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Typically, commercial real estate professionals are much more cautious and uninterested in buying land for multifamily development during this stage of the market cycle we're currently in, since land is usually purchased after the market peaks — meaning rents on new construction have flattened out. Yet, recently, we’ve seen neighborhood land, as opposed to land downtown, trading for a premium. Today’s strong renter base is generating demand for new housing stock in non-core neighborhoods, which means developers are keenly interested in acquiring multifamily land for three reasons:
1. Strong Renter Base For New Development
Today’s high-income renters are renting by choice, not out of necessity. This is a shift from previous renter profiles and past generations that is keeping demand for new multifamily developments high. According to the Joint Center For Housing Studies at Harvard University, of these renters with a household income over $75,000 per year, only 6.5% of them are spending more than 30% of income on rent. The number of renters is increasing annually, while the number of homeowners is decreasing. Because of the national increase in renter base, rental vacancy is at a 30-year low. People entering today's housing market are concerned with investment losses and so are renting instead of owning.
2. Growing Demand For New Housing Stock In City Neighborhoods
When exploring neighborhoods outside of any city’s downtown, the average age of the housing stock is vintage — think 1940s construction and older. Typical city neighborhoods share a similar DNA. These community pockets comprise everything from three-flat walk-ups with carpeted bedrooms to 40-unit buildings that still require a lead paint disclosure. As renters push demand further out of the core neighborhoods, we’re seeing farther-reaching new development ensue.
These renters are also looking for downtown design and neighborhood feel. New neighborhood developments are often equipped with hardwood floors throughout, quartz countertops and sleek, stainless steel appliances. Today’s luxury neighborhood renters are also sold on the charm of the local tavern on the corner, the monthly farmers' market and locally-owned restaurants. Transit-oriented developments have also fueled the fire for new development growth in city neighborhoods. Proximity to a city’s public transit affords car-less renters, who can’t afford to live downtown, the next best thing: neighborhoods.
3. Developer Interest
As a developer, you need to feed the lion. By that, I mean buying and developing land is a developer’s business model. In today’s market, now isn’t the time to slow down. Multifamily as an asset class typically pays the most for land, followed by a growing trend of boutique hotel development in city neighborhoods.
Sometimes in a mature cycle, developers buy land and just sit on it waiting for the next cycle to start before developing the land. If developers sit on the land and wait to develop, they risk unfavorable changes to taxes, affordability requirements and changing community and municipality dynamics. While some developers are participating in this land banking, today’s apartment prices make development more compelling. Buying land today instead of waiting has additional advantages, including knowing the appetite for development in the communities and knowing the current municipality or alderman’s stance on bringing new construction into the neighborhood.
Renting as a choice, not an economic necessity, is a trend that is here to stay for many positive reasons. The renter pool is widening to include all age brackets, income levels and lifestyles. This demand will continue to provide developers the economic returns they need and is the first step for them finding and buying suitable land sites. Because of the strong renter base and desire for new housing stock in city neighborhoods, development companies are continuing to seek new land to develop. For these reasons, land deals are a hot commodity in multifamily right now, and we don't see any signs of this trend slowing anytime soon.
Some 34.9 million people ages 1 and older in the US moved residences within the past year, resulting in a national mover rate of 11%, statistically unchanged from last year’s all-time low of 11.2%, according to data from the US Census Bureau. The mover rate is down from about 1 in 5 people when the survey began in 1948.
Renters continue to move at a far higher rate than owners (21.7% and 5.5%, respectively). However, the mover rate for renters declined to a historic low: for comparison’s sake, more than one-third (35.3%) of renters moved in 1988.
Youth continued to be the most likely to move, as roughly 1 in 5 18-34-year-olds moved between 2016 and 2017.
That suggests that brands have an interesting way to reach about 20% of the Millennial population: through paid search. Recent data from Hitwise indicates that “high-intent” movers are 88% more likely than the online population average to run a “near me” search.
That may also prove an opportunity to reach multicultural groups, whose mover rate was higher than the White-alone population. More than one-eighth (13.1%) of the African-American-alone population moved between 2016 and 2017, as did 12.1% of the Asian-alone and 11.7% of the Hispanic population. By comparison, only 10% of the non-Hispanic white population moved over the past year.
The majority of Americans who moved last year moved within the same county (61.9%), while fewer than 1 in 12 (7.7%) moved to a different region.
Interestingly, the older population seemed most likely to make significant moves. For example, 60-61-year-olds were the least likely to stay in the same county (just 49.2%), with the 85+ bracket the next-least likely (56.1%). Moreover, the 85+ (11.4%) and 70-74 (11.1%) brackets were the most likely to have moved to a different region.
Looking at other demographic cuts, the data reveals that:
* The mover rate was almost twice as high among those living below the poverty level (17.4%) than those at 150% of the poverty level and above (9.8%);
*The mover rate was higher among those with a college degree than those without; and
*Among movers, those with a graduate degree were more likely than those with lesser educational attainment to leave their county (46.7%) and to move to a different region (14.2%).
The greater likelihood of those with advanced to degrees to make significant moves could be related to employment. Overall, fewer than 1 in 5 movers (18.9%) reported moving for an employment-related reason. More commonly, they moved for a family-related reason (27.9%) or for a housing-related reason (43%).
Research indicates that movers represent strong marketing opportunities – as they commonly make purchases related to their move. Movers tend to be big spenders, and are prone to switching behavior. READ ARTICLE
The Rent Is Too Damn High is an actual political party in New York City that has nominated candidates for mayor since 2005. But the Big Apple isn't the place where rents are climbing fastest. SmartAsset set out to find the places where they're rising more quickly.
In order to find the cities with the largest rent increases, SmartAsset gathered data on four factors. We considered 2013 median household incomes, 2016 median household incomes, 2013 average rent and 2016 average rent.
