Luxury Apartments Galore: At What Cost? | Multifamily Executive Magazine | Rent Trends, Luxury, Capital Markets, Economics, The Solomon Organization, Axiometrics, Zillow
[{"id": "cre37sk", "text": "Great article, thanks for sharing. I feel very strongly about this subject.\n\nFinkel is exactly right, middle-class housing is a huge and chronically under-served market. Right now it's so much more economical to build for the very high end or the very low end (subsidized). \n\nEven in my blue collar midwestern market we are seeing thousands of Class A units going up. If I hear the trite phrase \"young urban professionals and empty nesters\" one more time I might spew all over the CAD renderings. There's not an unlimited supply of those demographics! I actually keep a folder on my computer marked \"bubble warning\" just to store articles about new Class A residential developments. I'll be picking some up as distressed assets in a few years.\n\nConventional wisdom says it's too expensive to build new Class B. But I don't think that's true. Factory-built units are sending quality through the roof and price through the floor. You just need a big enough site to amortize land costs and be willing to take on an unsexy project that fills a genuine market and social need.\n", "replies": [{"id": "crebqkf", "text": "I didn't read all that yet so OP's article might of touched on this, but the more interesting thing in my market is the suburban to urban movement which this plays into.  \n\nThere are almost no apartment builds in the suburbs like we have seen for a long time (class a/300-500 unit cookie cutter 12 unit buildings etc).  That use to be all the new construction, and most of it was higher end.  Now all the new construction is urban rehabs/infill and is usually high end.  \n\nAll the stuff from the 90's/00's is going to age out and become the new class b/c stuff while everything nice is urban.  \n\nI almost wonder if the issue isn't no ones building class b stuff, its that we have a huge amount of it that is over valued right now and being replaced.  \n\nWe've talked about this a bit before, and I think there are probably opportunities to build class b targeted stuff, but I find the complete lack of new suburban class a very interesting.  We have record low caps, huge demand, etc.  Why is no one building it?  I think the long term outlook is too gray", "replies": [{"id": "crehofv", "text": "I feel like there is a massive opportunity in taking some of those tired old suburban Cs and turning them into Bs. Not granite and shiny stuff. Just a few cosmetics and active management to attract a solid median income renter base who care about where they live. Just that little bit should be enough to push up rents and occupancy. \n\nMaybe the problem is that you can't buy suburban Bs/Cs cheap enough because they are always full. Yet the cost of construction is too high to generate new competition.\n\nBTW we have quite a lot of suburban As going up around here. Here's one new development in an outer ring suburb. \n\nhttp://www.jsonline.com/business/drexel-town-square-complex-promises-to-transform-oak-creek-b99499141z1-303997151.html\n", "replies": [{"id": "crf4jwh", "text": "interesting.  This is kind of a shit article and you are already probably familiar with this, but some guy is trying to build tiny houses in our urban district.  \n\nhttp://www.fox19.com/story/29097299/tiny-homes-to-be-built-in-otr  \n\nI'm not sure that is going to take off but its nice to see someone trying something other than the typical formula of:  \n\n1. gut building\n2. high end renovate everything\n3. Sell as condos or lease for 5x the areas average housing costs\n\n", "replies": [{"id": "crfk48u", "text": "That's interesting, we have a similar proposal here in Milwaukee but on a larger scale. http://bayviewcompass.com/public-meeting-may-20-about-potential-development-for-former-army-reserve-land/\n\nI'm not huge on the concept but I agree, at least somebody is doing something about affordable housing other than begging for LIHTC funds.\n", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "crfhzvv", "text": "Most of the construction, in the Phoenix Metro specifically, has been in the Downtown Phoenix and North/South Scottsdale submarkets.  Since the Phoenix Metro has never really crested $2/sf rents, and most of the new product coming online has that as the basis for underwriting, should be more than interesting if those rents hold over time.  Inasmuch as my 'bubble warning lights' are flashing, housing, in particular single family, is rapidly hitting a cross-roads when Dodd-Frank impacts hit this August.  My contention, (outside of more gov't meddling which, in all honesty, I can definitely see happening), is that Dodd-Frank is gonna really hammer down on first-time home buyers and, net effect, create a permanent rental class.  So, if buying a house is not an option, what and where do these potential tenants go?  Unfortunately I don't have a crystal ball but we'll have a better idea of absorption by 1Q 2016 after this first major wave of deliveries takes place.   ", "replies": [{"id": "crfkosn", "text": "I hadn't thought about Dodd-Frank but you make a great point. Again the most impacted population will be marginal purchasers - median-income households. All the more reason for investors to service that demographic competitively.