![]() After lackluster construction numbers in April, multifamily building rebounded in May and posted a strong 15 percent increase. Much of the construction activity came from eight multifamily projects with values of at least $100 million in large cities across the United States, including major projects that broke ground in New York City; Jersey City, New Jersey; and Chicago in May. The multifamily projects in these cities represent almost $1.5 billion in investment in apartment towers and a mixed-use high-rise. Five major projects broke ground in April. New York continues to lead the United States in terms of new construction of multifamily projects. The other top-five metropolitan areas are Miami, Chicago, Boston, and Los Angeles. Rounding out the top 10 for new multifamily construction are San Francisco; Washington, DC; Denver; Atlanta; and Dallas-Fort Worth. In fact, eight of these ten urban regions have posted double-digit increases in construction in the past year.
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![]() In today’s multifamily market, developers and investors are moving to take advantage of the growing demand among renters for value-add class-B and class-C apartment buildings. Essentially, with so much class-A and luxury construction currently underway, a gap has opened up in the market: apartments that can cater to middle-class tenants. These value-add projects operate on the principle of renovating and improving an older building, raising rents, and attracting tenants who are looking for something more than an aging class-B or class-C property, but who can’t afford the rents typically charged for newly built class-A units. Such projects, which work best in markets where the average rental cost of a class-B or class-C unit is significantly less than a class-A unit, allow developers and investors to benefit from the strong overall demand for rental housing without having to compete directly with newly constructed luxury properties. Additionally, investors still pay substantially less (relative to income) for class-B and class-C multifamily properties than for class-A properties. Typical cap rates accepted by investors purchasing class-B and class-C properties are currently about 220 basis points higher than the same rates for class-A assets, meaning that value-add class-B and class-C properties are becoming an increasingly smart choice for investors. ![]() In spite of the gains made in the second half of 2015, the home ownership rate in the United States fell during the first quarter of 2016 to a seasonally adjusted 63.6 percent. That’s a mere one-tenth of one basis point higher than the rate’s all-time historic low, which occurred in the second quarter of 2015. A major contributing factor to this low rate of home ownership among young Americans is a combination of high student debt, tight mortgage standards, and rapidly rising home prices. Simply having a job no longer automatically translates to home ownership for young people today. The home ownership rate for people aged 25 to 34 is nearly 10 percent lower today than a decade ago. Furthermore, among all of today’s buyers, first-time homebuyers comprise barely 30 percent, a figure that has traditionally been closer to 40 percent. For multifamily real estate investors, however, these numbers are good news. Not only is household formation increasing, but a full two-thirds of new households are renter households, and just one-third of such households are owner-occupied homes. Nationwide, homeownership is highest in the Midwest and lowest in the West. |
AuthorAn experienced real estate investor and co-founder of 37th Parallel Properties in Richmond, Virginia, Chad Doty has established himself as a leader in commercial multifamily real estate. Archives
January 2017
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