Indianapolis Sees Rising Demand for Multifamily Housing

Indianapolis Sees Rising Demand for Multifamily Housing

Indianapolis is known for its strong industrial real estate market, but it’s the Midwestern hub’s multifamily

Multifamily trend

Multifamily rent trends in Indianapolis via Multihousing News and Yardi Matrix.

sector that is making news right now.

Multihousing News broke down the Yardi Matrix “Indianapolis Rebounds” report, highlighting the surging demand for multifamily housing in Indy. With steady job creation, rising wages and low cost of living, Indiana’s capital has the perfect environment for multifamily growth.

As the story points out, Indianapolis has added more than 10,000 jobs in the transportation and distribution sector over the past year, further cementing its status as a major player in the Midwest. Its centralized location makes it attractive to companies like Amazon and Walmart (as well as others), and those companies are expanding. More of the same is expected going forward.

The addition of those jobs – plus jobs in the hospitality and health care sectors – attracts workers, and those workers need somewhere to live. Indianapolis has also added downtown hotels in the past year.

San Diego's downtown is a big draw for multifamily developers.

San Diego’s downtown is a big draw for multifamily developers.

Is Indianapolis a top multifamily market on par with California cities like Oakland, San Diego, San Francisco and San Jose, or even spots like Portland, Miami or Houston? Not quite. Multihousing News points out that even though multifamily demand has a record number of units coming by the end of the year, Indianapolis’ rent growth rate is expected to remain modest. However, it is clear that multifamily demand is picking up.

 

 

Study Shows Multifamily Buyers Prefer to Rent

Study Shows Multifamily Buyers Prefer to Rent

Multifamily predictions

Atlanta has a strong multifamily market

August 2016

Many multifamily renters in larger metropolitan areas have the credit score and income to buy a house, but many of them choose not to, according to a recent MultiFamilyBiz.com report. According to stats from Zillow, almost 14 percent of renters could buy a home in their target market, but instead, they’re increasing the competition for renters.

That’s good for landlords and property managers, who are now seeing a wealth of highly qualified renters occupying their properties. But condo developers may want to rethink how they’re positioning their newly built units in case this trend continues.

When it comes to high-income, good credit renters and homebuyers, not all cities and regions are created equal.  Here’s how city-dwellers vary by region:

  • San Jose, San Francisco, and San Diego have the highest proportion of renters, especially near tech hubs where the young wealthy are competing for apartments.
  • Los Angeles, New York and Seattle also have large segments of renters who are actually qualified to buy.
  • Detroit and Cleveland, which were hit hard during the recession, have lower shares of renters with good credit and high income.
Millennials, Baby Boomers Still Driving CRE

Millennials, Baby Boomers Still Driving CRE

July 2016

The retail, healthcare, multifamily and hospitality sectors are all seeing gains from America’s two biggest generations — the Baby Boomers and the Millennials, as each reaches a different life stage.  According to research from Marcus & Millichap, these two groups comprise 150 million Americans whose spending makes up 30 percent of the U.S. GDP.  That’s a lot of buying power and a boost for the commercial real estate industry. Here’s a look at some key findings:

Bisnow multifamily yardi

Multifamily Gains — Millennials, the renting generation, have fueled the completion of 215,000 new apartment units over the past 12 months. With the absorption of 237,000 units, vacancy has fallen to 4.2 percent, leaving developers room to build even more.

Restaurants Rules — Because they’re not spending on houses and goods, many millennials are spending more on experiences. The bar and restaurant industry has seen a 6.5 percent gain in sales over the last year.

Hotel occupancy is up — to 60.7 percent in the first quarter of 2016, making it the second highest quarter on record, according to Marcus & Millichap.

Retail is stronger — SoBeverly Hills Marriottme millennial are starting to settle down and buy homes or move out from roommate situations, leading to a large increase in spending in several retail sectors. Both home furnishing and home improvement retail stores have seen a 3.6 percent increase over the past year.

Retail

Image via NREI Online

Don’t forget the Boomers — Medication sales, plus an expanded pool of Boomers with insurance pushed sales at drug stores up 8.3 percent from a year ago.

By 2020, 57 million people — 16 percent of the population — will be over 65. Don’t count this age group out, as the spending is likely to continue to drive these key sectors.

Hotel Owners Get Creative In Search Of Revenue Growth

Hotel Owners Get Creative In Search Of Revenue Growth

Hotel

The Mayflower Hotel in Washington, D.C. (Photo via NREI)

June 2016

The performance of the hotel industry has been shaky in 2016, forcing owners and investors to get creative when it comes to finding ways to squeeze every last dollar out of their properties.

