CONTINUED ON NEXT PAGE Is It True? Promising Predictions for the 2011 Apartment Industry Is it really possible that 2011 will usher in one of the strongest apartment markets ever? Some economists think that forces such as an improving economy and continued turmoil in the single family housing market are conspiring to produce an environment in which the industry will be experiencing almost back-to-trend rent levels, occupancy growth and rent increases that may even be comparable to statistics obtained during the glory days of the mid-2000s. “I have been in the business for 30 years, and this will be one of the best apartment markets that I have ever seen,” says one of the more bullish analysts, Ron Johnsey, president of Axiometrics Inc. Gleb Nechayev, senior economist, Global Research and Consulting-Econometric Advisors at CB Richard Ellis, forecasts that average economic rent will reach $1,130 per unit by the end of this year. This level is a mere 3 percent below the $1,167 achieved at the height of the apartment market in the third quarter of 2008. There is a good chance, says Nechayev, that the actual rent may even surpass what he foresees. “What’s driving rents now is not only the job creation, but also rapid expansion in the number of renter households by necessity, mainly due to foreclosures,” he adds. Rents May Jump Get ready for continued firming of occupancies this year. Johnsey’s forecasts call for the average vacancy rate to drop in 2011 to 5.8 percent -- a solid statistic considering apartment properties aim for vacancy rates of 5 percent for optimal rent increases. ACCESSLASVEGAS YOUR ACCESS TO THE LAS VEGAS MULTI-FAMILY HOUSING MARKET February | March 2011 page 4 Resident Appreciation Program page 6 Las Vegas Occupancy Corner page 8 Investment Do’s and Don’ts This Year
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CONTINUED ON NEXT PAGE
Is It True? Promising Predictions for the 2011 Apartment IndustryIs it really possible that 2011 will usher in one of the strongest apartment markets ever?
Some economists think that forces such as an improving economy and continued turmoil in the single family housing market are conspiring to produce an environment in which the industry will be experiencing almost back-to-trend rent levels, occupancy growth and rent increases that may even be comparable to statistics obtained during the glory days of the mid-2000s.
“I have been in the business for 30 years, and this will be one of the best apartment markets that I have ever seen,” says one of the more bullish analysts, Ron Johnsey, president of Axiometrics Inc.
Gleb Nechayev, senior economist, Global Research and Consulting-Econometric Advisors at CB Richard Ellis, forecasts that average economic rent will reach $1,130 per unit by the end of this year. This level is a mere 3 percent below the $1,167 achieved at the height of the apartment market in the third quarter of 2008.
There is a good chance, says Nechayev, that the actual rent may even surpass what he foresees. “What’s driving rents now is not only the job creation, but also rapid expansion in the number of renter households by necessity, mainly due to foreclosures,” he adds.
Rents May Jump
Get ready for continued firming of occupancies this year. Johnsey’s forecasts call for the average vacancy rate to drop in 2011 to 5.8 percent -- a solid statistic considering apartment properties aim for vacancy rates of 5 percent for optimal rent increases.
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February | March 2011
page 4 Resident Appreciation Program
page 6 Las Vegas Occupancy Corner
page 8 Investment Do’s and Don’ts This Year
Predictions for the 2011 Apartment IndustryCONTINUED FROM FRONT PAGE
The higher occupancy levels will burn off concessions.
Consequently, effective rents will increase, Johnsey forecasts, by 5 percent in 2011. This number compares impressively with rent increases of 5.94 percent achieved in the last peak in the second quarter of 2006. “That tells us it’s a very robust apartment market, when you can hike the rents and still increase occupancy,” says Johnsey.
Ron Witten, president of Witten Advisors LLC, has similar projections for apartment fundamentals. Witten, who studies buildings of five-plus units, says the average national apartment occupancy level will be above 95 percent by the end of the year. That should translate to an effective rent growth rate at the end of 2011 of 4.5 percent, which he says is “well above average” and “very strong.”
This year, the apartment market could be continuing the trend established in 2010, when conditions improved markedly and rapidly, and perhaps somewhat unexpectedly, during the course of the year. “It’s amazing. It was as though someone turned the light switch on in January 2010,” says Johnsey.
According to Johnsey, rents fell for 17 consecutive months through December 2009, but turned positive beginning in January of 2010. Rents were 0.2 percent in January 10, and remained positive for almost every month through the fall of 2010.
The apartment market bottomed in the fourth quarter of 2009, explains Delores Conway, professor of statistics and real estate economics at the Simon School of Business at the University of Rochester. But by the end of 2010, it had already enjoyed three consecutive quarters in a row of recovery, she says. By then, occupancies were on the way up in most markets, while rents were improving in many, notes Witten.