Key Findings
* Incomes matter: Rental prices in some of the most expensive markets in the country often make headlines. Take San Francisco, our data suggests renting the average place here costs over $3,800 per month, an enormous sum by most standards. But the average SF household earned over $103,000 in 2016, a figure which grew $26,000 from 2013. That growth has meant the rent is slightly less burdensome for San Francisco households than it might be. But in cities where incomes are not growing as fast, residents may be unable to keep up with rent. For example, in New Orleans, the top ranked city, average rent costs grew 36% while average household income only grew 5.6%.
* Sky-rocketing rent in the Golden State: Four of the top 16 cities with the largest rent increases are in California. The highest ranking California city is Los Angeles, followed by Oakland and Long Beach. READ ARTICLE
For many people who work in downtown Tulsa, it's too expensive to rent an apartment there.
This month, a Tulsa development company is lowering rates for certain applicants to see if that will lead to more people living downtown.
"There is a demand for young professionals, and they would live downtown if it were more affordable," said TYPros Chair Stephanie Cameron.
“Consistently people will walk in and say, ‘Sure I really like this, but I can't afford it," said Steve Ganzkow with American Residential Group.
Ganzkow is behind The Edge Apartments in the East Village and, this month, if you meet certain criteria you can rent some units there for hundreds less a month than the market rate.
Your annual income can't be higher than about $60,000 and you must work downtown.
"Or also in conjunction with police officers, firefighters, teachers - people essential to quality of life downtown," Ganzkow said.
If the demand is there, American Residential hopes to be able to incorporate the less expensive workforce options in future developments, including The View, which will be built near ONEOK Field.
"This is done in conjunction with City of Tulsa, and, hopefully, State of Oklahoma to provide some of the incentives to hopefully make this work," he said.
Cameron said having more people live downtown attracts other development.
“We would be able to attract some of the organizations and businesses we would like to see, like grocery stores, like retail, to have a thriving downtown like we see in other cities," she said.
If the market test is successful, Ganzkow said, "Then we have a demonstrated track record that if you do this, it results in more people living downtown, and that is our goal."
They're trying it out this month, but there's no official arrangement yet with the City or State to make it happen.
The company will have a better idea of whether the concept will work in Tulsa after the end of the trial. READ ARTICLE
A third interest rate hike this year is widely expected by the end of 2017, with the U.S. economy looking strong despite unusually low inflation. Let’s take a look at the potential effects of continued rate hikes on commercial real estate financing, particularly on multifamily borrowers.
The 10-year Treasury yield increased 67 basis points in the 15 months from July 2016 to mid-October this year (closing at 2.37 yesterday), in the course of which the overnight rate has increased three times, in December, March and June. If there continue to be more rate hikes, it is possible that longer-term interest rates will rise as well.
Rising interest rates often signal a healthy economy (assuming that inflation is stable), which usually bodes well for the real estate industry. But markets can be a bit of a “mystery” even to economists, to use Federal Reserve Chair Janet Yellen’s characterization of the fall in inflation earlier this year. (For more on the connection between interest rates and commercial real estate, here’s a primer.)
If interest rates continue to rise and lenders sense the need to protect themselves against a potential decrease in property value, they could eventually tighten lending standards further and require more equity from borrowers as they seek to increase their loan-to-value ratios.
This is of particular concern for multifamily borrowers. That’s in part because the share of U.S. banks reporting tightening standards for multifamily loans began rising sharply in early 2016, according to the Federal Reserve’s senior loan officer survey, which tracks the activity reported by about 60 large U.S. banks and two dozen U.S. divisions of foreign banks
Lenders can tighten lending standards in a variety of ways, such as requiring more equity or collateral from the borrower, limiting lending for borrowers deemed less creditworthy and reducing exposure to riskier properties, markets or types of financing (such as construction lending vs. refinancing).
That increase in tightening standards reported by U.S. banks was sharper for multifamily loans than for construction and land development loans, though the trajectory is similar. Though reports of tighter standards continue to be up over 2015, the rise has become less steep over the last few quarters – yet the effects of the tightened standards can only be seen in the lending after a delay allowing the lending practices to take effect.
This delay may well explain why CrediFi has seen multifamily lending decline in New York City recently.
Indeed, we’re already seeing a decline in multifamily lending in New York City, which drove a year-over-year drop in overall commercial real estate financing in Q2 by Big Apple lenders Signature Bank and New York Community Bank, both of which are major multifamily lenders.
Multifamily loan origination in New York City has fallen every quarter from Q2 2016 to Q1 2017, when it dropped to $7.5 billion, the lowest in any quarter in the previous two years, CrediFi found. NYC multifamily origination did inch up to $9.6 billion in Q2, but that remains short of the $11.6 billion originated in Q2 2016.
In addition to the already tightening standards for multifamily lending, there’s also another reason for multifamily borrowers to pay particular attention.
The Office of the Comptroller of the Currency singled out multifamily lending this year and last year in its warnings of credit concentrations in banks and growth in commercial real estate lending, which it said has been accompanied by “weaker underwriting standards” and weak management of concentration risk in some banks.
So what can borrowers do, especially if they are in the market for multifamily financing?
Borrowers can stay a step ahead of the next rate hike and attempt to arrange financing now, before the Fed makes a move, and can look beyond their neighborhood banks to find the lender that best fits their needs.
And they should take comfort in the signs of a healthy economy, including not just the prospect of an imminent rate hike but also a 4.2% unemployment rate and a stable labor force participation rate, as well as Federal Reserve Chair Janet Yellen’s assessment that, though the recent hurricane damage has had a significant impact on many of those living in the affected areas, the U.S. economy as a whole is likely to walk away relatively unscathed. READ ARTICLE
Laura Goodell and her fiance didn’t have a dog when they came to Baltimore a year ago for graduate school — yet. The Equitable Building’s rooftop dog run helped sell them on the apartments in a converted former office building.
“It was my hope we’d adopt,” Goodell said. “This kind of amenity isn’t something every building has.”
Asher, the four-year-old lab mix the couple adopted in May, seems to approve of the space to romp. On a recent post-workday trip to the run, he wagged his tail and stomped his paws, egging on Goodell to toss his favorite ball.
Apartments weren’t always so willing to accept pets, let alone roll out the AstroTurf for them. But with a crush of new apartments in Baltimore and more on the way, building managers competing for tenants can’t afford to pass on pets anymore.
