2012 IS THE YEAR OF THE DRAGON AND THE LANDLORD
January 20, 2012 on 6:56 pm | In Charts + Statistics, Economy, Experts Say, Investment Opportunities, Market Snapshot, Of Local Importance, Rents, Trends | 3 Comments
by Jodi Summers
This is Year of the Landlord, or so concludes a recent report from Morgan Stanley. And yes, there are impressive statistics to support that claim. The percentage of Americans who own their home has dropped from a peak of 69.2% in late 2004 to a 13-year low of 65.9% in 2Q 2011. Fortunately, we are rising from the ashes, as homeownership rose to 66.3% in 3Q11. More juicy info? The percentage of rental properties that are empty fell to 9.8% in the 3Q11 from 10.3% in 2Q10. What’s more, rental prices are reflecting the shift in demand. Rental costs are up 2.4% over the last year, compared with an increase of 0.6% in 2010. Okay, now you can breathe….
“The reason rents were rising is that through the past 15 years there has been an under-building of rental properties because typical renters were increasingly able to garner cheap financing to buy a house,” offers Steve Blitz, senior economist at ITG Investment Research.
At its peak at the end of 2005, homebuilding accounted for about 6.2% of overall economic activity. Now, it is only about 2.4%…and there are signs of growth.
Nationwide, groundbreaking for new housing jumped 9.3% in November – the highest level in 19 months. These gains are mostly in multifamily housing. Groundbreaking for structures with five or more units shot up more than 30% between from October and the end of the year.
In Los Angeles County we follow the national trend. 8,737 housing permits were issued during the first 11 months of 2011 compared with 6,623 a year ago (+31.9%). Permits for single-family homes slipped by -1.5% to 2,105 units, while the number of multi-family units permitted was 6,632 compared with 4,487 (+47.8%) during the same period last year.
“Rents are rising, vacancies are falling, household formations are growing and rental supply is limited,” the Morgan Stanley report noted. “We believe the demand for rental properties will continue to grow.”
Another optimistic sign for growth in the housing market is that the stock of homebuilders, as measured by a Dow Jones index, has shot up more than 30% since early October.
“Residential construction will be a plus to GDP in 2012, but house price declines will be a negative. So net, net housing will be neutral or a small drag on the economy,” concludes Mark Zandi, chief economist at Moody’s Analytics.
All the experts say the same thing; the multiunit market will continue to stay strong.
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http://www.laedc.org/eedge/archive/2011/ee111228.html#2
http://fc06.deviantart.net/fs22/f/2008/004/8/7/Year_of_the_Dragon_Wallpaper_by_TheMorningMist.png
http://www.malaysiasite.nl/images/dragon.gif
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WOULD THE GOVERNMENT OFFER INCENTIVES TO RESIDENTIAL REAL ESTATE INVESTORS
January 10, 2012 on 12:13 am | In Charts + Statistics, Economy, Experts Say, Fascinating Information, Government, Rents, Trends, Uncategorized | 3 CommentsBy Jodi Summers
For decades, 64% of American households owned their own home. The numbers began growing in 1995, due to incentives and encouragement from President Bill Clinton and President George W. Bush. Homeownership hit an all-time peak of more than 69% in 2004. Between 2006 – 2008, the U.S. Census Bureau calculates that home ownership in the U.S. dropped more than 1% > from 68.8% to 67.8%. In 2010 home ownership was @ 66.9%. As you’d expect, that leaves a lot of vacant homes scattered throughout the countryside.
The percentage-point difference between the latest home vacancy rate (2.5%) and our usual rate (1.5%) amounts to an excess inventory of almost 1 million vacant homes. Those million homes are our “housing bubble” so to speak. As the situation exists, the extra inventory is slowly being worked off as the economy recovers and more households are formed. The oversupply of housing stock could easily be reduced by offering a tax write-off for investors who buy empty properties and rent them out.
“The biggest barrier to housing’s recovery right now is the vast supply of foreclosed and about-to-be foreclosed homes…the dreaded shadow inventory,” summarized CNBC journalist Diana Olick. “The biggest problem in the rental 
market right now is dwindling supply.”
Democrats and Republicans would agree that it’s in everyone’s best interest to get those vacant homes occupied. If that means renting them out as opposed to selling them, then Woooo! Hooooo!