The national vacancy rate fell on a year-over-year basis from 7.8 to 7.1 percent, says Conway. “This is a big drop,” she says, adding that the last time there was such a significant improvement in the vacancy rate was in 2005. Net absorption was 160,000 units through late last year, she adds. “That, to me, indicates the apartment market [was] really starting to recover, and the recovery appears to be firm.”
Economy Improves Slowly
Most economists expect GDP growth in 2011 to be 2 percent to 3 percent -- not much higher than 2010’s expected GDP expansion of around 2.5 percent. According to Conway, the current economic recovery is unlike most recoveries, in which there typically is a “pop” in activity after the recession. “We [expect] economic growth this year to proceed at a reasonable, but slow, rate,” says Conway.
Uncertainty, as well as the weak housing market, combined with the housing and financial crises, are the reasons behind what is expected to be a slow climb out of tepid economic-growth land. “Although interest rates are very low, it is very, very difficult to obtain loans for small businesses, which are usually the ones to lead the way on the path to recovery,” says Conway. “And a lot of the leverage held over from the days of the financial crisis have yet to be unwound,” she notes.
The apartment industry, whose health usually depends on the level of employment, rebounded surprisingly robustly last year. However, job growth has only been moderate at best, and many economists expect it will take several more years before the 8 million-plus jobs lost in this past recession will be recovered. “It will probably be 2015 before the employment level will be back to where it is desirable,” predicts Witten.
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ACCESSLASVEGAS February | March 2011
Witten says unemployment will remain “very high” in 2011, between 9 percent and 10 percent, through the end of the year. Axiometric’s Johnsey believes it will be 2013 before there will be robust job growth. He predicts an annual average job growth rate of 378,000 jobs per month in 2013. Meanwhile, he expects about 172,000 jobs to be created this year, at an annual average rate of 1.6 percent. This is a weak number, considering 125,000-150,000 additional jobs are needed per month just to absorb new workers entering the labor force. With an extension of the Bush tax cuts for the middle class and high-income earners, however, economic growth may be stronger, he says. Witten also projects 2 million-plus jobs created this year, versus 1 million or fewer in 2010.
Homeownership is Suppressed
So why will demand for apartments continue to be firm in 2011 despite the lackluster employment levels? One reason is that in an uncertain economy that is still finding its way, residents are staying put in their apartment units, and consumers are choosing to rent instead of buying homes. “It is a part of the outcome of high unemployment and relative uncertainty of the economy, which has increased the propensity to rent rather than buy,” says Witten.
Furthermore, there is little pressure to buy homes, notes Conway, given that home prices are flat or still declining in many areas of the country and interest rates are remaining low. Indeed, the Standard & Poor’s/Case-Shiller home price index fell further, by 0.7 percent, in September, compared to the previous month.
The homeownership rate -- 66.9 percent in the third quarter -- has tumbled from its peak level of 69.2 percent, achieved in the fourth quarter of 2004 during the height of the condo boom. Witten thinks the homeownership rate will fall further this year before heading up. REIT executives note that every 1 percent drop in the homeownership rate translates into more than 1 million new renters.
The continuing trend of home foreclosures, though unfortunate for those affected, may also be making a good situation for apartments great. It is a major reason why apartments will perform strongly this year. A record 2.82 million homes were foreclosed in 2009, and 2010 was on track to have 1 million additional foreclosures,
though the foreclosure rate seems to have begun to stabilize, if not decline, toward the end of last year. In October 2010, one in every 389 housing units received a foreclosure filing. While they can give rise to a shadow inventory of rentals, foreclosures also drive masses of former homeowners into rentals as they lose their homes, and push dissatisfied residents staying in under-managed home rentals into apartments.
While job creation has yet to kick in significantly for a number of years, the state of the economy as an engine for the robust apartment numbers cannot be discounted. There was some job recovery in some parts of the country, says Conway, such as New York, New Jersey, Boston and the Silicon Valley. “There were great environments for effective rent growth,” agrees Johnsey.
According to Johnsey, the slowly improving economy -- at least in some parts of the country -- will continue to drive up the level of household formation. After a year of doubling up during the downturn, residents, including Echo Boomers who moved in with their parents, will continue to decouple and seek their own apartments as the economy improves.
Article Written By: Keat Foong, Executive Editor for MHN Online
Apartments to See Healthy RentGrowth in 2011Source: MHN Online
Rent growth for U.S. apartment properties was good in 2010, but it will be even better in 2011, according to projections by MPF
Research, a division of RealPage Inc. MPF Research predicts a 5.1 percent jump in average rents nationwide, combined with an increase of 0.8 percent in occupancies, for revenue increases of 5.9 percent.
Effective rents climbed 2.5 percent during the past year, according to the Carollton, Tex.-based company. Monthly rents now average $1,029. During the fourth quarter of 2010, apartment occupancy reached 93.5 percent, up from 91.8 percent in late 2009.