Dog runs, relief areas, washing stations and treats at the door are becoming more common in large apartment projects as managers look to draw in new renters by winning over their pets.
The concierge desk at The Equitable displays a photo of one good boy pup or nice kitty as Pet of the Month. And yappy hours in the building’s penthouse are an exercise in doggie decadence, with treats and tennis balls galore.
“So many people expect it these days,” said Brian Roche, who manages the Bozzuto Group property. “If somebody was going to be starting a community or property, they’d definitely put themselves at a disadvantage if they didn’t allow pets.”
The trend is driven by — you guessed it — millennials.
About two-thirds of millennial households are rentals and millennials are the country’s biggest pet-owning demographic, with just over a third of pets in their care.
As the oldest millennials near the traditional family-building and home-buying age, apartment buildings are under even more pressure to up the ante on amenities that could convince them to stay.
“They’re really trying to provide a lifestyle for that group that is so appealing they’d really have to think about moving out to the suburbs,” said Rick Haughey, vice president of industry technology initiatives for the National Multifamily Housing Council, a trade association for apartment building managers.
A renter’s wish list is an ever-moving bull’s-eye, and managers must weigh whether the cost of adding an amenity will pay off before it goes out of fashion. But a culture shift to count pets as family members suggests that pet-friendly features are unlikely to go out of style anytime soon, building managers said.
“They’re like family,” said Stephen Gorn, president and CEO of Questar Properties. “It’s almost like saying to someone you can’t bring a part of your family to our building.”
Questar is developing a towering glass building overlooking the Inner Harbor known as 414 Light St. that will feature a dog park with built-in agility equipment and a full dog spa, with raised dog-washing basins and vending machines that distribute an array of treats. Questar sought out a Los Angeles artist to design the dog spa and liked her work so much they asked her to do the rest of the building's interior design.
As pets in apartments shifts from a trend to a lifestyle, pets are increasingly influencing building designs.
The Time Group had planned to put a dog run behind its new Mount Vernon apartment complex, 520 Park. But after seeing how popular pet amenities were at the company’s 500 Park, right next door, the company made an 11th-hour decision — after the building already was under construction — to move the run to a more prominent space between the two buildings, said Dominic Wiker, development director at the Time Group.
Carpet, long an apartment staple because it is cheaper than hardwoods and can make sterile units feel homey, has no place at 2 Hopkins Plaza, where about 55 percent of residents have a pet. The 182-unit building passed on odor-absorbing fabrics in favor of indestructible (but not too slippery) composite flooring, said Elaine De Lude, vice president of LIVEbe, which manages the recently opened apartment project.
“It’s just the standard now for building a new building,” De Lude said. “If you’re trying to compete with that community that’s right next door, also brand new with all the bells and whistles, what are you competing on?”
Such features are an investment. The Equitable’s dog run, for example, was more work than laying a plot of artificial grass on the roof. It had to be built with proper drainage and requires routine maintenance, Roche said.
But developers increasingly find the investment pays off when it comes to attracting renters who don’t want to live without their pets.
After moving to Baltimore last year for his first job out of law school, Alex Stimac was ready for a new apartment and a new roommate — preferably one with four legs and fur. He chose 26 S. Calvert St. for its convenience and reasonable rent, but also because it allowed pets, he said.
“It was a selling point, if not a deal breaker,” said Stimac, 30.
Stimac moved into his new apartment May 15 of last year and on June 1 brought home Suttree, a one-and-a-half-year-old pug named for the title character of a Cormac McCarthy tale.
Unlike his namesake Cornelius Suttree, who gave up a life of luxury to become a fisherman, Suttree the pug lives large in downtown Baltimore. He goes for walks several times a day and likes to greet the other dogs residing in the building.
“He’s such a city dog,” Stimac quipped as Suttree pranced around with a gaggle of other pups in an artificial turf park opened by the Downtown Partnership of Baltimore across the street from his building.
Not all dogs have been welcomed at apartments.
A state law that made landlords responsible for dog-related incidents led many to enforce breed restrictions to keep out pit bulls, terriers and other breeds some consider more aggressive and potentially dangerous. The law was reversed a few years ago, but the restrictions remain in place at many buildings in the state, said Bailey Deacon, a spokeswoman for Baltimore Animal Rescue & Care Shelter.
As a result, hundreds of dogs are surrendered to BARCS by owners who are unable to take them to a new apartment, she said.
The restrictions, which are more common at large complexes, haven’t kept BARCS from getting thousands of dogs adopted, but, Deacon said, “if there were fewer places in the city that had breed restrictions we’d be able to place even more.”
Still, with more dogs moving in downtown, city planners see an opportunity to strengthen the neighborhood’s sense of community.
“Dogs force residents to get out of their units and interact,” said Kirby Fowler, president of the Downtown Partnership. “Dogs are part of the glue that creates a more interactive downtown.”
The Downtown Partnership organizes dog-friendly happy hours and has set up other small dog runs in unused corners of the city. A dog Census will be part of the organization’s next report on city dwellers.
There’s even a Facebook group, Downtown Neighbors & Dog Lovers, started by a downtown resident, that has grown to more than 70 members in five months.
“My sense is dogs are more important than cars for a lot of our renters,” Fowler said.
That rings true for Goodell, who takes Asher to the roof to play at least four times a day.
While he seems prepared to catch the ball for hours more, Goodell says it’s time to go. Asher leads the way to the elevator and down the hall to his eighth-floor home, with a tail-swishing swagger that says he is not only welcome here, but wanted. READ ARTICLE
Multifamily Starts:
According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, starts of buildings with five or more units, measured at a seasonally adjusted annual rate, declined by 17.1 percent in July 2017 to 287,000, following the 8.1 percent increase in June. Over the past 12 months, starts of five or more unit buildings declined 35.2 percent in July, the fifth consecutive decline.