Currently, for tax purposes, people who purchase residential real estate depreciate the value of the property over 27.5 years. To stimulate investment, policy makers have allowed businesses to immediately depreciate the full cost of most of their investments. Real estate hasn’t been eligible for this luxurious write down. But, what if Congress were to give investors the incentive to buy vacant houses by allowing them to write off the value immediately, as long as they hold on to the properties for some number of years and rent them out.
Investors are easy buyers because they skip the convoluted loan process and use cash. SoCal buyers paying cash accounted for 28.5% of total September home sales, notes DataQuick Information Services. 52.9% of those paying cash were absentee buyers, meaning they were investors or second-home buyers. For the record, cash buyers paid a median $210,000. September cash buyer level was down slightly from 29.1% in August but up from 26.2% a year earlier. Cash purchases hit a high of 32.3% of sales this February. Over the past 10 years, the historical monthly average has been about 14% paying cash, with about 16.7% of properties being purchased by absentee owners.
If Congress were to give investors the incentive to buy vacant houses and allow them to depreciate immediately, instead of over 27.5 years, “…The annual costs on real-estate investments would be reduced by about a third, given reasonable assumptions about tax rates for investors and the interest they must pay to borrow,” calculates Richard Wagreich of Citigroup’s Financial Strategy Group. This policy would make more rental units available and lower their price, thereby encouraging more people to move out of existing households and into their own rental units.
Obviously some boundaries would need to be put in place. The homes would need to have been vacant for a specified length of time, say six months. Investors would need to hold on to the property a minimum amount of time, say five years. The government would to have provisions to take back the benefit in cases where homes were quickly resold rather than leased to boost the economy.
As you might expect, the rental market continues to strengthen. The Core U.S. Consumer Price for rent jumped by +0.2%, and the index for owner’s equivalent rent increased by +0.1%. Please note this increase is an important category because it constitutes about 24.9% of consumer budgets – greater than the sum of gasoline (4.9%) and food (14.8%). Once again, residential units continue to be a good investment.
Calculate all the numbers, and you realize, the cost to taxpayers would be marginal, in the current economy “By giving the deduction in full now, rather than gradually, the government loses the time value of money over that period,” notes Peter Orszag is vice chairman of global banking at Citigroup Inc. “But when government bond yields are exceptionally low, as they are now, that cost is relatively modest.”
Hypothetically speaking, let’s assume this government gives investors the incentive to buy vacant houses. Because of this policy an additional 250,000 housing units are purchased each year and rented out, on top of the 500,000 other properties that will be rented out regardless of tax incentives. If the average price of those houses is $250,000 (roughly the national average), the 10- year cost to the government for each year the policy is in place would be less than $50 billion > but, figure that most of that amount would be recaptured in future years because the full deductions would already have been claimed, calculates Wagreich. In mathematical actuality, the cost to the government in present value would be about $10 billion for each year the policy was in place.
Using this line of philosophy, if this government were to maintain this policy for two years, we would work off half at least half of the excess inventory at a present-value cost to the government of $20 billion. Then, once the vacant home numbers return to a more normal level, the write-off automatically ends.
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http://www.dqnews.com/Articles/2011/News/California/Southern-CA/RRSCA111013.aspx
http://www.bls.gov/news.release/pdf/cpi.pdf
http://www.laedc.org/eedge/index.html#4
http://www.santamonicapropertyblog.com/?p=3769
http://www.santamonicapropertyblog.com/?p=2368
http://www.census.gov/compendia/statab/2012/tables/12s0992.pdf
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SOCAL MULTIUNIT REAL ESTATE SNAPSHOT > JANUARY 2012 > STEADY AND STABLE
January 1, 2012 on 4:24 pm | In Charts + Statistics, Market Snapshot, Rents, Trends, Uncategorized | 4 Comments
by Jodi Summers
2012 offers interesting predictions for the apartment market > bittersweet really. As expected, multiunit property investment will continue to remain strong but investment yields won’t be as great as in the depth of the recession.
Here are the latest stats: the economy was forecasted to add 1.7 million jobs by year end 2011, while unemployment continued near 9%. Gross Domestic Product was forecast to average 1.8% in 2011 < trending up in 2012. Marcus + Millichap Apartment Market reports note that, sub-par employment growth will continue while the GDP struggles to surpass its historical average of 2.5%…and so it goes.
As 2012 dawns on Los Angeles, vacancy rates are @ 4%. Asking rents will rise 1.7% to $1,393 per month, and effective rents will climb 2.3% to $1,346 per month. During 2010, asking rents fell 0.3%, while effective rents edged up 0.5%.
