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Major apartment developer: 'There is an acute crisis headed our way'
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Date: February 20th, 2018 10:34 AM Author: supple pit bbw Major apartment developer: 'There is an acute crisis headed our way'
Scan the downtowns of the nation's largest cities, and you are likely to see a staggering array of cranes.
Most of them are helping to build luxury apartment buildings. In fact, multifamily construction is now at a 40-year high; the trouble is, developers are putting up the wrong kinds of buildings. The luxury market is largely overbuilt, while there is a shortage of affordable rental housing, and developers are hamstrung by the now record-high cost of construction.
Apartment completions in the 150 largest U.S. cities jumped to 395,775 units in 2017, beating 2016 production by a staggering 46 percent and more than doubling the long-term average, according to RealPage, an apartment management software and data company. Luxury, upscale buildings accounted for between 75 and 80 percent of the new supply in the current cycle.
"It's really tough to deliver product at those lower price points. The cost of land, the cost of building materials, the cost of labor. It's really about the same regardless of what product you're doing and it's just tough to make a deal work financially if you're going toward that middle-market price," said Greg Willett, chief economist at RealPage.
Mortgage Services Mortgage rates reach highest levels in four years 3:13 PM ET Mon, 12 Feb 2018 | 01:19 Demand for luxury apartments is still strong, but that demand is by choice, not necessity. Tenants in luxury buildings are often renting a second or third home or perhaps downsizing from a larger suburban home. They are not struggling to afford the monthly payments.
"In our portfolio, which represents 70,000 units mostly in the luxury space, we're seeing that our renters are spending a relatively low amount of their income on rent despite rents being perceptively high," said Toby Bozzuto, president and CEO of The Bozzuto Group, a multifamily management and development company operating in the Northeast and Mid-Atlantic. "That being said, it is a tale of two cities. In the middle income and the lower income markets, people are spending proportionally more on their rent — so much so I believe there's an acute crisis headed our way."
Despite rising incomes, nearly half (47 percent) of all renter households (21 million) pay more than 30 percent of their income for housing, including 11 million households paying more than 50 percent of their income for housing, according to a late 2017 report from Harvard's Joint Center for Housing Studies.
"While the market has responded to rental housing needs for higher-income households, there are alarming trends that suggest a growing inability to supply housing that is affordable for middle- and working-class renters, let alone those with very low incomes," said Christopher Herbert, the center's managing director.
Rents on the high end flattened in the last year, and landlords are starting to offer concessions, like high-end amenity packages or a month's free rent.
"We're getting a pretty competitive leasing environment in select locations at those really high-end price points, and we've already gotten to flat to slightly declining rents," said Willett.
That is not happening outside the luxury market, where rent increases are still strong due to low supply. Developers say they simply can't afford to add anything but luxury.
"The two-by-four doesn't care whether it's in a luxury building or in an affordable building. It costs the same," said Bozzuto. "The differential of course, is the rent and there's a huge disparity in high-end rent versus low-end rent. So the issue is for us to develop an economically viable, feasible project, it has to be, by its very nature, high end. The rents have to be high to support the cost."
The cost of that two-by-four, lumber, is now at a record high. Other products like steel and concrete are more expensive, but the real cost spikes are in land and labor. Skilled construction labor is not only expensive, it is extremely difficult to find.
Investors, according to Bozzuto, are now moving away from new construction and instead rehabbing older rental stock. These so-called value-add projects just raise the rents on current tenants even more.
There are some government programs that offer developers financial incentives to build lower-income housing, but they don't meet the needs.
"Those are finite and many, many of us are competing for those very finite resources," said Bozzuto, adding that the luxury market is, "on the precipice of oversupply, but I think macroeconomic conditions are actually going to keep us this year from developing much further. Costs in particular, land costs, hard costs mostly driven by labor, will ultimately make it harder to build new buildings." |
Date: February 20th, 2018 10:37 AM Author: Embarrassed To The Bone Aggressive Center open the borders or we wont be able to meet the demand for peasant housing created by open borders! (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444148) |
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Date: February 20th, 2018 10:39 AM Author: wonderful indian lodge toilet seat i dont understand, so the crisis there are too many luxe buildings?
building new luxe means older luxe -> mid range and older mid range -> low end
whats the actual problem theyre seeing |
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Date: February 20th, 2018 10:46 AM Author: appetizing cream antidepressant drug lower income folks aren't earning enough to support the cost of housing them (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444197) |
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Date: February 20th, 2018 11:12 AM Author: Histrionic cumskin yeah this is basically the "problem". You can't build an acceptable new apartment complex that will get $400 a month in rent for each bedroom. (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444393) |
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Date: February 20th, 2018 12:06 PM Author: Sepia Insecure Station Mad-dog Skullcap But the "cost" is just supply and demand. It's not like their earnings aren't enough to provide for physical housing. It's the property value.