Properties built over the past 20 years will drive rent growth in 2011, predicts MPF Research. While a number of lower-tier apartments remain vacant, better-quality units are essentially full once again, and they won’t face much additional direct competition from new deliveries in the coming year, since there won’t be many at all in 2011.
Also, renters are unlikely to jump into buying a residence in the current housing climate, even though their rent might be going up.
“Another year of strong rent growth appears likely in 2012,” Greg Willett, vice president, research and analysis for MPF Research, tells MHN. “Pricing should continue to go up in 2013 to 2014, but at a slower pace because of increased apartment deliveries and a potential bump in the loss of renters to purchase.”
MPF Research forecasts that San Jose will be the top-performing metro apartment market in 2011, with revenues projected to surge 10.2 percent. The majority of that growth will come from forecast rent increases of 9.6 percent, but San Jose’s already-tight occupancy rate is projected to rise 0.6 percentage points to 97.1 percent.
Austin ranks as the second-strongest performer nationally, with MPF Research forecasting revenue growth of 9 percent; a rise in rents of 6.8 percent; and an improvement in occupancy of 2.2 percentage points to 95.7 percent.
Apartment revenues are expected to jump about 8 percent during 2011 in Boston, New York, Denver and Washington, D.C., while increases should be up nearly 7 percent in San Francisco, Fort Lauderdale, Fla., Raleigh, N.C., and Baltimore.
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Love ’Em or They Will Leave Ya: 12 Steps to an Effective Resident Appreciation ProgramSource: Tracey Lott Heitzman, Mutifamily Insiders
Multiply the cost to turn an apartment by the number of apartments in your community and multiply that result by the national average for resident turnover of 60 percent (NAA). This will give a ballpark figure of what vacancies could be costing your community annually.
For example, the average estimated cost to turn an apartment home is $4,047 (according to Axiometrics, September 2010). Let’s take an apartment community with 200 apartment homes: 200 X $4,047 X 60%. The result is a staggering $485,640 annual loss in potential revenue due to turnover.
So the moral of this fact is: It’s much less expensive to retain a resident than it is to acquire a new one!!
With resident appreciation being so important, why do many residents feel like they were "waited on" as a prospect, but now that they are a resident they now have to "wait on" everything we do for them? While there has been a revolution in customer service in our industry, many residents indicate its only lip service.
Resident Appreciation is not a destination, but a journey. In our industry, many of us wear many different hats. Whether you are a Property Manager, Leasing Specialist or a part of the Maintenance team, we are all responsible for resident retention.
Ask yourself and your team this question, "What does a satisfied and happy resident look like?" Do they smile or wave when they pass you in the community, speak to you in a warm, friendly manner, call you by name when they greet you, refer friends and family to your community?
According to a 2009 survey conducted by J. Turner Research, a Multifamily Data Firm:
• 56% of managers are doing absolutely nothing to retain residents• 30% of managers are just offering rental concessions• 2% are increasing Customer Service
So, when does Resident Appreciation begin? It begins at the first interaction your team has with the prospect and it continues throughout your resident’s ENTIRE residency.
The greatest impact you have on resident retention occurs when the prospect becomes a resident. Studies indicate that within the first 30 days of move-in people will decide whether to stay long term in their new homes.
Create a Hassle-Free & Perfect Move-In Process
New residents should be oriented to the community through a Pre Move-in Meeting
where they receive a signed copy of the lease and other documents.
Everything in the apartment should be in good working order and “white-glove” clean. Consider giving new residents a “move-in” kit with helpful information (area service guide), tips, coupons and contact numbers.
Develop a special move-in package you will give each new resident. It can be as simple as putting a few refreshments in the refrigerator and providing toilet paper and paper towels / hand soap for move-in day.
Create New Resident Profiles
Create a profile on each new resident at the time of move-in. Use this information to help plan the types of programs and services offered to your residents.
The “Walk Right” Inspection
A member from the maintenance team or the leasing office team is to create a checklist and do a walk-through with the new resident to ensure every apartment is 100% ready.
This is important because it puts it back on the resident if they find a maintenance issue after move-in: they already signed-off on and agreed that the apartment home was 100% complete.
PROPERTYPOINTS
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“It’s much less expensive to retain a resident than it is to acquire a new one!!”
Move-In Survey
Survey existing residents to find out what’s going well and gather suggestions for improvement and determine what services they would like to see.
Some residents may also be more willing to give feedback if they have the option of remaining anonymous.
Service Requests
Only 76% of residents say maintenance requests were completed right the first time (Satisfacts Research). Handle these requests quickly and have it done right the first time.
Ask residents if there’s anything else you can do. Chances are that there is something else in the apartment that needs to be done and they forgot to tell you about it.
Be sure to follow-up on the maintenance requests. A service request is not complete until the resident confirms it is complete.
Establish a “Culture of Responsiveness”
Return resident calls and emails promptly. A shift in focus to the resident will cause a positive shift in retention numbers.