With revenue per room growth stalled, the focus has shifted to total revenue growth. NREI recently outlined a few of the ways major hotel brands are maximizing their profits:

Rightsizing: NREI cites the example of Marriott, which purchased — and then “rightsized” — the Mayflower Hotel in Washington, D.C. Marriott launched a $6 million renovation, focusing on increasing the available meeting space and making the hotel’s restaurant and bar more appealing. By identifying a few key opportunities with a chance for good return on investment, Marriott was able to make the hotel more profitable.

Beverly Hills Marriott

The entrance to the renovated Marriott Beverly Hills Hotel. (Photo via Marriott)

Repositioning: Savvy investors are targeting hotels that hit a lot of things on their checklist but need to be reinvigorated. The Marriott Beverly Hills Hotel was one such case, receiving a complete “gutting and reskinning” after it was purchased for $21 million. The reason? Marriott saw an opportunity given that the next closest hotel was more than 6 miles away. NREI also described the example of an island hotel that moved away from single and double occupancy rooms in favor of group rooms, resulting in year-to-year revenue growth of 19 percent.

Creating more hotel space: Some hotels that are overloaded with amenities — think pools, restaurants and gyms — are turning those areas into boutique villas or residence lots. These do more to grow revenue.

Adding residences: Speaking of residence lots, some hotels are considering the positive effects of adding branded residences. These residences increase spending by more permanent guests. However, there is risk involved. Hotels will feel the burn of revenue losses if the residences do not sell.

Supply concerns are weighing on the hotel industry. Until revenue per room rates start to rise again, hotel owners and investors will need to continue finding creative ways to bring in money.

Cautious Optimism on Investment; Non-Gateway Markets Rule

Cautious Optimism on Investment; Non-Gateway Markets Rule

May 2016

Investment

Austin, Texas

How long will this strong CRE investment cycle last? That’s what’s on the minds of many CRE executives surveyed recently by DLA Piper. Among the key findings from the survey are:

  • Cautious optimism: We all know that CRE is cyclical. It’s been a good seven years of growth. About 62 percent of the executives surveyed are bullish about investment during the next year — down from 89 percent in the 2014 survey.
  • Non-gateway markets are king: As pricing in core markets continue to push out investors, cities such as Austin, Seattle, Denver and Raleigh are becoming the hot spots. This is particularly true among domestic investors, according to the report.
  • Record pricing, but reduced transaction volume: There was just $25.1 B in commercial property sales in February of 2016, down almost 50 percent from the previous year.
  • Foreign investment will continue: The U.S. is considered a safe haven and will continue to draw foreign investors into non-gateway markets and core markets (which are considered an even safer bet).
    Seattle

    Seattle, Washington

Among the top non-gateway cities to watch, according to the survey respondents, are:

  • Austin
  • Seattle
  • Miami
  • Denver
  • Nashville

See the law firm’s “State of the Market” survey for more.

Will the Tech Sector Slow?

Will the Tech Sector Slow?

Tech sector

The tech sector has been growing at a rapid pace.

April 2016

The tech sector has been surging, but can it continue its torrid pace?

The short answer is no. The tech sector will continue to grow, but it can’t hope to sustain its incredible growth forever.

Office and multifamily markets in tech-heavy communities like San Francisco, New York City, Seattle and Los Angeles will see a slowdown due to decreasing demand from tech tenants. Attribute that to the fact that those tenants have been growing at an unsustainable pace. Available office sublease space in San Francisco has already jumped, moving from 1.3 million square feet in February 2015 to 1.9 million just one year later. This is according to CoStar reports cited by Bisnow.

Fitch Ratings reports that while office and multifamily owners could see some risk from lower tech-tenant demands, industrial and healthcare REITs should see little (or no) risk unless the regional markets are subject to economic softening. Retail owners will experience less risk (compared to office) because they tend to have longer leases and lower rates of tenant failure.

Owners might not want to hear it, but it sounds like demand will return to more normal levels over the next few years.

Multifamily growth expected to be slow, steady in Q2

Multifamily growth expected to be slow, steady in Q2

Multifamily growth

Multifamily growth in Houston was downgraded in a recent report by Yardi.

April 2016

After adjusting their estimates for the second quarter of 2016, commercial real estate experts are anticipating a period of slow, but steady, multifamily growth over the next three months.

Rents on multifamily properties reached an all-time high of $1,181 last month, rising 0.5 percent over February, according to the Yardi Matrix Monthly report. But the report also predicts that rent appreciation will taper off soon. National rents are already showing the signs, decreasing by 20 basis points from February 2015.

