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Thread: Market strength for new multi-family rental developments?

  1. #1
    Unfrozen Caveman Planner mendelman's avatar
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    Market strength for new multi-family rental developments?

    This thread is inspired by the Shopping Centers affected the by the current economy... thread.

    The discussion in that thread is very informative and made me think about the relative strength of other sectors of real estate development, particularly new rental multi-family.

    I got a couple questions that I would love more insight into:
    • With the explosion of foreclosures, is that having positive effects on the rental housing market?
    • Provided financing is available, would developing new rental multi-family be a good idea, or would it languish empty like some/many of the multi-family condo developments around the country?
    • Will the glut of new built single family, condo townhouse and condo multi-family buildings limit the market for new all rental multi-family, since some, if not many, of the currently built condo units and single family building will surely be bought at cheap prices and rented by solvent investors.
    What do you think?

    I, anecdotally at least, feel that there should certainly be a market for well located new rental, especially in "stable" established cities and suburbs.
    Last edited by mendelman; 16 Feb 2009 at 3:23 PM. Reason: God, my spelling and grammar are horrible today!
    I'm sorry. Is my bias showing?

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  2. #2
    There has been some evidence that rentals, which were booming for the first couple of years in the down market, are beginning to soften now that once ownded houses ae being put into the rental market at reduced rents, new construction has stopped and new household formation has stalled.

    I haven't seen that in my neighborhood, but then in Boston, all rentals begin and end on September 1. Stay tuned.

  3. #3
    Cyburbian CJC's avatar
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    Quote Originally posted by Gotta Speakup View post
    There has been some evidence that rentals, which were booming for the first couple of years in the down market, are beginning to soften now that once ownded houses ae being put into the rental market at reduced rents, new construction has stopped and new household formation has stalled.

    I haven't seen that in my neighborhood, but then in Boston, all rentals begin and end on September 1. Stay tuned.
    I agree with this. We're also starting to see the effects of the terrible economy spill over into rental prices. Prices can remain sticky if people have to move out of their foreclosed houses, but if more and more people are unemployed, more and more people move in with their friends, family, etc instead of renting an apartment. I know that we're seeing more and more of that in my area, as I've met several people who are now living in their friend's guest bedroom or something similar. Rental prices had been on the upswing until very recently (past month or two).

    I do think that in certain areas multi-family rentals could remain a good long-term investment, especially if you can pick up the land from a desperate party at a good price, though I would look more at urban or desirable suburban infill areas rather than greenfield exurbs. A lot will depend on how many retail vacancies crop up in certain areas. A lot of people can deal with a foreclosed house or two on the block, but will pay a little more to not be across the street from an abandoned retail complex.
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  4. #4
    Cyburbian Cardinal's avatar
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    I can't much disagree with your reasoning, but like the others who have already posted, there does not appear to be much demand for new multi-family rental. This is likely due to the inflated number of vacant properties right now. We are seeing some projects, originally built as condos, become rental instead. Also, it is difficult to get financing to build anything right now.
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  5. #5
    We rent out our old place to graduate students. Hopefully, the market will remain solid for that segment (can you tell I'm still nervous about this whole landlord thing?)

  6. #6
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    There is a move to make some condo/coop development into affordable apartments but it isn't working too well because the condos are usually over-designed/over-built for the affordable market. You just can't fill the gap.

    The stimulus bill seems to put LIHCs at 85 cents per dollar. We'll see how that goes. The HOME funding must be used exclusively for LIHC projects. Unfortunately the LIHC and HOME funding is out of balance (at least in NY) and in general, if you committed HOME funding to every available LIHC application, you would have HOME funds left over. Seems like there will be a move to partially take back some LIHCs to spread them to other projects just to qualify them for HOME.

    Of course that triggers a number of other issues that might not have been addressed without HOME funding such as NEPA, DBRA, and the HOME subsidy limit.

    Given the availability of financing (which a BIG "if") there is still a demand for units in most of NY.

  7. #7
    Cyburbian
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    ULI's Emerging Trends in Real Estate 2009 reports that multi-family residential is best of all commercial real estate categories to hold and look for infill development opportunities near public transit. This based on a industry survey from summer 2008. A lot has changed since then. Economic conditions are really volatile, so what happens is anyone's guess. And since real estate markets are largely local its hard to generalize. My sense is that rents will hold up in cities where the job loss is not as severe as the reset of the country, where there are fewer foreclosures and thus fewer new rental units, in neighborhood well served by public and rapid transit, and where there are economic engines, such as universities and medical centers, which provide a constant supply of new renters. However, I think we are going to experience some sort of deflationary pressure, how much I have no idea, before the economic growth machine comes back to life. (If it ever comes back to life...) This will probably effect every neighborhood differently.

    Watch and wait, watch and wait....

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