The Year That Was - 2011

2011: The Year That Was
By: Nicholas A. Dunlap, CPM


2011 was a turbulent year for apartment owners. Higher turnover caused higher vacancy rates and higher maintenance expenses, especially in Orange County. But,those who like to see the glass as half full, rejoice! In most instances these vacating residents were replaced with residents often paying more in rent than those who vacated. So the gross income was either flat or down slightly due to the loss in rents on vacant apartment homes, maintenance expenses are up as a result of the high turnover, but our year end occupancy was up over the past 3 years. This shows great potential for 2012.

For us, turnover was highest in our Class B or higher properties. In most cases, the vacating residents left not to rent another apartment home, but to take advantage of the low interest rates and low market values of condominiums or entry level homes in areas nearby. Although interest rates will stay low, the higher turnover in 2011 and the re-renting of those units with year leases guarantees that there will be a lower turnover rate in 2012. Now, it is time for our Resident Managers and on-site personnel to focus on resident retention proving themselves as the concierge that will not be available to residents once they vacate.

Stay tuned for per square foot, per unit, per city and per building age averages to help you project your own numbers for 2012.

California Ranks High in Multifamily Research Report

California Ranks High in Multifamily Research Report
By: Nicholas A. Dunlap, CPM


Marcus & Millichap recently published it's 2012 Real Estate Investment Research Report and the news bodes well for apartment owners in California. Despite a tough political climate and the absence of a unified, statewide apartment association to fight legislation, 4 of the top 10 or 6 of the top 20 apartment markets in the United States are located in California. The markets and their rankings are as follows: San Jose #1, San Francisco #2, Orange County #5, San Diego #6, Los Angeles #13 & rounding out the group is Oakland at #16.

The annual research report showcases amongst other things: trends in the rental market, employment market, sales trends and overall supply and demand based on newly completed units and vacancy rates in the market. Of course, property owners in California have recently lost redevelopment agencies as a source of potential funding for improvements and are again battling the threat of rent control through "inclusionary zoning", which would require all new construction to fall under some sort of rent control. Here, Texas has it right: rent control is outlawed in the State constitution. Austin came in at 7th, Dallas at 15th, Houston at 18th and San Antonio at 21st. In my personal opinion, the Texas markets are the best places to buy at present. You can buy for cashflow and appreciation.

Right now, it is an owner's market in California. That is, its a great place to own, but if you plan on buying in California, be prepared to pay a premium and be lucky to receive a 2 to 3% return on your investment. Better than the bank, better than the stock market, but not high enough to substantiate the physical process of investing in commercial real estate.

New Homeownership Stats Great For Apartment Owners

New Homeownership Stats Great For Apartment Owners
By: Nicholas A. Dunlap, CPM


Today's HBR Stat of the Day shows the direct correlation between uncertainty of income and declining marriage rates in the US among people ages 25 to 44 and the declining rates in homeownership.

There was 5% total growth between 1962 & 2007 from 62% to 67%, but those numbers have now dropped to 57%. Since 1980, marriage rates in the United States have also dropped 15% and married couples are more likely to own their own homes. Not only is there uncertainty in income, there is also uncertainty in the for-sale housing market. Many of these would-be homeowners have seen their friends and family lose their homes and are now dealing with home values that have dropped, leveled, dropped again and are now skipping along what many presume to be the bottom, thus, they are skeptical as to whether or not now is the time to buy.

This uncertainty translates into opportunity for apartment owners and developers. In fact, these numbers have caused apartment investors to continue on in acquistion mode, taking advantage of low interest rates, and have most recently caused developers to put the shovels back in dirt, breaking ground on new projects. This is of course shared by asset and property managers who are able to piggy back off of their customer's uncertainty and their client's optimism.

2012: Could the Mayans Have Predicted Economic Apocalypse? Part VI

2012: Could the Mayans Have Predicted Economic Apocalypse? Part VI
By: Nicholas A. Dunlap, CPM


The following is an excerpt from my 2012 Outlook on Investing that appeared in this month's Apartment News & Apartment Management Magazines. I will be publishing it in segments here on my blog. Here is Part V.

Closing

As I write this, our occupancy rates are higher portfolio-wide than they have been in over 3 years. Half of our properties are at 100% occupancy and the other half are at or above 95%. So while things might look bleak politically or economically, at least we still have our rentals to look forward to! Remember, there is no better time than now to take the initial steps toward your ensuring your future success. Having made it through the worst of the downturn, there is finally light at the end of the tunnel. Though it’s not quite clear just how long this tunnel is.

2012: Could the Mayans Have Predicted Economic Apocalypse? Part V

2012: Could the Mayans Have Predicted Economic Apocalypse? Part V
By: Nicholas A. Dunlap, CPM


The following is an excerpt from my 2012 Outlook on Investing that appeared in this month's Apartment News & Apartment Management Magazines. I will be publishing it in segments here on my blog. Here is Part V.

Comply or Wave Bye
Although it might not be required until 2013, Carbon Monoxide detectors belong in your apartment homes now. Combination smoke/carbon monoxide detectors are affordable enough and even cheaper when bought in bulk. Be ahead of the curve and harness this opportunity for good PR. Sure, it’s not required until next year, but we installed it now because we care.

