Nearly 100,000 apartment units were being absorbed nationally in the third quarter of 2010, a rate not seen since 1999 according to REIS. The renters were back in droves, apparently under the assumption that the economy is in full recovery mode. With little new supply coming on soon fundamentals should continue to improve in the sector. The new rentals pushed the occupancy rate up to 92.9% from 92.0% a year earlier.
Although things are on the mend for apartments there remain risks to pricing in rosy expectations. Unemployment will likely remain elevated around the 9% range for many more months. Housing continues to be a drag on consumer confidence as well. It appears the price of gasoline can remain high or higher through the spring and summer, slicing into the disposable income of renters. Commercial loans with five year terms made at the peak of the market could cause problems for under-performing apartment properties and the banks and investors holding the loans.
Nationally, apartment overall capitalization rates range from 4.25-10% and average 6.51% according to the PwC Real Estate Investor Survey. A year ago overall cap rates stood much higher, at 8.03%. The average marketing time is also down from 8.86 months to 6.29 months. Rents have turned slightly up versus slightly down one year ago.
There are two indexes tracking commercial property values: Moody's Real All Property Type Aggregate Index and Green Street CPPI. Both tell a very different story about commercial values. The Green Street Index focuses on 47 REIT portfolios and is tilted toward high-end or trophy properties and includes sale prices under negotiation. This index shows values are up 35% since the bottom in May 2009 and are 15-20% below their 2007 peak. In contrast is the Moody index, which relies on transactions that have closed, are repeat sales, and have a sale price greater than $2.5 million. This index shows values peaked in October 2007, fell 42.1%, and have since recovered 5.5%. I'm certain every apartment owner/manager reading this falls into the Moody index.
Apartments have seemingly raced ahead of other commercial property types. The number of commercial properties that are considered "distressed" is now 48% higher than in September of 2009. The number of commercial foreclosures has increased 33% over the same time period according to CoStar.
Marcus and Millchap's U.S. Economic and Retail Market Overview and Outlook focused on the decline of credit spreads during 2010, the historically low interest rates, and the increasing sources of funding. Retail fundamentals and values stabilized during the year, and lender confidence improved. The capital markets recover during 2010.
Marcus & Millchap indicated that all 44 markets in their National Apartment Index will post employment growth, rent gains, and employment growth that will confirm the recovery and continue to expand the apartment sector. They also said "Apartment staged a strong recovery in 2010 well ahead of expectation, despite modest job creation and stubbornly high unemployment."
Did the assessor lower your value in 2009 or 2010? Was it lowered to 70% of the assessment in 2007? you may have a good reason to appeal your value in 2011. Especially since the property tax base is shrinking in so many places, and as a result, tax rates will probably rise. Be proactive, appeal you 2011 real property assessment.
Although things are on the mend for apartments there remain risks to pricing in rosy expectations. Unemployment will likely remain elevated around the 9% range for many more months. Housing continues to be a drag on consumer confidence as well. It appears the price of gasoline can remain high or higher through the spring and summer, slicing into the disposable income of renters. Commercial loans with five year terms made at the peak of the market could cause problems for under-performing apartment properties and the banks and investors holding the loans.
Nationally, apartment overall capitalization rates range from 4.25-10% and average 6.51% according to the PwC Real Estate Investor Survey. A year ago overall cap rates stood much higher, at 8.03%. The average marketing time is also down from 8.86 months to 6.29 months. Rents have turned slightly up versus slightly down one year ago.
There are two indexes tracking commercial property values: Moody's Real All Property Type Aggregate Index and Green Street CPPI. Both tell a very different story about commercial values. The Green Street Index focuses on 47 REIT portfolios and is tilted toward high-end or trophy properties and includes sale prices under negotiation. This index shows values are up 35% since the bottom in May 2009 and are 15-20% below their 2007 peak. In contrast is the Moody index, which relies on transactions that have closed, are repeat sales, and have a sale price greater than $2.5 million. This index shows values peaked in October 2007, fell 42.1%, and have since recovered 5.5%. I'm certain every apartment owner/manager reading this falls into the Moody index.
Apartments have seemingly raced ahead of other commercial property types. The number of commercial properties that are considered "distressed" is now 48% higher than in September of 2009. The number of commercial foreclosures has increased 33% over the same time period according to CoStar.
Marcus and Millchap's U.S. Economic and Retail Market Overview and Outlook focused on the decline of credit spreads during 2010, the historically low interest rates, and the increasing sources of funding. Retail fundamentals and values stabilized during the year, and lender confidence improved. The capital markets recover during 2010.
Marcus & Millchap indicated that all 44 markets in their National Apartment Index will post employment growth, rent gains, and employment growth that will confirm the recovery and continue to expand the apartment sector. They also said "Apartment staged a strong recovery in 2010 well ahead of expectation, despite modest job creation and stubbornly high unemployment."
Did the assessor lower your value in 2009 or 2010? Was it lowered to 70% of the assessment in 2007? you may have a good reason to appeal your value in 2011. Especially since the property tax base is shrinking in so many places, and as a result, tax rates will probably rise. Be proactive, appeal you 2011 real property assessment.
About the Author:
Learn more about commercial real estate tax appeals. Get advice on property tax appeals in the Southeastern U.S. at www.fair-assessments.com