If they earned more, rents would just go up. |
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Date: February 20th, 2018 11:38 AM Author: razzle-dazzle immigrant Yeah, I guess I'm not seeing that happen at all. Since the new luxe buildings are usually adjacent or near the old luxe buildings, it makes more sense for the old luxe buildings to remodel and charge similar, rich neighborhood prices.
While some buildings are more expensive than others, you don't see many cheap $750 1 BRs on the UWS, for example. |
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Date: February 20th, 2018 10:44 AM Author: appetizing cream antidepressant drug Rising tide lifts all boats. But lol if you're not in a boat. (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444182) |
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Date: February 20th, 2018 10:46 AM Author: galvanic insane office circlehead "Only when the tide goes out do you find out who has been swimming naked" (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444198) |
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Date: February 20th, 2018 10:53 AM Author: appetizing cream antidepressant drug just do marxist takeover of universities + no affordable housing for poors. i'm sure your crypto gains will be fine.
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Date: February 20th, 2018 10:55 AM Author: big abnormal masturbator (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444268) |
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Date: February 20th, 2018 10:55 AM Author: Histrionic cumskin This article is retarded.
The only crisis is going to be for the investors of the luxury apartments that have to drop rent (and eventually meet the middle market demand).
Also, the article completely ignores the costs of land until the end. No, luxury apartments aren't the same costs to build as lower end apartments just because a 2x4 costs the same. These luxury apartments are usually on prime land downtown or in hip gentrifying areas. So they do costs a shit ton more. Also shit like flooring, appliances, amenities, lighting, etc. adds up pretty quickly. Lower end apartments don't get the "luxury vacation pool" with cabanas.
Once this market is saturated (it appears it already is) investors will have to move to the middle and lower ends. |
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Date: February 20th, 2018 10:56 AM Author: wonderful indian lodge toilet seat (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444280) |
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Date: February 20th, 2018 11:00 AM Author: galvanic insane office circlehead What do u think would happen if there was, say, a big supply of luxury units but not enough demand for them? (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444313) |
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Date: February 20th, 2018 11:04 AM Author: Histrionic cumskin "Demand" is all relative. At what price?
Investors/lenders would be fucked if there isn't enough demand for a price that will make them their money back.
They could lower prices to meet demand, but they usually don't and try to wait it out and end up getting fucked. They are going backrupt anyway so they don't care about trying to get something out of it by lowering the price to get as much as possible back. |
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Date: February 20th, 2018 11:04 AM Author: galvanic insane office circlehead hmm (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444334) |
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Date: February 20th, 2018 11:04 AM Author: cerise french chef they'll sit empty (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444333) |
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Date: February 20th, 2018 11:08 AM Author: Bat shit crazy beady-eyed degenerate not at a lower price/rent (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444359) |
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Date: February 20th, 2018 11:10 AM Author: cerise french chef the price won't be reduced. the units will sit empty until demand rises (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444375) |
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Date: February 20th, 2018 11:11 AM Author: Bat shit crazy beady-eyed degenerate or they go bankrupt and the new owner lowers the price (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444388) |
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Date: February 20th, 2018 11:13 AM Author: Histrionic cumskin yeah this is what happens (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444400) |
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Date: February 20th, 2018 11:12 AM Author: galvanic insane office circlehead what if, perchance, the company that owns the development needs to make payments or keep debt covenants? (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444391) |
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Date: February 20th, 2018 11:13 AM Author: Histrionic cumskin they don't care. they are going bankrupt anyway so they just get out of if ASAP and then fuck their new lenders over again in 5 years. (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444405) |
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Date: February 20th, 2018 11:14 AM Author: Comical karate shrine LJL @ (((lenders))) (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444408) |
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Date: February 20th, 2018 11:15 AM Author: galvanic insane office circlehead What if, perchance, lender capital grows more stringent in an environment where it is not easy for the lenders to access capital from their lenders, due to - say - higher interest rates? (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444409) |
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Date: February 20th, 2018 11:16 AM Author: Histrionic cumskin then less condos will be built (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444415) |