Deliver Legendary Service
Greet residents with a smile whenever you see them. Ask how things are with their homes. Resolve problems quickly and properly. Let residents know you’re happy to have them at the community. Treat everyone fairly and consistently.
Get to Know Your Residents
Develop a genuine interest in and
admiration for your residents.
Residents are more likely to stay if they feel that they’re more than just another warm body occupying an apartment home.
Resident Appreciation Events
According to National Apartment Association and the National Multifamily Housing Council, the number one amenity residents are looking for is a “sense of community”.
Are there any unique or special services, you could offer residents that will offer them a sense of community?
Be creative with your resident events.
For some great ideas, visit: www.residentevents.com
Renewal Rewards
Offer residents incentives to stay. This could include gift certificates, apartment upgrades and services.
Intent to Vacate Interviews
Management should concentrate even more energy on creating positive word-of-mouth at the time a resident decides to move out. Once a resident does leave, they are certain to talk about your community for a period of time.
Know why your residents are leaving. This is crucial to pinpointing problems.
Take or send a move-out gift to their place of employment. Imagine the impact on their co-workers.
Train Your Team
Bottom line: a resident retention program cannot be effective if the frontline team is not properly trained to implement it.
Think of Resident Retention as SAVING marketing dollars so you can spend it elsewhere. Maximize your investment of time and energy in your Residents and stay in touch throughout their lease term.
Use Microsoft Outlook or any other tool you have to give you reminders. Phone calls, e-mails, notes or texts are quick and easy ways to let them know you still value their business!
Article Written By: Tracey Lott Heitzman. Tracey is the National Trainer for Evolv, a full service marketing and training company for the multi-family housing industry. From customizing training programs, launching a brand, or providing our marketing expertise, Evolv can help you increase occupancy and build retention.
OVERVIEW: For the year, the Las Vegas market averaged 10.15% down from 10.72% in 2009. We believe that there are fewer rental homes on the market and renters have become less inclined to rent a home than they were in the past. Rental homes are still formidable competition, but some renters have become disenchanted with the potential pitfalls of home rentals.
Source: Spencer Ballif and Jeff Swinger of CB Richard Ellis (Las Vegas)(113,344 Apartments Surveyed in December)
OCCUPANCYCORNER
87%
88%
89%
90%
91%
89.30%89.59% 89.63% 89.84% 89.94% 90.11% 90.04%
90.46%
89.89% 89.97% 89.98%89.49%
February April June August October December
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Las Vegas Snap Shot Source: Red Capital Group
Access Investment Offerings
Access Recent Transactions
For additional information and / or broker information on Access Investment Offerings and / or Access Recent Transactions contact Bret Holmes at 702.699.9261.
MARKETACCESS
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ACCESSLASVEGAS February | March 2011
COMMUNITY (UNITS) ASKING PRICE PER UNIT PRICE BROKER / CONTACT INFORMATION
Cottage Grove (131) $ 7,350,000 $ 56,107 NAI Global / 702.369.8618
Dillyn Apartments (72) $ 1,550,000 $ 21,528 NAI Global / 702.369.8618
COMMUNITY (UNITS) CLOSING PRICE PER UNIT PRICE CLOSING DATE BUYER
The Croix Townhomes (137) $ 19,600,000 $ 143,066 December 1, 2010 Cornerstone RE Advisors
Charlestonwood (232) $ 3,600,000 $ 15,517 November 30, 2010 The Siegel Group
Solevita (230) $ 7,500,000 $ 32,609 November 15, 2010 Optimus US Real Estate
The Reserve at Arrow Canyon (426) $ 37,000,000 $ 86,854 October 1, 2010 Alliance Residential
Wind Whistle (60) $ 3,835,000 $ 63,917 August 9, 2010 Templeton Group
EXECUTIVE SUMMARY - 3rd QUARTER
Key economic indicators remained exceptionally weak in Las Vegas. Indeed, Sin City payroll headcounts fell –18,100 (-2.2%) year-over-year in 3Q10, even as US payrolls posted a modest increase (+0.2%). Furthermore, the Bureau of Labor Statistics note that the 14.3% November unemployment rate was the highest (tied with the Inland Empire) among the 49 largest US metro areas. The weak economy was intricately tied to the housing market as the construction sector accounted for roughly 76% of the –18,100 job YOY 3Q10 decrease. Moreover, sector headcounts were down nearly 60% from the June 2006 peak. Unfortunately, the near-term outlook for residential construction is bleak. According to the Case-Shiller home price index, October 2010 home values were near 1Q00 levels. Moreover, high unemployment and rapid price deterioration produced the highest (3.98%) third quarter foreclosure rate among the 206 metro markets tracked by RealtyTrac.com. Furthermore, even at depressed prices, buyers were relatively inactive recently. DQ News calculate that third quarter home sales velocity (including new an existing single-family homes and condos) plunged –14.9% as only 12,869 Clark County purchases were recorded. In November, comparable sales metrics fell at a –22.9% annual