NAHB’s Multifamily Production Index (MPI) bounced back to trend in the second quarter of 2017. The MPI measures builder and developer sentiment about current conditions in the multifamily market on a scale of 0 to 100. The index is scaled so that a number above 50 indicates that more respondents report conditions are improving than report conditions are getting worse. The MPI climbed eight points to 56 in the second quarter of 2017. This quarter’s reading is the highest since the third quarter of 2015.
CPI vs. Rent:
The headline Consumer Price Index (CPI) rose 0.1 percent in July on a seasonally adjusted basis. Over the month of July, the Energy Price Index decreased by 0.1 percent, following the two consecutive declines in May and June. Meanwhile, food prices increased 0.2 percent in July, after being unchanged in June. Excluding historically volatile food and energy prices, “core” CPI rose by 0.1 percent, the fourth consecutive month with a 0.1 percent increase. Shelter prices, which are the largest consumer expenditure category, grew by 0.1 percent as rental prices, a component of the shelter index, grew by 0.2 percent in July. Since the increase in rental prices exceeded the growth in overall inflation, as measured by core-CPI, then NAHB’s Real Rent Index rose over the month of July, increasing by 0.1 percent. Over the past year, NAHB’s Real Rent Index has risen by 2.1 percent.
Existing Condo Sales and Prices:
Sales of existing condominiums and cooperatives decreased by 4.8 percent at a seasonally adjusted annual rate to 600,000 units in July 2017. Regionally, sales in the Northeast, Midwest and South decreased by 16.7 percent, 12.5 percent and 3.6 percent, respectively. Meanwhile, sales in the West rose by 6.7 percent. The months’ supply of homes increased to 4.5 months. Median prices on condos and co-ops nationwide rose by 5.3 percent over the past year to $239,800 in July. Median prices in the South increased by 7.7 percent while price growth in the other three regions of the country lagged the nationwide rate. Condo and co-op prices in the Northeast, Midwest and West all grew by 4.9 percent.
Building Materials:
The price of inputs to construction rose by 2.5 percent on a not seasonally adjusted basis over the twelve months ending in July 2017. This component of the Producer Price Index is composed of the price of inputs to new construction and the price of maintenance and repairs. Over the past year, the price of inputs to new construction increased by 2.5 percent, inputs to new non-residential construction (2.4%) and inputs to new residential construction (2.5%). The price of maintenance and repairs construction grew by 2.5 percent over the past year, inputs to non-residential maintenance and repairs (2.5%) and inputs to residential maintenance and repairs (-2.7%). Meanwhile, the price of oriented strand board (OSB) grew by 18.1 percent, cement (4.8%), Gypsum (9.9%) and softwood plywood (1.8%), over the past 12 months. READ ARTICLE
Sponsored by Freddie Mac
Strong fundamentals have propelled the multifamily market’s growth in 2017. Will it continue in the years to come?
Many in the industry believe it will. In fact, a new survey commissioned by Freddie Mac found that 60 percent of multifamily industry participants expect the market to grow over the next 3-5 years, while only about 15 percent see it slowing down.
Driving this is a combination of demographic trends, population growth and changing consumer preferences, which has boosted demand to levels we have not seen in a generation or more. Baby boomers are looking to downsize, while many millennials want to start new households. New renter households have increased by 9 million in the past 10 years – the largest decade increase on record. Consumers are also showing a growing preference for renting, with Freddie Mac’s recent renter research finding that an increasing number are planning to rent their next home.
Meanwhile, supply continues to remain scarce in most markets. The United States is facing an annual shortfall of about 400,000 housing units. Despite more units entering the market every year, rents continue to rise, averaging about a 3 percent annual increase so far this year. Vacancy rates remain relatively flat.
Multifamily investors increasingly need flexible, creative financing to meet this growing demand. They need a partner that can help them serve all segments of the market — and achieve their financial objectives.
Freddie Mac Multifamily has made innovation a competitive advantage, offering financing to serve the full spectrum of borrower and housing needs across the market. This includes loan products for the acquisition or refinance of affordable workforce housing, seniors housing, smaller properties with as few as five units and even financing to increase the energy and water efficiency of units. READ ARTICLE
According to a February 2017 McKinsey Global Institute report, labor productivity growth in the construction sector has averaged only 1% in the past two decades, versus 3.6% for manufacturing and 2.8% for the world economy.
At least the U.S. isn't alone in the poor showing. In a sample of countries McKinsey studied, less than 25% of construction companies in the past 10 years have equaled in productivity growth the pace attained in the overall economies of which they are a part. "There is a long tail of usually smaller players with very poor productivity, and many construction projects suffer from overruns in cost and time," notes the report.
And the gains for the sector could be enormous were construction productivity to improve, the report goes on to explain. "If construction sector productivity were to catch up with that of the total economy—and it can—this would boost the sector’s value added by an estimated $1.6 trillion, adding about 2 % to the global economy, or the equivalent of meeting about half of the world’s infrastructure need," its authors claim.
So, what to do? Prefabrication, multifamily professionals are beginning to understand, can significantly help solve the labor, and productivity, problem.
Cutting Delivery Time in Half
Many apartment developers are seeing firsthand the benefits of prefabrication.
“On the one hand, you [might] assume quick building means a final product of dubious quality,” says Ryan Jones, outreach assistant with MTX Contracts, a modular building company in the United Kingdom. “Speed in modular building isn't because the design is poor or the construction hurried, [however], but because the methods of construction and materials used vary from those of a traditional build.
“Within days, the outer walls of a modular building can be erected,” Jones continues. “Only a few days later, the interior walls and roofing frames can be complete. In fact, research shows that a modular build takes around half the time of a traditional building.”
With demand approaching 328,000 new apartments every year and current deliveries averaging only 214,000, new methods will need to be deployed to boost supply.
The focus of the 2017 Multifamily Executive Concept Community is to explore next-generation processes that are improving productivity in multifamily housing. The project evaluates the conventional-build construction time line versus the modular-build construction time line for four building types and has uncovered significant savings in modular in terms of both time and money, the details of which will be unveiled at the 2017 Multifamily Executive Conference, Sept. 18–20, in Las Vegas.
