHA multifamily loan programs have been in place for over thirty years.  They continue to be used regularly and have closed as much as $8 billion a year in new business.  With commercial lenders on hold there has been renewed interest in these valuable programs.  The following summarizes the 223(f) program.The 223(f) program provides high-leverage long-term permanent debt to refinance, purchase, or moderately renovate existing apartment communities on a fixed-rate, non-recourse, assumable basis.  The loan size is relatively unlimited and the properties can be located in any state, Puerto Rico, Guam, and the US Virgin Islands.The property must contain five or more  units and be at least three years old based on the final certificate of occupancy.  (HUD recently granted waiver authority to the field offices through September 2009  to refinance younger properties that have stabilized.)  Commercial space cannot exceed 20% of the total net rentable floor area or 20% of effective gross income, including a 10% vacancy allowance.  Repair cost are limited to 1) $6,500 per unit as adjusted to FHA's high-cost factor for the area; 2) a maximum 15% of "as-improved" market value; and 3) cannot involve replacing more than one major builidng companent.Borrower Advantages:  35-year amortization period; eligibility for both market rate, subsidized, and LIHTC properties; NO rent control restrictions, rental subsidies, or limitations on owner return; non-recourse; AAA credit enhancement with Ginnie Mae securitization.Guidelines:Term:  Up to 35 years fully amortizing with level payments.Loan Size:  Unlimited, nationwide.Loan Amount: ......
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