Of the 30 major metropolitan markets for which Yardi creates forecasts, 13 were downgraded from the end of first quarter, 11 were increased and six remain the same. The top markets and their expected rent growth included:

  • Portland (14.1 percent)
  • San Francisco (11 percent)
  • Sacramento (10.6 percent)
  • Denver (10.3 percent)

Mid-Atlantic markets Richmond, Va.; Washington, D.C.; and Baltimore were the only markets to fall below their long-term average for growth. This is likely due to their weakness in the high-end lifestyle rent sector.

See this Commercial Property Executive story for more.

What’s Behind Manhattan Land Sales Slowdown?

What’s Behind Manhattan Land Sales Slowdown?

According to The Real Deal, Manhattan land sales slowed during the first part of 2016.  Data and analytics firm Real Capital Analytics (RCA) shows that there were only $90 million worth of development deals in January and zero on record in February. Land sales slow

What’s going on? Looks like three main factors are at play–stringent financing, lackluster luxury condo sales and the termination of the 421a tax abatement program. Another key factor is that buyers are not willing to pay the high prices sellers are touting. This is having a ripply effect on development sites. Click here for more.

Midwest Update: A Closer Look at Retail (and More)

Midwest Update: A Closer Look at Retail (and More)

March 2016

The retail sector has issues. The health care sector has opportunities. Chicago has a few huge commercial real estate projects that might just get off the ground after years of being dormant. These are just a few of the stories we’re tracking:

Retail

Photo via NREI Online

  • Retail woes: We wrote about retailers struggling to strike a balance between e-commerce and brick-and-mortar stores last week. NREI put together a list of 12 retailers who are in bad shape and have been forced to close physical stores. Radio Shack, Barnes & Noble and J.Crew all make the list. (Via NREI Online)
  • Are physical stores better for the environment? While we’re on the topic of retail, a recent study by Simon Property Group indicates brick-and-mortar shopping might actually be more sustainable than shopping online. Assuming consumers purchased the same goods online and in a physical location, the study found that online shopping had a 7 percent greater environmental impact over brick-and-mortar shopping every year. (Via REIT.com)
  • Fewer banks are lending a hand: As economic growth in the U.S. slows, it appears that lenders are getting more cautious about funding domestic real estate developments. A six-year recovery has meant good times for investors, but Mark Myers, the head of the commercial real estate business at Wells Fargo & Co., predicts that banks are going to change their approach to be more cautious this year. That could force landlords to look elsewhere for funding. (Via Bloomberg)
    The Old Main Post Office in Chicago is currently unused (photo via Wikimedia).

    The Old Main Post Office in Chicago is currently unused (photo via Wikimedia).

  • Playing the odds in Chicago: Crain’s has a fun look at four of Chicago’s biggest (and most controversial) real estate projects. Progress has been made on three of the properties in recent weeks, and all four have massive potential. Personal favorite: imagining what could be done with the Old Main Post Office in the West Loop. (Via Crain’s Chicago)
  • Opportunities in health care: John Wilson, president of Chicago-based HSA PrimeCare, outlined the types of properties and markets his company looks for in an interview with GlobeSt.com. Wilson called the health care sector fruitful and said there are even opportunities in secondary markets, provided those markets had strong hospital systems. Cities with universities or state capitals are also good markers. Wilson’s specific examples included Lincoln, Nebraska; Ann Arbor, Michigan; and Columbus, Ohio. (Via GlobeSt)
(Somewhat) Affordable Housing

(Somewhat) Affordable Housing

March 2016Affordable housing

Nearly every day, we hear news of a new high-end apartment complex being built in a major metropolitan area. But new construction with lots of amenities is not what every renter is looking for, says David Schwartz, CEO and co-chairman of Waterton. His investment firm has spent much of the last few years looking for Class B and Class C value-add apartment properties, and renovating them for middle-income renters seeking affordable housing.

Industry experts see more of this from private investors on the horizon.

One current project for Waterton is the Vida Hollywood, a 25-year-old apartment complex in Hollywood, California. The company is renovating its 345 units, but rents in the building will still remain about $800 less than they would be at a Class-A building in the same area.

Barbara Byrne Denham, an economist with New York City research firm Reis, Inc., urges redevelopers not to interfere with Class B and Class C apartment buildings that are already fully occupied. In areas with high job growth and salaries to match, the existing renters might pay the higher prices to live in the renovated building. But in areas where people are just staying stable in their careers, the tenants looking for affordable housing might move out.

What should they do instead? And, what are investors chasing? Click here for more.

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