Easing Site Access
A critical element in scheduling and productivity is having easy access to a site. In many urban markets, this is a massive challenge, slowing down the construction time line and adding cost.
“With modular building, there are few worries of this nature, and that's because the construction happens off-site,” Jones says. “This form of building also is friendly to the local community and businesses, as there's no heavy machinery pounding away, day after day, for months on end.”
Since so much of a prefabricated project is built mostly off-site, the on-site portion is condensed and requires less traffic, points out Gerard McCaughey, chief executive and chairman of Entekra, a company that provides fully integrated off-site solutions. Traffic is reduced because there are fewer materials deliveries and fewer on-site laborers.
Entekra recently completed a project in the Dublin, Ireland, city center, which has very narrow streets. The company completed a four-story hotel by delivering panels quickly and efficiently during night hours to allow work to continue during the day, without causing any real disruption to normal daily traffic. The project also was completed months ahead of the traditional on-site building time line.
Speed Doesn’t Mean Sacrificing Quality
From design to completion and delivery, to style and aesthetic appeal, most everything about modular building is attractive, not the least of which is quality.
"Since most of the structural elements of the building are manufactured under strict factory-controlled conditions, the quality of construction is enhanced," McCaughey says. "The quality-control procedures in a factory environment ensure much tighter tolerances than can be achieved under normal, [on-site] conditions."
Prefabrication even defies foul weather, normally a major issue in construction scheduling, especially during the winter months. Integrated off-site manufacturers can make all the structural components necessary in a dry, factory environment to ensure that a project can continue regardless of the conditions outdoors.
National Multifamily Index (NMI)
National Economy
National Apartment Overview
Capital Markets
Investment Outlook
Families are facing much bigger rent checks this year -- especially those living in cities in the South and West.
Rent prices have been rising across the country, but rents for single-family homes in these two parts of the country increased the most in the last year, according to a report from RentRange.
"The biggest increases were in the areas where the [housing] market was most depressed," said CEO Wally Charnoff.
The steepest rent hikes were in Cape Coral/Fort Myers, Florida, with the average rent increasing nearly 24% in the third quarter, compared to the same time last year. In Sacramento, rents went up almost 18%.
Seven of the top 10 cities with the largest rent increases were in Florida and California.
Strong job growth, increased foreign buyer activity and a growing Millennial population has helped push rents up in California, Charnoff explained.
"Millennials want to remain mobile and don't know if they have economic stability yet. They may have to move relatively quickly and they've learned from the recent past that you can't necessarily sell your home as easily as you used to."
While sharp rent increases can be tough on budgets, Charnoff said markets are just catching up from the Great Recession.
"Rents were artificially depressed in those markets and are normalizing."
He said homes undergoing a foreclosure were harder to rent out and often charged lower rates. Now, as more properties move through the system, investors can charge higher rents.
People living in bedroom communities are also likely writing bigger monthly checks. "As cities start to expand further and workers move their families farther from cities, that is driving prices up."
Here are the 25 cities with the largest rental increases, according to RentRange:
1. Cape Coral-Fort Myers, FL (23.6%)
2. Sacramento-Arden-Arcade-Roseville, CA (17.6%)
3. North Port-Bradenton-Sarasota, FL (17.2%)
4. San Francisco-Oakland-Fremont, CA (17.0%)
5. Charleston-North Charleston, SC (16.5%)
6. Los Angeles-Long Beach-Santa Ana, CA (16.3%)
7. San Jose-Sunnyvale-Santa Clara, CA (16.1%)
8. Denver-Aurora, CO (14.6%)
9. Dallas-Fort Worth-Arlington, TX (14.0%)
10. San Diego-Carlsbad-San Marcos, CA (13.6%)
11. Nashville-Davidson-Murfreesboro-Franklin, TN (13.2%)
12. Portland-Vancouver-Hillsboro, OR-WA (12.6%)
13. Augusta-Richmond County, GA-SC (12.3%)
14. Stockton, CA (12.1%)
15. Seattle-Tacoma-Bellevue, WA (11.9%)
16. Columbus, OH (11.5%)
17. Tulsa, OK (11.3%)
18. Kansas City, MO-KS (10.6%)
19. Little Rock-North Little Rock-Conway, AR (10.4%)
20. Tampa-St. Petersburg-Clearwater, FL (10.3%)
21. Orlando-Kissimmee-Sanford, FL (10.0%)
22. Oxnard-Thousand Oaks-Ventura, CA (10.0%)
23. Birmingham-Hoover, AL (9.8%)
24. Bakersfield-Delano, CA (9.7%)
25. Houston-Sugar Land-Baytown, TX (9.6%)
In our annual overall Best Places to Live list, many of the cities are a little on the pricey side. We get it. Not everyone can afford to live in a place like Palo Alto or Berkeley. They're great places but not for everyone. Therefore, we felt it was important to look at places that are more affordable. What follows isn’t merely a list of the cheapest places to live in America. We didn’t set out to find cities where you can live on the bare minimum. Instead, these 10 cities are less expensive than most but still great places to live by all of our usual metrics.
To find these cities, we looked at cost of living across a number of categories such health care, food, housing, and transportation using data from C2ER and the U.S. Department of Housing and Urban Development. We also examined the tax climate in the state. Then we factored in our own unique LivScore. We selected one city per state to give us some geographic balance because much of the cost-of-living data is calculated at the county level.
Sure, there are some cheaper places to live. But these are cities where most people can afford to live and would still want to live.
More than 220,000 new units were added during 2014 and another 250,000 units are projected for delivery in 2015, according to CoStar Portfolio Strategy's Francis Yuen, one of the presenters during the recent CoStar Third Quarter 2014 Multifamily Review and Outlook.
"At this point in the cycle, we’ve seen supply take hold almost everywhere," Yuen said. "Some late-recovery markets like Las Vegas aren’t yet seeing vacancy increases yet, but even there, developers are beginning to find opportunities."
