Q&A with Kevin Wolfgang: 2009 Will be Difficult Year with Companies Making Operations a Priority

Kevin Wolfgang is the president of Evergreen Realty Inc. and a principal owner of the many apartment communities they manage. He has provided leadership and vision to establish Evergreen Realty as one of the premier apartment management companies in the state of Delaware. Wolfgang serves as the president of the Delaware Apartment Association, which represents owners and managers of over 26,000 units in the state.He talks to MHN Online News Editor Anuradha Kher about the state of multifamily in Delaware and the downturn and its impact on the apartment market in 2009.MHN: What is the state of the multifamily industry in Delaware—in terms of demand, prices, rents etc.? Wolfgang: Although there is still solid demand for rental units, vacancy in Delaware has increased. A January 2009 survey of 31 DAA member communities (mostly in New Castle County) reported an average vacancy of 12.6 percent. In addition, tenant performance has become a significant operational challenge with increasing economic losses resulting from tenant skips or evictions. As a result, rental concessions have increased and rental acceleration has stopped or greatly slowed. Fortunately, Delaware does not have a large shadow rental market.Price ranges for units across all property classes reported in the January 2009 survey referenced above were as follows:Studio – $610- $950One-Bedroom – $639 – $2,450Two-Bedroom – $749 – $2,950  With regard to sales transactions, velocity has slowed. While sellers continue to want to look in the rear-view mirror, buyers are concerned about further erosion of collected rent. Most buyers are cautious and are reassessing risk and valuations. Cap rates, which have already increased, are under continued upward pressure. However, pricing in Delaware remains strong relative to other areas of the country. MHN: What are your plans for the DAA in 2009? Wolfgang: We have a political action committee that takes a proactive and aggressive approach to the relevant affairs facing the multifamily industry in our state. We will continue to work cooperatively with state and local government, regulatory authorities, community leaders and tenant advocates in an effort to provide the State of Delaware with an outstanding rental housing stock. The DAA will remain committed to service in the communities throughout the state where member’s multifamily properties are located, to philanthropic activities and to be a resource to the residents of rental units. MHN: What impact do you think the $8,000 home buyer tax credit will have on condo sales in Delaware?Wolfgang: You can’t push on a string. First, buyers have to believe that prices have stopped dropping. Then they have to have confidence that their jobs and salaries are secure. Then they have to believe that a condo project is stable. Then they have to have access to attractive financing. Once all that is in place, the tax credit is a plus.  MHN: Are you happy with the current housing stimulus? Wolfgang: There are parts of the current housing stimulus that are positive, such as Net Operating Loss extensions, First-Year Bonus Depreciation, and Private Activity Bond exemptions. Ultimately, the multifamily industry needs a healthy and wide-ranging lending environment. I am not confident that the housing stimulus will have a prompt or comprehensive impact on the availability of credit for apartment investors. MHN: What are your thoughts on where the apartment industry will be in 2009 and 2010? Wolfgang: The economy is going to continue to greatly impact the market in terms of operations, sales and development. I expect 2009 to be a difficult year and companies are really going to have to make operations a priority. I expect to see a “see-saw” effect between encouraging demand for rental units and discouraging results with regard to collected rent. Loss of collected rent will increase in lockstep with increasing unemployment. By spring of 2010, operating results for apartments should be improving. On sales transactions, I expect to see a return to more traditional fundamentals. Sales velocity will continue to be slow with continued pressure on cap rates to rise. There will be almost no development that hasn’t already started. However, companies that are strong operationally and have solid cash positions will likely begin to see real opportunities toward the end of 2009 and into 2010.MHN: Which parts of Delaware are growing markets for multifamily? Wolfgang: Our company has been focused on the northern part of the state. Development in New Castle County in recent years has been to the south in Newark and Bear, but the barriers to entry in New Castle County are very high. We have seen a southern progression. Middletown has exploded over the last 10 years and I expect that once the economy gets back on its feet, the development march south to Dover will continue through towns like Smyrna.  MHN: As president of the DAA, what are your concerns for the apartment market in Delaware?Wolfgang: As is the case nationally, the state of Delaware is facing an exceptionally difficult economic climate. The difficulties this causes for our members are considerable, real and immediate. While understandably troubled, the DAA is actively engaged regarding the actions being taken by our state to stimulate the economy and create jobs.In addition to the legislative concerns on a national level such as the Employee Free Choice Act, there are many state and local legislative issues that are of great concern to the members of the DAA. We are closely monitoring these legislative issues and confronting them assertively. These issues include, but are not limited to, Just Cause Eviction Controls, Source of Income Legislation, Rent Control and Rental Code and Localized Unit Inspection Legislation.