rate. On a positive note, the balance of the major private employment sectors approached parity. Combined, manufacturing, retail, transportation / utilities, information, finance and leisure service firms cut only –7,600 jobs YOY in 3Q10, while wholesale trade and business, education and health service providers actually added 3,700 positions to payrolls. The RED CAPITAL Research (RCR) econometric payroll model anticipates a sluggish recovery. In fact, the model predicts a net loss of –7,100 (-0.9%) jobs in 2011, followed by a strong gain of 21,700 (2.7%) jobs in 2012. Economy.com are optimistic, projecting a swift turnaround as metro headcounts by rise 22,950 and 29,560 in 2011 and 2012, respectively. Despite weak job trends apartment demand surged during the third quarter. Property managers net leased 1,637 units from July to September, comparing favorably to the 1,599 units absorbed during 1H10. Additionally, 1,549 units were completed in the first half but no units were de- livered during 3Q10. As a result, the metro occupancy rate improved from 88.9% in 2Q10 to 90.1%. Average effective rent decreased –0.2% sequentially to $779 in 3Q10, following a 0.2% increase recorded in the previous quarter. Additionally, effective rent declined at a –2.1% annual rate in the third quarter, better than the –4.6% drop recorded in the same period of 2009. Based on preliminary Reis data, the metro occupancy rate rose 80 basis points to 90.9% in the fourth quarter. Positive net absorption totaled 1,016 units and no units were completed from October to December. Conversely, asking rent decreased –0.4% in 3Q10 and –1.6% sequentially in 4Q10.
Investment Do’s and Don’ts for the Coming YearSource: Keat Foong, Executive Editor MHN Online
Not surprisingly, New York, Washington, D.C., Boston and other high-barriers-to-entry cities make it to the list of top apartment markets in 2011. As for the bottom markets, the apartment industry appears positioned to stage such a strong comeback this year that investment sales advisors counsel that all markets -- even the currently weak ones -- may be coming into play as investment choices.
“In our view, there are no markets to be avoided,” says Gleb Nechayev, senior economist at CB Richard Ellis, Global Research and Consulting, Econometric Advisors, in a typical assessment.
Top 2011 Markets
The top apartment markets of 2011 will be New York, Washington, D.C., Boston, San Diego, San Jose, Denver and Seattle, in the view of Hessam Nadji, managing director of research and advisory services at Marcus & Millichap Real Estate Investment Services. In particular, Nadji singles out New York, Washington, D.C. and Boston as markets that will provide the safest investment opportunities as well as the highest returns.
All of Nadji’s favorite markets feature the lowest apartment vacancies in the nation combined with the least prospects for new construction deliveries going forward. In New York, San Jose, San Diego and Washington, D.C., apartment vacancies are already in the low-3 percent to high-5 percent range, and Seattle has a vacancy of about 6 percent, says Nadji. These markets will enjoy strong rent growth this year that will trend in the 5 percent to 8 percent range, well above the national average, he says.
Austin, Texas; San Jose, Calif.; Boston and Northern Virginia are the top 2011 apartment markets picks of Peter Muoio,
senior principal of Maximus Advisors (Maximus provides research services to ARA Research in the multifamily housing field). Muoio makes his endorsements based on the potential for short-term value appreciation. All these markets, he says, will have double-digit gains in values from the market trough in 2009 to fourth quarter 2013. Muoio’s forecast calls for apartment values to increase by 30 percent in Austin, 28 percent in San Jose, 20 percent-plus in Northern Virginia and 12 percent in Boston during this period.
At the top of Muoio’s ranking, Austin is experiencing high vacancies: supply in the market will be diminishing to almost zero while demand stays “very, very strong,” says Muoio. Texas is known for over-building and over-leverage, he cautions, but the state has not experienced a severe recession, and the state government is in relatively sound fiscal condition. Moreover, Austin has a high-tech industry. The vacancy rate in Austin is “moving down very rapidly,” says Muoio, from 11.1 percent to 8.2 percent currently. “Expect that kind of rapid recovery” in the market’s rents and NOI as well, he adds.
While the criteria used for selecting the top markets are vacancies for Nadji and value appreciation for Muoio, Nechayev, of CB Richard Ellis, bases his apartment market recommendations on economic rents obtainable today compared to what they were at market peak. “Some markets have already returned, or are very close, to their previous market peaks, while others are still very far from the previous peaks,”
Nechayev points out. In effect, Nechayev recommends that the analysis of top markets takes into account where they are in the business cycle. If they are still far from the peak, they are in recovery mode and may not return to their peak rent levels this year. On the other hand, if they are close to their peak rent levels, they may already have recovered.