Dallas, Washington, D.C. and Houston have each seen more than 10,000 units delivered over past four quarters, while apartment inventories in smaller markets like Charlotte and Raleigh have increased by nearly 5% as apartment construction fans out. Denver and Houston, each with upwards of 20,000 units under construction, will see record deliveries over the next two years, Yuen added. In the Oakland/East Bay Area, for example, the average income has risen by about 15% to over $75,000 in the strengthening economy. However, rents have grown by a staggering 30% over the same period and now require more than 25% of annual income, Yuen said.
"Lack of affordability is certainly something we are beginning to see capping rent growth, especially at the high end of the market," Yuen said.
Year-over-year growth in effective rents, which has gradually decelerated since 2013, is expected to drift below 2% in tertiary and secondary as well as the top U.S. markets during 2015 and 2016.
CALABASAS, CA—Two of the prime beneficiaries of a rallying economy have been apartments and the industrial sector, says Marcus & Millichap in a new report. In the case of multifamily, it’s due to improving employment levels among the age cohort most likely to rent.
“More than two-thirds of individuals ages 20 to 34 rent apartments, and the employment market for this group continues to improve,” writes Hessam Nadji, chief strategy officer/SVP at MMI, in the firm’s latest Research Brief. “Following a drop last month, the unemployment rate for 20- to 34-year-olds sits at 7.5%, down from more than 12% four years ago when the US economy started adding jobs.”
Accordingly, MMI foresees that new tenants will emerge as additional individuals enter the workforce in the months ahead, thereby continuing to exert downward pressure on the vacancy rate. By year’s end, the apartment vacancy rate nationally will decline 30 basis points to 4.7%.
As for industrial, MMI notes that movement of goods from US ports to manufacturers, retailers and distributors supports a significant increase in transportation and warehouse staffing. “Including the addition of 13,300 positions in October, more than 100,000 workers have been hired year to date to handle the stocking and movement of goods,” according to Nadji. “New space needs are also arising in warehouse and distribution properties, keeping the national industrial vacancy rate on course to fall 100 bps this year to 7.1%.”
Yet there’s a potential downside to the economic upturn, in the form of interest rate increases, especially since the Federal Reserve ended its six-year program of quantitative easing. “Inflation pressures have been tame thus far, but should inflationary pressures rise, including wages, the Fed may begin to take action,” Nadji observes.
Payrolls gains in October totaled 214,000 for non-farm employment, marking the ninth consecutive month of gains exceeding 200,000 jobs. As reported on GlobeSt.com last week, the largest number of new jobs for the month, 42,000, occurred in the food services and drinking places sector, which has averaged 26,000 new jobs per month over the past year. Retail added 27,100 positions during October as stores geared up for the holiday selling season.
Professional and business services employment continued trending upward, although the 37,000 new jobs added in October for these key office-using employment sectors were well below the 12-month average of 56,000. And despite falling gas prices, the energy sector has not stopped hiring, adding 2,500 workers last month.
Although unemployment dipped again last month, to 5.8%, the Research Brief notes that “significant wage gains have yet to accompany the reduction in slack.” Hourly earnings rose “nominally” in October, and have barely exceeded the pace of inflation over the past year. READ ARTICLE
Source: MBAWASHINGTON, D.C. — Third-quarter 2014 commercial and multifamily mortgage loan originations were 16 percent higher than during the same period last year and 18 percent higher than the second quarter of 2014, according to the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations.
Commercial real estate borrowing and lending continued at a strong clip in the third quarter,” says Jamie Woodwell, MBA’s vice president of commercial real estate research. “Low [interest] rates coupled with growth in property incomes, property values and sales transactions have pushed year-to-date commercial and multifamily mortgage originations five percent above last year’s pace.
Industrial, Multifamily Sectors Lead the Way The 16 percent overall increase in commercial/multifamily lending volumes, when compared to the third quarter of 2013, was driven by an increase in originations for industrial and multifamily properties.
The increase included a 41 percent increase in the dollar volume of loans for multifamily properties, a 22 percent increase for industrial properties, an 11 percent increase for office properties, an 11 percent increase for retail properties, a 4 percent increase in hotel property loans, and a 43 percent decrease in healthcare property loans.
Among investor types, the dollar volume of loans originated for government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac increased by 118 percent from last year’s third quarter. There was a 47 percent increase for CMBS loans, a 1 percent increase for life insurance company loans, and a 16 percent decrease in dollar volume for commercial bank portfolio loans.
Q3 Versus Q2 Comparison Third-quarter 2014 commercial and multifamily mortgage originations were 18 percent higher than in the second quarter. Compared to the second quarter of 2014, third-quarter originations for office properties increased 43 percent. There was a 31 percent increase in originations for multifamily properties, a 19 percent increase for industrial properties, a 7 percent increase for retail properties, an 11 percent decrease for hotel properties, and a 24 percent decrease for healthcare properties from the second quarter.
Among investor types, between the second and third quarters of 2014, the dollar volume of loans for GSEs increased 57 percent, loans for CMBS increased 10 percent, originations for life insurance companies increased 9 percent, and loans for commercial bank portfolios decreased by 7 percent. READ FULL ARTICLE
With major technology companies such as Google, Microsoft, Apple, Twitter and Facebook continuing to expand their presence in the city along with numerous support firms and vendors such as eBay, the plethora of high-paying jobs translates into one of the lowest vacancy rates in the country despite an increase in completions. As for the lower-tier apartment demand, Marcus & Millichap predicts that this niche will be supported by the increased number of visitors, both tourists and business travelers, which is creating plenty of jobs in the food services and hospitality industry, especially in Manhattan and Brooklyn.
Based on Zillow's breakeven horizon - the number of years it takes before owning a home makes more financial sense than renting the same home - here are the top 15 cities where renting rules.
READ THE FULL ARTICLE HERE
Here are a few useful tips for tracking your competition online:
Identify your competition. Back in the day business owners were just competing with local companies or products, but now the entire world is your competitive oyster. Search on Google and media lists to find the leading companies within your industry. Study those at the top, in the middle and the bottom to draw relevant conclusions and see where you fit in.