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Date: February 20th, 2018 11:15 AM Author: zombie-like persian hell So who bears the ultimate cost of this type of financial dealing? I assume it's the middle class in the end as usual but I'm not sure the mechanism. (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444410) |
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Date: February 20th, 2018 11:16 AM Author: Histrionic cumskin higher interest rates for everyone else, including companies, which is then passed on to consumers (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444416) |
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Date: February 20th, 2018 11:18 AM Author: zombie-like persian hell There we go. Thx |
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Date: February 20th, 2018 11:14 AM Author: cerise french chef they'll go bankrupt and the new owner of the building will charge the same rent (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444407) |
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Date: February 20th, 2018 11:19 AM Author: Histrionic cumskin so demand magically reappears with a new owner? (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444433) |
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Date: February 20th, 2018 11:26 AM Author: cerise french chef maybe demand will come back, maybe it won't. but it never makes sense to lower rent on these buildings. better just to go bust and sell it than slowly bleed out because you can never hit the needed returns with lowered rents (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444466) |
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Date: February 20th, 2018 11:33 AM Author: Histrionic cumskin Yes but what you sell it for is what the rents/condos are actually worth. So that doesn't help you.
Someone is always going to be holding it. |
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Date: February 20th, 2018 11:35 AM Author: cerise french chef no, that's not how the luxury rental market works (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444517) |
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Date: February 20th, 2018 11:46 AM Author: Histrionic cumskin So you think someone will buy a building for a price they won't be able to recoup?
LJL ok |
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Date: February 20th, 2018 11:47 AM Author: cerise french chef you don't work in this space. it happens constantly (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444581) |
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Date: February 20th, 2018 12:03 PM Author: Histrionic cumskin yes, but not intentionally idiot. And then that company is fucked. Someone is always eventually gonna hold the bag. (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444675) |
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Date: February 20th, 2018 12:07 PM Author: cerise french chef luxury rents aren't coming down. i don't care what your econ 101 professor told you (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444700) |
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Date: February 20th, 2018 1:26 PM Author: Histrionic cumskin Yes, yes they do.
Usually it's with shit like "2 months free rent", which is then prorated, or some other kind of "special".
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Date: February 20th, 2018 11:26 AM Author: appetizing cream antidepressant drug new owner can either lower rents or wait out the market and can afford to do so by siphoning value from old owner via the bankruptcy process. (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444461) |
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Date: February 20th, 2018 3:29 PM Author: tripping cuck Their ability to lower rent is limited by the valuation they must maintain on the building. They would rather let units sit empty and experience a revenue shortfall than lower the rent to a point that would diminish the value of the property below the point they need it to be. (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35446318) |
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Date: February 20th, 2018 6:22 PM Author: appetizing cream antidepressant drug I don’t understand. Why wouldn’t vacancies depress valuations more than rent decreases? (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35447465) |
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Date: February 20th, 2018 11:06 AM Author: Magical kitty "The two-by-four doesn't care whether it's in a luxury building or in an affordable building. It costs the same," said Bozzuto. (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444347) |
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Date: February 20th, 2018 11:16 AM Author: chestnut ladyboy resort The Bozzutos are notorious pieces of shit (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444417) |
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Date: February 20th, 2018 11:18 AM Author: Comical karate shrine Other products like steel and concrete are more expensive, but the real cost spikes are in land and labor. Skilled construction labor is not only expensive, it is extremely difficult to find.
LJL @ lawyers getting styled on by finishing carpenters |
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Date: February 20th, 2018 11:40 AM Author: Carnelian dysfunction church I would fucking love for equity and their ilk to take a beating. (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444543) |
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Date: February 20th, 2018 11:49 AM Author: balding chapel I feel terrible for them and the boomers/chinks who buy these apartments. such a sad tale. (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444594) |
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Date: February 20th, 2018 11:54 AM Author: gold multi-billionaire "Only one in a hundred gonna get on that ark, son! And every other poor soul's gonna drown." (http://www.autoadmit.com/thread.php?thread_id=3898372&forum_id=2#35444631) |