Based on this standard of comparing current and peak effective rents, Nechayev’s top apartment markets selections for 2011 include Washington, D.C., Baltimore and Pittsburgh, as well as the smaller markets of El Paso, Texas, and Louisville, Ky. These are all cities in which the average apartment revenue (defined as effective rents times occupancy) in the third quarter of 2010 were only 2 percent below the levels attained in the previous market peaks.
The Washington, D.C. apartment market, says Nechayev, has already recovered, and it is now showing effective rents comparable to those of the late-2000s. Nechayev also cites Boston: although Boston has experienced some home-price declines, single-family housing prices in that market have not been battered, unlike some of the other markets.
Bottom 2011 Cities
As for the weakest apartment markets of 2011, all three experts assert that all markets, no matter their position on rankings, can be candidates for investments this year. “Here’s what’s very interesting for 2011: this will be the first year for investors to do well in strong and weak markets because the recovery will be broad-based and not limited just to the best markets,” explains Marcus & Millichap’s Nadji. He adds, “There are opportunities in both good and bad markets because everyone’s recovering.”
Muoio explains there are certain macro factors that will universally boost occupancy rates for multifamily housing this year. Indeed, the continuing drop in homeownership rate is due, in large part, to the lack of confidence in home-buying at present. Also, evidence is emerging of an increase in household formation that typically occurs in the early stages of a
INVESTORINSIGHT
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austin, texas
recovery. Demographics are “incredibly positive,” with young adults entering the prime renter age group at the rate of about 500,000 per year, says Muoio. At the same time, there has been a nationwide shutdown in new construction. “We are seeing a window of low supply combined with a pop in demand, so vacancies have fallen very quickly,” says Muoio.
Indeed, the improvements in many of the weakest apartment markets have been observed to be rapid. Muoio notes that there are no areas in which rents and occupancy levels are still falling. And Nadji says that even in markets with higher-than-average vacancy rates, vacancies have already dropped by 100 to 250 basis points, implying that concessions will be burned off in even those lagging markets in 2011. “Universally, across the locations we are examining, all markets are improving ahead of schedule at an even faster rate than expected,” agrees Muoio.
Nadji’s selection for the “bottom” apartment markets will be those with the highest vacancies: Las Vegas, Phoenix, Jacksonville, Fla., the Inland Empire, Atlanta and Houston. These are markets that have suffered more than others as a result of the housing crisis, overbuilding, or both. Consequently, these markets have high vacancy rates of about 9 percent to 11 percent -- well above the national average (about 6.5 percent), he says.
Apartment occupancies in these locations, however, should improve by about 2 percent over 2011, and effective rentsshould increase as a result of concession burnoff, Nadji forecasts.
For Muoio, the weakest apartment markets in 2011 will be markets that register the least degree of value appreciation. These will be cities that have been particularly hard-hit by the recession and housing downturn: Las Vegas, Riverside, Calif.,
and San Bernardino, Calif., says Muoio. Still, these markets will experience “modestly” higher valuations this year compared to what was registered at the market trough in 2009, he says.
Indeed, even in these markets, there is “going to be very dramatic improvement in vacancies,” Muoio predicts, although it will take a while before rents will increase. Already, apartment vacancy levels in these cities have begun to improve, says Muoio.
And in Las Vegas and San Bernardino, in which there historically has been a tendency to overbuild, vacancies will drop from their peaks as the markets recover.According to Nechayev, apartments in the following cities are the furthest from their market peaks: Phoenix, Las Vegas, Atlanta, Jacksonville, Fla., Los Angeles, and Seattle. These markets show average revenues (effective rent times occupancy) that are 10 percent or more below their previous high points, says Nechayev.
Nechayev predicts that some of these cities will definitely see apartment rents continue to fall in the near term, but assuming the national economic recovery strengthens through 2011, they could begin to see rent growth in 2012. In the near term, Phoenix for example, will see more risk in 2011 -- there is still a lot of single-family overhang, he says.
The fact that these markets are the weakest may not by itself be a reason to exclude them as locations for investments next year. “The momentum in even the weaker markets is pretty strong, so we expect rents to increase in these markets,” says Nechayev. Moreover, because they are furthest from their peaks, they may have greater latitude for investment growth compared to the strong markets that may already have recovered, Nechayev points out. And there are plenty of distressed opportunities in Phoenix, for example. “One could argue that places such as Phoenix could offer better opportunities, depending on the objectives of the investor,” he says.
Time to Take More Risks?
While the bottom apartment markets may now be ripe for investment, a word of caution is in order as there are also plenty of investment risks. While they may be filling quickly, many of the bottom-ranked markets -- Las Vegas, Denver or Phoenix -- are located in traditionally high-construction areas, notes Nadji. So while investors can feel secure that they will see apartment rent growth for a number of years in some of the safest high-barriers-to-entry cities, investors may need to adopt more of a “get-in-and-get-out” mentality for the bottom-ranked markets, Nadji explains. Moreover, the foreclosure crisis in many of these markets has not bottomed yet.