Keep your enemies close. As the saying goes, "Keep your friends close, but your enemies closer." One way to track your competition is by following them on various social-media platforms like Twitter and Facebook. Use social media metrics such as Simply Measured, which allows you to track engaged users that aren't followers yet, monitor your competition's following, and use Klout to put your influence in context and allow you to track general audience engagement.
Another option is to subscribe to their newsletters, blogs or RSS feeds to keep track of their every move.
Read the reviews and news. Add a few industry specific blogs to your morning reading or RSS feed. Keep yourself educated and up to date with what's happening in your business sector. Have a look at what business analysts are saying about your field or even particular companies. This way you will understand what is newsworthy and just how far ahead your competition is.
Also customer reviews will give you an in-depth look at what the public is thinking. Don't take all these comments and reviews to heart, though. Some companies might even pay for positive reviews or eliminate any bad publicity. If you do, however, see a trend within the negative comments this might give you a glimpse into their struggles and weaknesses. Use an online tool such as SocialMention to get a clear indication of the conversation and engagement happening with a particular brand by reviewing their comments on images, posts and updates.
Use hashtag searches. When it comes to the online sphere it's all about knowing what the latest conversation is about. Companies that are serious about their online presence will mostly likely have hashtag statements accompanying their tweets, statuses or Google+ updates. See what your competition is talking about by searching the hashtag terms relevant to that company.
Analyze their website. If your competition has a website of with a page rank of five or higher they are probably doing something right. A website's Page Rank rating refers to the value Google's algorithm sees in your website and content. Dissect their website and blog to understand what sets them apart. Take a look at the call to action buttons, where are they placed? What type of content are they sharing and how is this relevant to your industry? What does the web design look like and why is it user-friendly?
This might show you that it's time to update your general branding or start a blog that helps you share your expertise. If you want to check any website or blogs' Page Rank do so by downloading the Chrome extension, PageRank Status - this will show you the PR of every site that you visit.
That said, Google's algorithm is changing so quickly that these page ranks are not the full story. So take the findings with a grain of salt.
Ask the audience. This might sound rather counter-productive to discuss your competition with your followers, but they might just give you the revelatory insight that you need. If you have a few loyal clients or customers ask them if they would be open to a discussion. Inquire why they prefer your brand and why they think others choose your competitor instead.
Your following will be able to share a different perspective and insight that might give you that added edge when it comes to staying at the top.
New York City tops a new list, which may be good news or bad news depending on whether you're a landlord or renter sympathizer. With Manhattan rents plateauing and the cost of buying growing ever higher, perhaps this latest RealtyTrac listicle shouldn't come as a surprise. Manhattan, Brooklyn and Queens nabbed spots in the roundup of the worst U.S. counties for rental returns, a.k.a the worst places for landlords. In Manhattan, where the population is 1,596,735, there are 846,819 housing units, and the median sales price is $887,000. The average fair-market rent for a three-bedroom home, though, is $1,852/month (which seems low, but that's what the stats show), making the annual gross yield percentage for the landlord a mere 3 percent.
Not far behind is Brooklyn, where the population is 2,512,740 and there are 998,773 housing units, the median sales price is a more affordable $573,000. The average fair-market rent for a three-bedroom home is consistent with Manhattan's, at $1,852/month, which means the annual gross yield percentage for the landlord is 4 percent. Still not great.
As for Queens, it ranks 16th on the list of worst places for rental returns. A population of 2,235,008, coupled with 836,722 housing units, an even lower median sales price of $445,000, and the same average rent figure of $1,852, all leads to a 5 percent annual gross yield percentage.
Contrast those figures with the 16 best U.S. cities for rental returns, below, where the yield ranges from 18 to a whopping 30 percent.
RealtyTrac also made a zoomable heat map, which is handy for spotting clusters of bad-return-rate and good-return-rate cities. The coasts aren't good for landlords, whereas the Midwest seems a haven by comparison. A screenshot is pictured, but head here for the interactive version. READ ARTICLE
New pieces of research separately released by Experian Marketing Services and the Festival of Media Global shed some light on the concentration of search click activity, with some intriguing results. Based on an analysis of activity on PCs only, Experian’s latest Digital Marketer Report [download page] suggest that clicks are more highly concentrated for organic than paid search, though AdGooroo data indicates that the vast majority of paid search activity is in fact concentrated in the hands of a small group of advertisers.
Looking first at Experian’s findings, the data reveals that:
That suggests that for the most part, concentration of search clicks has remained unchanged over the past year or so.
Narrowing the analysis to the top 5 websites, Experian reveals that collectively they captured roughly 1 in 5 clicks in Q4 2013, with some variation from the year earlier:
The National Association of Home Builders found that developer confidence slipped in the fourth quarter of 2013, citing a four-point drop to 50 in its Multifamily Production Index (MPI). There was, however, a two-point drop to 38 in NAHB’s Multifamily Vacancy Index (MVI), with lower numbers indicating fewer vacancies. Both indices are based on a scale of 0 to 100, with the MPI measuring builder and developer sentiment about current conditions in the apartment and condo markets and the MVI measuring the multifamily industry’s perception of vacancies at Class A, B and C communities.
The MPI, which takes into account three factors — the number of low-rent starts, market rent starts and for-sale starts — dropped from a high of 61 in Q2 of 2013, its highest point since the recession, but despite the recent dip, the MPI has remained above 50 for eight straight quarters. The strongest component of the MPI is the market-rent starts, which has remained above 60 since Q3 2011. That element finished at 60 after sliding from a 2013 high of 67 in Q2 2013 and post-recession highs of 69 in Q1 and Q3 of 2012. The other two elements, low-rent starts and for-sale starts fell to 47 and 46, respectively.
“This quarter’s MPI results are in line with NAHB’s forecast that calls for increased production of new apartments in 2014, but at a slower pace than last year,” says NAHB Chief Economist David Crowe. “The results are also in line with recent downturns in other economic indicators, due to unusually severe weather in parts of the country that disrupted supply chains and affected confidence in several sectors of the economy.”