Tight supply in our marketplace will continue to bolster apartment performance, and the sector will continue to thrive from profound shifts in demographic, economic and social patterns.
Nationwide, the multiunit sector is celebrating its third year of positive momentum as sweeping improvements in apartment operations have tightened vacancy rates across the country Net absorption totaled over 37,000 units in 3Q11, a significant decline from 91,000 units from 3Q10. The experts concluded that the apartment sector has moved away from the cyclical surge in demand that accompanies recovery to a more moderate sustainable expansion. Asking and effective rents of $1,048 and $975, posted annualized gains of 2.1% and 2.4%, respectively, with asking rents discounted by about 7 %.
Unless you’ve been hiding out on a rock away from all media, you know that foreclosures, subpar home sales volume, value declines, and a sharp reduction in credit availability bought on by the recession have led to an abrupt reversal in homeownership patterns. By some estimates, lenders have foreclosed on more than three million homes since 2009. The national homeownership rate had fallen to 66.3% in 3Q11.
The apartment sector is the only commercial real estate segment simultaneously benefitting from favorable dynamics in both supply and demand. The national vacancy rate peaked in 2009 at 8.0 %, before reversing course one year ago, well ahead of all other property types. Surging demand and tight supply conditions has led to stellar apartment performance across most primary and secondary markets over the past 12 months.
Demand for apartments should progress at a consistent, yet slower pace until payroll growth and immigration gain momentum. The initial surge in pent-up demand for apartment units has been satiated to some degree by displaced homeowners and new household formation by 20- to 34-year-olds. This segment of the population has captured 68% of the job gains recorded since the end of the recession in June of 2009. Looking forward, stronger employment growth will generate higher immigration levels, a critical component of rental demand, and growing ranks of Echo Boomers will continue to form new households.
We’re here to help you with your commercial and investment property needs. Please contact Jodi Summers and the SoCal Investment Real Estate Group @ Sotheby’s International Realty – jodi@jodisummers.com or 310.392.1211, and let us move forward together.
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http://www.socalmultiunitrealestateblog.com/?p=1775
http://wcc.on24.com/event/36/84/61/rt/1/documents/slidepdf/apartment_market_webcast_110911.pdf
http://www.marcusmillichap.com/research/reports/apartment/2011Oct_Outlook-Apartment_with_Economy.pdf
http://www.marcusmillichap.com/research/reports/Apartment/LosAngeles_4Q11Apt.pdf
FOR LEASE NAVIDAD
December 23, 2011 on 11:56 am | In Curious, Economy, fUNNY...mONEY, Uncategorized, WOW | 2 Comments
THE MOST WALKABLE CITIES IN CALIFORNIA
December 20, 2011 on 12:58 am | In Charts + Statistics, Curious, Fascinating Information, Green, Trends, Uncategorized | 2 Commentsby Jodi Summers
Convenience is one of the big benefits to high density living. When you can live, shop and work in the same neighborhood, life is easier. For tenants, convenience is one of the biggest luxuries of multiunit living. And then, there are the cities, locations and buildings that take convenience to the next level. Bravo to West Hollywood for being named the most walkable in California by WalkScore.com! Another city with cutting edge politics, West Hollywood occupies 1.9-square-miles in greater Los Angeles and boasts 37,000 people. West Hollywood is also the city with the highest population density west of the Mississippi River.
Size and density makes it easier to walk rather than drive in West Hollywood…and that’s just what Walkscore is all about. WalkScore grades cities on their easy of walkability. Considerations include a person’s proximity to grocery stores, restaurants, schools, parks, public transit and other amenities.
West Hollywood was the state winner with a score of 89, followed by Albany (located on the eastern shore of San Francisco Bay) at, 86, and San Francisco, 85. Santa Monica received a score of 82, tying with Berkeley.
The theory is that walkable neighborhoods offer major advantages to the environment, our health, our finances, and our communities, including:
Environment: Cars are a leading cause of climate change. Your feet are zero-pollution transportation machines.
Health: The average resident of a walkable neighborhood weighs 6-10 pounds less than someone who lives in a sprawling neighborhood.
Finances: One point of Walk Score is worth up to $3,000 of value for your property, according to the website’s research.
Communities: Studies show that for every 10 minutes a person spends in a daily car commute, time spent in community activities falls by 10%.
