growth. “In areas that have seen a glut of
multifamily development and have been
affected significantly by the recession
and downturn in the single-family housing market, effective rents will decrease
considerably in 2009,” he adds.
Approximately 62.6% of survey respondents noted that they expect to see apartment rents decrease in 2009. Of the 91
respondents, 6.6% said rents will increase,
and 29.7% said they will remain flat, although some commented that it will vary
by property, location and demographics.
Some firms are opting for environmentally sustainable (green) energy management programs and building design in
new construction and/or in retrofitting
existing properties. Harris says that although there has not been a “dramatic
shift” among all owners and developers,
some developers are pursuing LEED-certified projects, and most owners are
attempting to implement energy management programs when renovating or upgrading portfolio properties.
Although only 42.2% of respondents
said they were going green, Western National Property Management is one example on the bandwagon, as it is using
an increased amount of environmentally
friendly and recycled building products
in its new construction. In addition, the
company is installing restrictive shower
heads, low-flow toilets and fluorescent
lighting in units it is upgrading. “We are
also closely monitoring utility consumption and reducing utility costs wherever
possible throughout our portfolio,”
Shelton says.
Stability Plan Adds Confidence
According to the NMHC and National
Apartment Association, the Obama Administration’s four-part financial stability
plan will “restore investor confidence, restart trading in the frozen CMBS market
and establish a market-clearing price for a
variety of real estate assets, including commercial and multifamily mortgages.”
According to NMHC president Doug
Bubby, “action is critical because unless
liquidity is restored to the commercial
real estate sector, we face a serious risk
of waves of defaults and bankruptcies of
otherwise performing apartment properties,” he says. “In the next two years, an
estimated $80 billion to $100 billion in
multifamily mortgages will mature and
need to be refinanced. With credit markets virtually collapsed, however, owners
who are meeting their financial obligations but who—by sheer timing—are
in the unlucky position of having their
mortgages mature in 2009 and 2010 may
be forced into foreclosure.”
The administration’s plan to help
recapitalize the banking system and
aid struggling homeowners also
gained support and restored confidence at the Mortgage Bankers Association conference held this quarter
in San Diego. “We are pleased, particularly with the expansion of the
TALF to specifically include commercial mortgage-backed securities,” said
John Courson, president and CEO
of the MBA. “We hope the program
will contain support for both new
and existing assets, including private
label residential mortgage-backed securities.” The market for new private
label RMBS and CMBS has essentially
disappeared, he added, and “this will
hopefully help spur lending for commercial and multifamily projects.”
Surely there are bound to be many
other obstacles to deal with in 2009.
Shelton says that the primary obstacle
to deal flow today is the lack of equity
bold enough to invest in a still declining market, and the unavailability of
debt at rates competitive enough to
mitigate the risk of buying in this time
of economic uncertainty. “There still
exists a significant gap between buyer
and seller,” he says, “and as loans begin
to mature in the next 18 to 24 months,
you will see that gap begin to narrow.”
Legacy’s Morrison says that in order
to stay afloat in 2009 and 2010, rents
must be kept competitive for new rentals and renewals, and rents will also
have to be constantly adjusted. “Keep
the ‘back door’ closed and do not allow
residents to move out, and you will reduce expenses by not having vacancy
loss days, turnover expenses and new
concessions,” he advises, adding that
owners should try to keep occupancy
high by responding quickly to the market, and should focus on keeping residents happy. “Hold on—it is going to
be a longer ride than a lot of people
expect.”—SOCAL
Survey Says?
Real Estate Southern California
polled people for their thoughts on
the multifamily market. Here are
some of their answers:
What issue will have the most impact
on the housing market in Southern
California in 2009:
64% Tighter lending markets
18% Subprime mortgage crisis
6.7% Crash of for-sale condo market
1.1% Lack of developable land
1.1% Opposition to new development
1.1% Shadow rentals
Are you planning to increase or
decrease the size of your multifamily
portfolio in the next 12 months?
37.8% Increase
13.3% Decrease
48.9% Neither
Which areas offer the most potential
for growth?
57.1% Distressed properties
17.6% Acquisitions
12.1% Redevelopment of existing assets
11% Urban infill development
2.2% New development
In the next 12 months, what will you
do to stay competitive in attracting
and retaining tenants?
47.2% Incentives
31.5% Rent decrease
9% Installing amenities
12.4% Other
In 2009, do you see apartment rents
increasing, decreasing or remaining
flat?
6.6% Increasing
62.6% Decreasing
29.7% Remaining flat
1.1% Other
