Best Multifamily Bets for 2009

overall revenues essentially flat.MinneapolisCurrent Performance: Occupancy of 95.2%, Annual Rent Growth of 3.9%Minneapolis ends 2008 with occupancy in good shape and rent growth registering at a healthy pace. Ongoing construction is minimal, with permits for only 1,800 units issued during the past year. To remain among the nation’s top tier performers during 2009, then, the…

overall revenues essentially flat.MinneapolisCurrent Performance: Occupancy of 95.2%, Annual Rent Growth of 3.9%Minneapolis ends 2008 with occupancy in good shape and rent growth registering at a healthy pace. Ongoing construction is minimal, with permits for only 1,800 units issued during the past year. To remain among the nation’s top tier performers during 2009, then, the metro just has to avoid meaningful job loss, and economic forecasters are anticipating only minor backtracking in the employment tally.PittsburghCurrent Performance: Occupancy of 97.5%, Annual Rent Growth of 3.6%Pittsburgh has quietly become one of the healthiest apartment markets across the country over the past couple of years. While employment additions have been limited, growth has been just enough to gradually push up occupancy in an area that has received virtually no new supply. The metro broke into the ranks of the nation’s top occupancy performers in the middle of 2007 and has stayed there ever since. And in turn, the pace of annual rent growth has accelerated. With only 400 multifamily units approved for construction during the past year, deliveries again will barely register during 2009, so momentum should be maintained as long as job loss is contained to the handful of positions expected by leading economists.RaleighCurrent Performance: Occupancy of 92.7%, Annual Rent Growth of 1.3%YieldStar now likes the Raleigh multifamily market more than Charlotte’s, what with the latter city’s reliance on the now-challenged banking sector. At the same time as job cuts are coming, Charlotte’s multifamily inventory is growing by one-third in the next 18 months. Raleigh has experienced a recent building boom that has weakened both occupancy and rent growth. However, that burst of building activity now is winding down, with construction going into 2008’s fourth quarter at 3,300 units, many of them finishing right at the end of 2008 or in early 2009. Leading economists remain optimistic that Raleigh will manage to produce a reasonably healthy block of additional jobs in 2009, providing some underlying support for housing demand. In the worst case, then, this market’s performance seems apt to hold essentially stable during the coming year.San DiegoCurrent Performance: Occupancy of 96.3%, Annual Rent Growth of 3.5%San Diego’s apartment market is in surprisingly good shape for a metro where job loss is occurring and where a very high foreclosure rate is boosting the selection of shadow market rental alternatives. Unlike in most other areas, the presence of inflated numbers of for-lease single-family homes doesn’t seem to be having too much negative impact on the apartment sector, likely because these shadow market options tend to be too expensive for the typical apartment renter. With 3,100 apartments under construction at the beginning of 2008’s fourth quarter, near-term deliveries seem likely to outpace apartment demand, resulting in a minor dip in occupancy. But rent growth should be sustainable at levels strong enough to yield at least a little revenue increase during 2009.San FranciscoCurrent Performance: Occupancy of 96.4%, Annual Rent Growth of 3.2%While San Francisco’s annual rent growth rate has cooled off from the previous double-digit pace, increases remain well above the national norm. And occupancy is holding strong. Ongoing building at the start of fourth quarter 2008 was roughly 2,500 units, not an over-the-top figure but more than is typical in this high barrier to entry market, explains Willett. This metro actually has trouble accommodating more than minimal volumes of new supply, since new product is so expensive and targets such a shallow pool of renter prospects. As a result, YieldStar predicts that occupancy may backtrack slightly during 2009, but revenue change should remain in positive territory, with rent increases registering stronger than the occupancy loss.Fort WorthCurrent Performance: Occupancy of 92.3%, Annual Rent Growth of 2.8%While YieldStar admits that Fort Worth starts from a weaker position than most of its top picks, it has some good things going for it. Like the other metros in Texas, Fort Worth is expected to register fairly healthy employment growth that will support housing demand in 2009. And unlike other Texas markets, the metro isn’t experiencing significant overbuilding. Ongoing construction going into 2008’s fourth quarter was at roughly 4,100 units, nearly all of it very close to finishing, so it has most of 2009 to try to gain traction. Willett predicts, “Fort Worth actually might end up as the only metro across the country where occupancy rises during 2009, and in turn rent growth should be sustained as well.”SeattleAnnual rent growth in Seattle had been about 7 percent in the last two to three years, but Parsons from Opus West expects that to slow down to 2-3 percent in 2009. “I see rents flattening out, pausing and then picking up again,” Parsons predicts. The difficult mortgage market will keep renters in apartments that rent for $2,000-$2,500 per month, he believes. And with about 36 percent of Seattle’s population under the age of 40, Parsons believes that a number of them are renters-by-choice who want to stay in the downtown market.New YorkNew York’s fiscal woes are deepening as more Wall Street institutions make headlines, for the wrong reasons. Yet, in Manhattan, the average price per square foot of all new development was $1,320 in the third quarter of 2008, down 1.5 percent from the prior year quarter, according to the most recent Miller Samuel market report. However, the average price per square foot of a re-sale apartment was up 4.3 percent to $1,142 per square foot. A Brown Harris Stevens brokerage report noted that the average Manhattan apartment price fell from the second quarter of 2008, but was up 12 percent over the past year to $1,473,351. BostonMarcus & Millichap’s third-quarter Boston Apartment Research Report says that about 2,900 units are expected to come online in Boston this year, compared with 4,300 units in 2007. The forecasted vacancy of 6.5 percent at year-end 2008 will be 80 basis points more than the rate one year earlier, due primarily to competition between shadow rentals and Class A stock. Asking rents are expected to rise 3.1 percent this year at $1,730 per month, according to Marcus & Millichap, while effective rents will increase 3 percent to $1,649 per month. Despite a modest rise in vacancy this year, healthy occupancy within the Boston apartment market will provide above-average rent gains, especially for lower-tier assets, as more individuals seek affordable housing options, according to Marcus & Millichap. Class A properties continue to compete with shadow stock as a result of robust condominium completions during the past few years.

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