Nevertheless, if they keep such risks in mind, investors may be able to step out of the safest apartment investment zones in 2011 in view of the strong improvement in fundamentals. “One year ago, it madesense to subscribe to a conservative investment strategy,” says Nadji. But “in 2011 and 2012, it does make sense to become more risk-tolerant, though we arenot suggesting you throw caution to the wind.”
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Phoenix, Arizona
Apartment Communities Continue Green MovementIdeas to help your community implement green now
Source: Mindy Williams, RentandRetain.com
Everyday you hear something on the television or radio promoting the green movement. You decide that there's no reason not to join on the bandwagon and give the "go green" movement a try. After all, it's a popular idea that's gaining more and more ground with environmentalists and common folk.
There are many benefits to be had when you "go green". For instance, you improve your life as well as those around you. You also improve the planet by using fewer resources the Earth has to offer by using other resources that doesn't require taking something out of the Earth.
Remember that whatever comes from the Earth will have an impact on everyone. You can make an impact by making sure you don't cause further damage to it and keeping it at its natural beauty.
Here are some bullet point tips to help you go green at your apartment community. These ideas only scratch the surface, but every little bit helps!
For Residents and Apartments:
• Offer online payment options for rent.• Send online / email notices to residents vs. paper notices.
Use “Green” Products When Available:
• Change light bulbs to CFL’S (Compact Fluorescent Bulbs)• Use water saving fixtures like showerheads, commodes, kitchen and bath faucets• Use Energy Star appliances• If you can, replace old water heaters with tankless models – these save on energy, and give you back up to 16 square feet of storage space in a typical utility closet• Install programmable thermostats in apartments• Use Low VOC paints
Recycle Building Supplies and Household Items:
• Carpet• Inkjet and laser printer cartridges and wireless phones• Electronics – you can direct residents to MyGreenElectronics.org for the “how to”• Plastic, glass, and paper products• Even large items like mattresses and furniture
Your Property Management Office
• Turn off computers and unplug unnecessary electronics at night• Use online banking and teller scanners• Create a paperless office by using email to issue owner statements• Hold training sessions over the web (Saves gas in transit to / from the meeting too)• Create virtual Policy and Procedure Manuals• Replace light switches with occupancy sensors in all infrequently-used common spaces
You may think we are cheap, but here at Rent & Retain we use both sides of a piece of paper. Our fax machine has “used” paper in it too – since most of the faxes we receive we do not need to keep. You may be able to do the same – at least for first
drafts of things. We recommend buying a printer that prints “two-sided”
Resources for You And Your Residents
The EPA’s ENERGY STAR Website can help you get started with a plan to improve your building’s energy performance. They also list products that are designed to cut costs and increase efficiency. The EPA Guiding Principles for Federal Leadership in High Performance and Sustainable Buildings, recently adopted by over 18 federal agencies, including EPA, provide a good model. The Guiding Principles call for integrated design, energy performance, water conservation, indoor environmental quality, and materials aimed at helping Federal agencies and organizations:
• Reduce the total ownership cost of facilities• Improve energy efficiency and water conservation• Provide safe, healthy, and productive built environments• Promote sustainable environmental stewardship
Article Written By: Mindy Williams. Mindy is the President of RentandRetain.com, which has improved the marketing and retention strategies for thousands of property managers in the United States. Mindy is a Co-Founder of the Apartment All Stars as well as an approved instructor for the California Department of Real Estate where she trains thousands of management professionals each year during seminars for apartment associations. She has written 10 books on property management best practices and is a fantastic resource for industry professionals.
Areas of InfluenceLocalized delivery of apartment marketing messages via mobile devices is quickly turning neighborhoods upside-down
Source: Chris Wood, Multifamily Executive
As a recognized multifamily tech stalwart -- and one rumored to be working on a groundbreaking application for the Apple iPad to complement its existing mobile and augmented reality apps -- you’d think that Highlands Ranch, Colorado based real estate investment trust UDR would be pulling in smart phone lease applicants hand over fist. In reality, the company logged only about 100 leases via mobile last year, according to company president and CEO Tom Toomey.
That doesn’t mean the company is going to stop trying, as data indicates a full 11 percent of unique visitors to the UDR website came through mobile devices, even if they weren’t executing leases with their handhelds.
In an effort to more deeply target that would-be renter demographic, UDR and other firms across the multifamily industry are seeking to tailor and deliver their marketing message to a specific brand of consumer -- those who have been geo-located via smart phone technology or other means as being “in the neighborhood.” We’re not talking about zip code-based direct mail. Geo-location awareness -- the science of marketing to consumers by matching up smart phone geographical location with user-identified browsing and purchasing preferences -- opens up a virtual door to real-time customer interaction based on a locality.
