August 5th, 2010

Today we had a variety of discussion that hit on things that we talked about before.


Apartments have seen an increase in occupancy while the market has soured in the housing sector. Why have apartments been able to reduce vacancies? One reason could be directly related to the housing market. Many people have been watching house values decline to the point where it does not seem to be a great investment as it used to be. Many people have relied on the proceeds from selling their house to be a large portion of their retirement nest egg and have are now in dire situations. Why make such a huge investment when so much of the risks involved in buying a house can be mitigated by renting. Besides the investment side, maintaining a house can be extremely costly from simple things such as lawn care. The price will only trend upward from such items as replacing an A/C unit or buying a new washer and dryer set. If you rent your landlord is responsible for most of the items. Another reason is that due to the current economic climate many people cannot afford a house. Many people were laid off and still cannot find work or found work but their income level is substantial lower. Another reason could be that many people bought a house when they really couldn't afford and now are being foreclosed on. Their only option at this is to rent. The apartment complex that I live in has increased its occupancy quite a bit over the last year. There are easily twice as many people on my floor alone from when I moved in. Even though I am not sure of the exact reason as to why there was an increase at my complex as well as others but I am pretty sure that the market has almost everything to do with it.

Along with this topic we discussed future trends of the housing market, and of course they are bleak. From now through 2015 there will be a slow economic expansion that will bring slow growth in jobs and wages. The pace should allow for new households to form but will not be fast enough for members of those households to afford their own homes. Another point was made about the stringent laws that are being put in place when comes to home loans. Yes they are supposed to be there so that we do not have another Great Recession but one side effect of this is that it will become increasingly harder for younger households to get mortgages.


Another topic we discussed was multi family residence. In D.C. Atlanta based Post Properties has announced to begin construction on a 344 unit luxury apartment building as a second phase to its already built Carlyle Square apartments. The project is estimated to cost $95 million and the first units would be available in 2012. One thing to consider is that Post is one of few developers that has the numbers working in their favor. Construction financing is available for concrete slabs over five stories, Texas donuts, and garden style apartments that are stick built due to being more cost effective but not so much for normal garden style or high rises where the cost per square foot is substantially higher. Also, when the land was last sold or traded is something to worry about. If you have purchased land after 2006 then you have paid too much due to condo out sales and underwriting. Analyst say you might have to hold on to that land for another five years before underwriting and project costs meet and acceptable level. Real estate investment company J.I. Kislak Inc. has announced to acquire $200 million worth of multifamily properties with 150 or more units in Arizona, Florida, Texas and across the Sunbelt states. The company believes that the apartment market is beginning to stabilize and that it is an opportune time to increase their presence by adding these complexes. If you have the cash on hand right now it is the absolute opportune time to buy real estate in general. As discussed in a prior post, if you are able to buy a building at lower costs you will be able to rent or lease out the space at a lower price. If your price is lower than your competitor and have equally nice facilities then you are going to take away customers if they don't match your price. Just like the stock market you just have to make sure your are buying at the low. You don't want to think that things are getting better then find out that the market is not near any stabalization.