\n", "replies": [], "depth": 3}, {"id": "crh1cyv", "text": "Pardon my ignorance, but what happens in August?", "replies": [{"id": "crh2o6u", "text": "I wrote a post on it here, [Dodd-Frank Financial Reform Act Impacts Part 1](http://abimultifamily.com/abinsight-dodd-frank-financial-reform-act-impacts-part-1/), which will give you a good overview of the main issues.  I'm currently writing a follow-up but most likely won't publish until early June ", "replies": [{"id": "crh348x", "text": "Interesting. Do you feel that this market imbalance will depress that lower end of the housing market as buyers can no longer secure the number of loans once available? Additionally, what kind of potential borrowers (if any) will be the best equipped to enter into a first time home purchase once the rules take effect?", "replies": [{"id": "crmk2rd", "text": "I think what you'll see is the gradual end of the first time home-buyer as we know it today, much like when I was living in Spain and most young adults stayed home until well into their mid-20s and, even then, wouldn't purchase a home until their 30s and 40s if at all.  The gov't, in its attempt to 'stabilize' the mortgage market has effectively shut-out smaller state and regional mortgage banking institutions through onerous legislation.  Essentially, you're seeing a mass consolidation of the mortgage banking and title insurance markets, the only ones with the money needed for the technological upgrades required by CPFB, HUD et al.  This consolidation has lead to a general homogenization of the mortgage market and we're now beginning to see its impacts, albeit incrementally, i.e. 7% drop in mortgage applications for homes &lt;/= $200K in 2014 alone.  \n\nThis dip has caused gov't agencies to scramble and you can see it in the credit rating agencies response, i.e. looking for new metrics to qualify borrowers (good example is their use of utility payments history in lieu of straight credit history).  Remains to be seen if someone, who was qualified under the utility payment rubric, can sue a lender under the ATR (ability-to-repay) provisions of Frank-Dodd which I'd assume is just a lawsuit waiting to happen.\n\nLong term, I think we've hit our gov't mandated paradigm shift which, as with all things from the gov't, can change in a bureaucratic minute.  Another interesting tidbit, which I do think has validity, over the next 20-30 years the baby boomers are going to be dying off and leaving Generations Y, Z and millennials etc with billions in transferred wealth. ", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "crhlfg9", "text": "Ugh, as someone in LA this has also been on my radar. Almost *everything* I've seen coming through our office, and in the news, has been about luxury apartments/condos. I know of 6 luxury apartment/condo mid/high rises (easily 500-1000 units total) near my work and home that are under construction. The city is having a lot of trouble convincing developers to even include affordable housing as a portion of minor projects!\n\nI just can't see this as being anything but horrible for renters in LA. I understand that it's more profitable for developers to create high end projects, and yes they're so pretty and nice looking, but it is just not sustainable when the only new inventory is unaffordable to anyone making under $100k a year.", "replies": [{"id": "crho25z", "text": "Hot cities like LA might be a bit different because land prices are so high that they force a developer's hand - unless subsidies are involved of course. I'm thinking of more affordable markets.\n", "replies": [], "depth": 3}], "depth": 2}, {"id": "crn84sw", "text": "What exactly do you mean by 'factory built units' ?", "replies": [{"id": "cro3ico", "text": "Pre-built modular housing. NOT the same as a mobile home. It's built to the same standards as on-site stick-built housing, but pre-built in a factory and transported into place.\n\nThere are lots of forms of this. I was involved in a recent development which used panelized construction, meaning each wall of each floor was shipped to the site and loaded into place. In other cases you can get whole pre-built units and stack them up.\n\nFactory-built housing has a bad reputation because many people associate it with mobile homes or with bland concrete boxes. But it can have as much variety and interest as any other type of construction.\n\nSome examples:\n\nhttp://www.modular.org/HtmlPage.aspx?name=NYC_MC_Housing_Needs_MA\n\nhttp://www.westchestermodular.com/apartments.html\n\nhttp://modularhomeowners.com/do-you-know-the-difference-between-prefab-and-manufactured-homes/\n", "replies": [{"id": "cro4j3c", "text": "I've put up a few modulars but only as single families.  I should have been more specific and said \"factory built in relation to apartments\" but you answered that question anyway.  I agree with you that it is only a matter of time where the prefab stuff is simply better and cheaper.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "crepysn", "text": "Awesome article !!!!\n\nI looked at maybe 4 or 5 complexes in Phoenix last week and every one of them were exactly what this article described.  Basically, someone taking class C space and making it into hip affordable class B.  Very few bells and whistles but just clean, quirky, and cool as hell.  Anything I looked at was gone as I was looking.  Here in Atlanta, everything going up is super high end or it's old and too expensive to do any kind of re-purposing.", "replies": [], "depth": 1}]