How important are local neighborhoods to today’s rent prospect? Consider that 37.1 million people moved in 2009, an increase over 2008’s 35.2 million movers that the U.S. Census Bureau attributes to households moving within their own counties. Within the apartment sector, the 2009 move rate was also notable, with 29.2 percent of renters changing addresses between 2008 and 2009, compared to only 5.2 percent of
homeowners opting for new digs.
Economic factors will continue to drive relocations, which means locality will likely stay critical to apartment marketing. Technology focused on local demographic nuances -- from revenue management systems forecasting market demand or mobile marketing apps delivered to local neighborhoods -- will be integral to how apartment firms respond to the fluctuating pool of rental prospects just outside their front doors.
What It Is
For apartment marketers born on zip-code-parsed direct mail, geo-located mobile marketing shouldn’t be too much of a hump to get over: It is simply marketing tailored to neighborhood areas with predetermined consumer demographics and buying habits. Only now, you can draw an area based on where your prospects are in real time, and you can forget about licking the stamps.
“Apartment firms aren’t necessarily thinking, ‘Can I send this message out to people within 10 miles of my property?’” explains Darrin Clement, CEO of Norwich, Vt.-based Maponics, a location-based data and services provider. “They want to send out the message to people in a specific school district, or a specific zip code or type of pre-characterized neighborhoods: essentially multi-dimensional geo-polygons. When the lightbulb goes off on that, marketers say, ‘Oh, wow, it’s marketing by area’ and just sit back. For mobile marketing, it’s become the new magic moment.”
Virtual mapping experts say neighborhood and geo-polygon area marketing promise huge benefits over point-to-point (delivery to a single, fixed location) and radial
(delivery within a set distance) geo-fencing applications. Polygon geo-fencing allows senders to tailor the shape, size, and area of message delivery, choosing neighborhoods and demographic areas that either fit or don’t fit the marketing push du jour.
Think Spatially
While consumers have been fairly open to sharing their geo-location via cell phone, privacy and safety concerns are beginning to push a trend towards more ambiguity in user-allowed geo-locating. And phone owners seem more comfortable reporting their presence in certain neighborhoods. Location vagueness isn’t weakening outreach to those users, however. “Neighborhood boundaries allow you to start drawing much more powerful demographic-type information that you can leverage against retail [and consumer marketing],” Clement says. “If I’m an apartment owner and I want to start driving push ads and I’m in Soho, I’m probably going to get a lot better response from people who are in Soho than people who might be in an adjacent neighborhood.”
Apartment marketers could do well to ally themselves with other neighborhood retailers in addition to -- or even in lieu of -- direct geo-marketing, say industry advertising experts. “I think local geo-marketing is a really good community relationship building tool, but as an apartment owner I’d be wary of how you deliver your message,” says Elysa Rice, emerging media consultant at Dallas based multifamily marketing firm Ellipse.
The bottom line: This kind of technology leveraging is the way of the future and vital to preserving fundamentals. Just don’t over-rely on the technology. “The industry is becoming more technology-oriented,” says Hessam Nadji, senior vice president and managing director of research services for Encino, California based multifamily brokerage firm Marcus & Millichap. “The quicker you adjust to the market, the quicker you can preserve occupancy. Still, you cannot stop relying on boots on the ground and faces greeting potential renters, no matter what you have on the technology side.”
TECHTALK
ACCESSLASVEGAS February | March 2011
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Continued Growth Keeps One Management Company Shining BrightAdvanced Management Group recently added two more properties to its ever growing portfolio, Emerald Suites Las Vegas Boulevard and Emerald Suites Cameron. Advanced Management Group’s main objective will be to protect the properties values, which have decreased substantially over the past few years. There are 490 units between the two locations. It will increase the total number of units Advanced Management Group manages to 2,798, which encompasses 26 properties.
Despite the recent economic downturn Advanced Management Group has continued growing its portfolio in the multi-family and single family divisions. The company has delivered on its promise of close personal relationships, with owners assets being the number one priority. Advanced Management Group’s leadership has also maximized employee performance in several key areas of its properties.
With more than 50 years of combined experience in property management, Advancement Management Group will utilize their expertise to bring the properties up-to-speed, and maximize the performance of the properties within a short period of time. Advanced Management Group Nevada, LLC is a real estate management company providing advanced property management, financial and accounting, and asset management services for multi-family properties in the southwestern United States. Specializing in each of these facets, Advanced Management Group strives towards excellence, with a foundation built on a close personal interest to our owners and owners' assets.
For information, article consideration and featured columns ACCESSLASVEGAS can be contacted at 702.699.9261.
The publisher of this newsletter is The Internal Press.
ACCESSLASVEGAS2775 South Rainbow Boulevard, Suite #101-CLas Vegas, Nevada 89146