The verdict is still out on the newest changes related to the Virginia Graeme Baker act. We all rushed to implement the required modifications or upgrades out of fear of steep fines and penalties, only to have a Commissioner mysteriously change his mind as to his original decision; mysterious of course because there was no record of issue causing his change in opinion. That said, if we as an industry are unsuccessful in our efforts to thwart this new proposed change, we will be subject to additional changes to our drains and most likely increased fines and penalties should we not comply. Stay abreast of updates from your local association to ensure you stay in compliance.

Sorry, I cannot put a positive spin on the senseless overregulation of our business by the Federal Government.

2012: Could the Mayans Have Predicted Economic Apocalypse? Part IV

2012: Could the Mayans Have Predicted Economic Apocalypse? Part IV
By: Nicholas A. Dunlap, CPM


The following is an excerpt from my 2012 Outlook on Investing that appeared in this month's Apartment News & Apartment Management Magazines. I will be publishing it in segments here on my blog. Here is Part IV.

The Rent Raise: A Landlord’s Best Exercise

Perhaps the best thing about the economy being in the toilet is that in spite of the low interest rates and low SFR market values, many prospective buyers are still priced out. That said, Orange and Los Angeles counties boast some of the highest barriers to entry, meaning that it is more difficult here than in most places in the nation to make the jump from renting to owning. Thus, renting is the true value. Plan on increasing your rents at least 3 to 5% or perhaps more depending on the specific circumstances of property locale and current (existing) versus market rents.

With the combination of increased income and low interest rates, we will continue to see the market values of multifamily housing on the rise. And thus, another year of low capitalization rates, high costs per square foot and increasing GRMs, which of course is great for sellers but not the best for buyers. Further reason to diversify.

2012: Could the Mayans Have Predicted Economic Apocalypse? Part III

2012: Could the Mayans Have Predicted Economic Apocalypse? Part III
By: Nicholas A. Dunlap, CPM


The following is an excerpt from my 2012 Outlook on Investing that appeared in this month's Apartment News & Apartment Management Magazines. I will be publishing it in segments here on my blog. Here is Part III.


Diversify Yourself: Location & Product Type

Us Californians have it tough. Our State Legislators relentlessly try to drive us out, either through the overregulation of our industries, the implementation of foolish policies that cost us more money and more time or perhaps the most repulsive of them all, the loose or seemingly careless operation of our state legal system that is exploited with ease.

Enough is enough!

Until our State gets it together, do not give them the benefit of any new property tax dollars. Consider diversifying yourself outside of California to neighboring markets such Arizona, Nevada or Texas. Here, you can still realize immediate cash flow that will beat the bank and substantiate your efforts for consummating a real estate transaction. Not to mention, these States actually want your business and both respect and reward the risks that you take as an investor.

If you must purchase in California, specifically in Orange or Los Angeles Counties, consider diversifying your holdings to include some of the distressed office assets that are available. Do not let the high vacancy rates discourage you. The corresponding purchase prices can often allow for flex room in your pro-forma rents. Other opportunities will continue to include the bank-owned SFR and 2 to 4 unit complexes. There is pent up investor demand so realize that you will likely get into a bidding war with multiple cash-heavy buyers. Come prepared and consider putting your best and final offer first.

2012: Could the Mayans Have Predicted Economic Apocalypse? Part II

2012: Could the Mayans Have Predicted Economic Apocalypse? Part II
By: Nicholas A. Dunlap, CPM


The following is an excerpt from my 2012 Outlook on Investing that appeared in this month's Apartment News & Apartment Management Magazines. I will be publishing it in segments here on my blog. Here is Part II.

Record Low Interest Rates = Time to Refinance or Reposition Your Debt
With no plans to help grow our economy and no solution on how to add jobs or decrease the national unemployment rate, President Obama realizes that his only way to the American people’s hearts is through their wallets. Albeit, the route is not direct and requires his influence over the still green Bernanke. Eleven months ahead of the Presidential election, we can certainly expect President Obama to exercise his influence and keep rates low. If you did not take advantage of the low rates in late 2011, make this a priority for 2012.

If you share my conservative outlook on investing and are not highly leveraged, take advantage of the low interest rates to either reposition the existing debt on your property to lower your debt service and increase your cash flow, refinance and set money aside for additional investment opportunities or refinance and reinvest the money into your property by introducing capital improvements or upgrades.

Put this at the top of your 2012 to do list.

2012: Could the Mayans Have Predicted Economic Apocalypse? Part I

2012: Could the Mayans Have Predicted Economic Apocalypse?
By: Nicholas A. Dunlap, CPM


The following is an excerpt from my 2012 Outlook on Investing that appeared in this month's Apartment News & Apartment Management Magazines. I will be publishing it in segments here on my blog.

It’s hope and change all over again. And while many business owners hope for change at the Executive level of our Federal Government, we still have a year before the official change takes place, presuming of course that there is a change. With the coming election, we should expect a somewhat steady year economically. That is, no major changes to policies or procedures, except maybe a slight drop in interest rates. Some might see it as a way to buy the election, but all feelings aside, it is a much needed shot in the arm to a still ailing economy. So while a full recovery is still years away, it is safe to say that as apartment owners and operators, we are headed in the right direction as we head into the new year. Let’s consider some points of interest as we plan for a fruitful 2012. And unlike the Mayans, I do see hope for us past December.