“A city that’s walkable is a healthy city,” confirms Santa Monica Mayor Richard Bloom.
What makes a neighborhood walkable?
* A center: Walkable neighborhoods have a center.
* People: Enough people for businesses to flourish and for public transit to run frequently.
* Mixed income, mixed use: Affordable housing located near businesses.
* Parks and public space: Plenty of public places to gather and play.
* Pedestrian design: Buildings are close to the street, parking lots are relegated to the back.
* Schools and workplaces: Close enough that most residents can walk from their homes.
* Complete streets: Streets designed for bicyclists, pedestrians, and transit.
Walk Score is all about promoting neighborhoods for the health and environmental benefits of their walkability, as well as the economic benefits of walking, rather than driving, around.
Here’s how it’s scored:
Walk Score Description
90–100 Walker’s Paradise — Daily errands do not require a car.
70–89 Very Walkable — Most errands can be accomplished on foot.
50–69 Somewhat Walkable — Some amenities within walking distance.
25–49 Car-Dependent — A few amenities within walking distance.
0–24 Car-Dependent — Almost all errands require a car.
Congratulations to the winners:
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http://www.walkscore.com/rankings/
http://www.socalgreenrealestateblog.com/?p=75
http://www.walkscore.com/walkable-neighborhoods.shtml
http://en.wikipedia.org/wiki/Albany,_California
REASONS WHY THE WESTSIDE MULTIUNIT MARKET WILL REMAIN STRONG
December 10, 2011 on 12:27 am | In Charts + Statistics, Experts Say, Fascinating Information, For Your Purchasing Pleasure, Investment Opportunities, Market Snapshot, Rents, Trends, Uncategorized | 2 Comments
edited by Jodi Summers
Reports are great when they justify everything you’ve known all along. The most recent Apartment Research Market Report from Marcus & Millichap confirms that the coastal Los Angeles multiunit market remains a strong investment. Enjoy these supporting factoids:
Sales Trends
■ Apartment property closings in the Westside Cities increased 11% over the most recent trailing 12 months, building on an 18% jump in velocity one year earlier. The number of assets traded above the $10 million threshold increased twofold in that time.
■ The median price for transactions performed over the past year was $211,400 per unit, up approximately 11% from one year earlier.
■ In the past year, direct cap rates averaged in the low- to mid-5% range, though best-in-class assets routinely traded with initial yields below this mark.
■ Outlook: Cash-rich, private investors and institutions will remain drawn to the Westside Cities’ defensibility against future supply. As such, properties brought to market will garner competitive offers, particularly non-rent-controlled assets already demonstrating rent upside.
Rents
■ With local operations nearing levels considered full capacity, the pace of rent hikes has steadily built momentum this year. Through the first three quarters, asking rents advanced 1.4% to $1,932 per month, which is up 2% from the corresponding period in 2010. Over the preceding 12 months, landlords lowered asking rents 2.3%.
■ As owners withdrew move-in specials, effective rents climbed 2.2% during the last four quarters to $1,852 per month, outpacing a 0.2% uptick posted 12 months prior. Concessions in the Westside Cities currently average 15 days of free rent, four days fewer than peak offerings in 2009.
■ During the past year, average revenues appreciated 3%, a stark contrast from a 1.5% drop reported over the preceding 12-month period.
■ Outlook: After shrinking 0.4% in 2010, asking rents will grow 2.1% this year to $1,946 per month. Effective rents will advance 2.7% to $1,875 per month, following a 0.6% gain last year.
Construction and Vacancy
■ In the Westside Cities, fewer than 100 market-rate apartment units were brought into service year over year, marking a slowdown from the addition of 394 units 12 months earlier.
■ Builders have ramped up construction efforts, however, as nearly 850 rent units were under construction in the third quarter. The planning pipeline, meanwhile, consisted of 3,520 units.
■ Limited supply growth and resurgent renter household formation drove down vacancy rates approximately .7% during the past 12 months, to 4% in the third quarter. During the preceding year, vacancy in the area retreated .9%.
■ Outlook: This year, approximately 150 apartment units are slated for completion, following the construction of 333 units last year. With little in the way of new supply and renter household formation improving, vacancy rates will tumble to 3.7%.
Conclusion > Apartment properties in coastal Los Angeles are a good investment.
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http://www.marcusmillichap.com/research/reports/Apartment/LosAngeles_4Q11Apt.pdf
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