April 2008

SERENE APARTMENT MARKET REMAINS STABLE Posted Wednesday, April 23, 2008 by realfacts
In a period of turmoil for condos and single family homes, the rental apartment market is a model of stability. According to statistics released this week by RealFacts, the multifamily data specialists, rents are growing modestly, occupancy is unchanged, and the rental apartment segment appears to be immune to the problems occurring in other housing sectors.

This first look at the market in 2008 finds rents growing at a rate of 0.4% per quarter. The increase since March 2007 adds up to 3.0%, 0.6% below the year-over-year rate for 2007, which was 3.6%. Although this rate is lower than the underwriters' ideal growth rate of 5% per year, it is still likely to be the happiest news financial institutions have seen this year. The RealFacts database includes more than 3,160,000 rental units in 15 states, and the survey conducted in March indicates that the average rent for all locations was $993. That means the average apartment resident pays almost $12,000 a year for housing. The highest quarterly rent growth was seen in the Oklahoma City OK MSA, (2.2%), Seattle-Tacoma-Bellevue WA MSA (2.1%), Salt Lake City UT MSA (2.0%) and the San Francisco-Oakland-Fremont CA MSA (1.2%). .

RealFacts found that occupancy rates stabilized in the first quarter of 2008. In marked contrast to the last three months of 2007, when occupancy fell a full percentage point for the entire database, there was no change in early 2008. While roughly half the Metropolitan Statistical Areas (MSAs) showed a continued decline in occupancy, the other half showed an occupancy increase. The bad news last December was that at least 31,000 apartments that were occupied in September had become vacant. The bad news from March 2008 is that all of these apartment units are still empty; the good news is that the number of empty apartments has not grown. The current average occupancy rate for all units is 92.6%, well below the ideal 95%. This factor favors renters over landlords, and thus exerts a check on rent growth, which favors landlords over renters. Thus the market remains in good balance.

Analysts of the troubled single family home market, with its sub-prime loans and increasing number of foreclosures, have asked what happens to the people who have lost their houses. Some have speculated that they would move into apartments, but the evidence from the RealFacts survey suggests that this is not happening. There has been no increase in demand for apartments, as would be the case if former home owners were turning into apartment renters. In fact, in MSAs that lead the nation in foreclosures, there has also been a decrease in demand for apartments. So where did these people go? One answer may be that they are renting houses rather than apartments, and are thus part of a shadow market that is not currently being measured. Another possible explanation is that the loss of their house was part of a larger financial collapse, and that they have become eligible for affordable housing, and have thus left the market-rate housing market

A closer look at the RealFacts survey indicates that while demand for rental apartments has slightly decreased over the past year, supply of rental housing has also slightly decreased. The database covers apartment units in complexes of 100 or more units, and in the past two years, more than 100,000 units have been removed from the rental supply as the buildings were purchased by condo converters and moved into the For Sale market. (About the same number of units were planned to go condo but have not yet been sold.) In that same time period, only about 60,000 new units of rental housing have been built. That's a loss of about 40,000 rental units in 2006-2007, or a little more than 1% of the total. Development remains at a lower level than average, but there are plenty of developers who have the skill and the money to enter the market and are just waiting for the timing to be right.

Caroline S Latham
CEO
RealFacts

WHAT’S UP IN OKLAHOMA? Posted Monday, April 7, 2008 by realfacts

The short answer is … everything. Rents are up, occupancy is up, and construction is up. Apartment managers say traffic is up, and brokers say rental property sales are up. Here at RealFacts, we were so startled when we first looked at the fourth quarter survey results for Oklahoma City that we assumed there must be some data e! ntry error. Then we looked at the Tulsa MSA and discovered the same upward trend.

Just how well is the Oklahoma apartment market doing? As of December, the year-over-year rent growth in Oklahoma City was 5.2%, a level equaled in only a few prosperous West Coast markets. In Tulsa, which for years was at the bottom of the list of asking rents as well as rent growth, rents grew at an annual rate of 6.9%, and 2.5% of that growth came in the last quarter of the year. The average rent for all unit types in the Tulsa MSA was $570, and $580 in the Oklahoma City MSA.

In a quarter when most markets were experiencing a slowdown in the rate of rent growth, the news from Oklahoma seemed remarkable, and we wondered if it was going to be sustained in 2008. So we decided to do a quick resurvey of the apartment complexes in our Oklahoma database last week, and fond that rents are still being raised aggressively. Increases of $10-$25 a month were common in February --- and remember that where rents are generally in the $500 range, that is a large percentage increase. We asked managers to give us their take on the strength of the market, and many mentioned evidence of strong demand, especially increased traffic when vacant units were advertised. A factor frequently cited was the existence of new projects. Although the conventional wisdom is that new construction puts older units under economic stress, we have often noticed the opposite effect; when a new apartment complex is able to fill its units at a higher price than managers formerly believed possible, older complexes then achieve rent increases that put them just under the new units, and therefore still a bargain in the eyes of prospective residents.

Demographics tell us that Oklahoma is still growing in population, and that its household income is going up. In 2006 Oklahoma added nearly 35,800 residents, a 1.01% annual population growth. "Only once since Oklahoma's oil boom and bust has the state had a one percent increase in population over the span of one year," said Jeff Wallace, Director of the Oklahoma Census Data Center at the Oklahoma Department of Commerce. "This shows that Oklahoma's economy is becoming more diverse and continues to attract additional growth to our state." And the latest figures for median household income shows Tulsa at $40,204, an increase of 6% from the previous year and the Oklahoma City MSA as $37,967 an increase of 4.9%.

So Oklahoma, OK!

Caroline S. Latham
CEO
RealFacts

APARTMENT SALES IN 2007 Posted Sunday, April 6, 2008 by realfacts

Although 2007 has ended, we are still researching apartment sales transactions for that year. As of early March, we had found details of 1017 sales. Chances are we will find some more in the coming months, but we certainly have enough to spot some trends.

The first conclusion we can draw is that sales volume is more or less unchanged from the previous year. We have 1027 sales of complexes in the database for 2006, strikingly similar to the number of sales for 2007. Since our database covers 12.200 complexes, that suggests that 1% of apartment complexes change hands in a year.

Generalizing about a database that covers so many different MSAs is dangerous, because it blurs the details of individual markets. But let’s live dangerously and say that prices per unit and per square foot have gone up in 2007 while cap rates have gone down. The following table summarizes the changes state by state,

To continue with this dangerous act of generalization, we can say that prices have been going up and cap rates down in the twenty-first century. The exception to the trend came in 2005, when prices went up so fast due to sales to condo converters that they fell in 2006. In future newsletters, we’ll look in more depth at sales in some specific markers, where there have been high numbers of transactions.

Caroline S. Latham
CEO
RealFacts

2007

2006

State

Av.CapRate

Av.PPU

Av.CapRate

Av.PPU

5.8%

$93,025

5.9%

$79,223

5.3%

$181,161

5.1%

$177,043

6.0%

$93,997

6.5%

$109,401

5.0%

$92,605

4.9%

$90,587

6.8%

$53,891

7.3%

$58,243

6.5%

$74,709

6.8%

$86,192

6.5%

$53,066

6.9%

$53,475

5.3%

$123,987

6.0%

$123,386

6.5%

$90,159

6.8%

$60,907

6.4%

$33,879

7.2%

$39,309

5.0%

$102,440

5.8%

$87,500

6.8%

$62,379

7.3%

$60,268

6.2%

$89,394

7.0%

$50,436

6.0%

$122,720

5.2%

$110,528

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