The MVI’s two-point drop in Q3 continues to reflect the low level of vacancy across the country. The MVI reached its peak in Q2 of 2009 at 70 and reached its lowest point since then in Q1 and Q4 2012 at 31. The MVI has somewhat stabilized since 2011 and has averaged (mean) about a 36 from Q1 2012 through Q4 2013.
“Multifamily developers are still seeing demand for apartments as the MVI shows,” says W. Dean Henry, CEO of Legacy Partners Residential in Foster City, Calif., and chairman of NAHB’s Multifamily Leadership Board. “However, the cost and availability of labor is putting pressure on the ability to bring new units online.” READ ARTICLE
Nashville's supply of new apartment units is expected to drastically increase in 2014, with 4,190 units expected to come online, according to a new fourth quarter report from Colliers International.
The multifamily market ended 2013 with an additional supply of 2,464 units. Nashville's occupancy in the fourth quarter was at its highest level since the third quarter of 2007, at 96 percent. That's above the Southern region's average of 94 percent, the report says. READ ARTICLE
Manhattan apartment rents fell for a third month in November and the vacancy rate reached the highest in at least seven years, signs the market is weakening amid a spike in homebuying and the lure of leasing in Brooklyn.
The median monthly rent in Manhattan dropped 3 percent from a year earlier to $3,100, according to a report today by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. The vacancy rate climbed to 2.8 percent, the highest since the firms began tracking the data in August 2006.
Rents had been climbing for almost two years and approaching the 2006 peak of $3,265 a month before they began to slide in September. Manhattan home purchases jumped to a six-year high in the third quarter as buyers rushed to make deals before rising mortgage rates pushed costs higher, Miller Samuel and Douglas Elliman said. Sales of one-bedroom units reached a 15-year high, suggesting an influx of first-time buyers. READ ARTICLE
U.S. multi-housing rents are expected to grow approximately 2.5 percent each year for the next three years, even as the level of new construction increases, according to a report from CBRE.
The report shows that the pace of new multi-family construction in the U.S. will level off at approximately 216,000 units per year over the next five years, a figure slightly higher than historical averages. READ ARTICLE.
People are living longer than ever. Nearly 80% of the population now lives past the age of 65. What does that have to do with apartments? Well, we spend so much time talking about Millennials and trying to figure out what their needs and desires are that we have sort of ignored this huge opportunity with the Silent generation.
Who is the Silent generation? They were born between 1925 and 1945. This generation is also known as Traditionalists and children of the Great Depression. Because of what they experienced as young children, they have a very strong military connection. They are patriotic, and in their minds conformity leads to success. READ ARTICLE
The U.S. economy created 203,000 jobs in November, according to the Bureau of Labor Statistics on Friday, roughly the same as in October, and a bit more than expected. Employment increased in transportation and warehousing, health care and manufacturing, while federal government employment declined somewhat. The official unemployment rate dropped to 7 percent.
Job growth has averaged 195,000 per month over the previous 12 months, so the current report is also a little above the norm. The change in payroll employment for September was revised from 163,000 to 175,000, and the change for October was revised from 204,000 to 200,000. READ ARTICLE.
WASHINGTON (AP) - U.S. developers received approval in October to build apartments at the fastest pace in five years, a trend that could boost economic growth in the final three months of the year. Permits to build houses and apartments were approved at a seasonally adjusted annual rate of 1.034 million, the Commerce Department said Tuesday. That's 6.2 percent higher than the September rate of 974,000 and the fastest since June 2008, just before the peak of the financial crisis. Click LINK to read rest of article.
Please plan to come by for a visit or a brief demo. We are easy to find: walk straight through the Exhibit Hall and bear right to the corner: we are at Booth 143, across from Grace Hill and ResMan: see floor map by clicking MAP. You can schedule a demo today and reserve a time by clicking DEMO. #NMHCTech #Spherexx.com #RentPush #ILoveLeasing #MarketSurveyTools #Apartmentwebs
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By Dees Stribling
U.S. residential prices continued their upward climb in May, according to the latest S&P/Case-Shiller Home Price Indices on Tuesday. From April to May, the 10- and 20-city composites rose 2.6 percent and 2.5 percent, respectively. Home prices gained 11.8 percent and 12.2 percent for the 10- and 20-city composites indices in the 12 months ending in May 2013.
All 20 cities showed positive monthly returns for May. Ten cities—Chicago, Denver, Detroit, Las Vegas, Miami, New York, Phoenix, Portland, Seattle and Tampa—showed acceleration, according to Case-Shiller. Chicago, for example, posted an impressive monthly gain of 3.7 percent in May. Miami and Seattle had their largest monthly gains since August 2005 and April 1990, respectively. READ FULL ARTICLE
By Brad Doremus and Victor Calanog
In our last column on the multifamily sector, we noted that improvements in the apartment sector slowed a bit in the first quarter. Preliminary second quarter data from Reis indicates a decline in the rate of net absorption and a stalling of declines in vacancy. While this seems to show a continuation of this trend into the second quarter, the reality is more of a mixed bag.
Vacancy was unchanged during the first quarter at 4.3 percent. This marks the first time that the quarterly vacancy rate has not fallen since the first quarter of 2010. Over the last four quarters national vacancies have declined by 50 basis points, a bit slower than last quarter's year-over-year decline in vacancy of 70 basis points. FULL ARTICLE
By Dees Stribling, Contributing Editor
“Rising home prices have swept the country,” Jed Kolko, Trulia’s chief economist, noted in a press statement. “Local markets that suffered most during the housing crisis are seeing the biggest price rebounds today. Now even markets that escaped the worst of the bust, like Chicago and Baltimore, are seeing prices climb. However, these runaway price gains won’t last: both rising mortgage rates and slowly growing inventories should start tapping the brakes on home prices.” FULL ARTICLE
Another measure of the U.S. residential market, coming on the heels of strong Case-Shiller numbers last week, came in positive on Tuesday. According to CoreLogic, home prices nationwide, including distressed sales, increased 12.2 percent in May compared to the same month in 2012. That's the largest annual increase since February 2006, and the 15th month in a row in which home prices were up nationally, by the company's calculation. Month-over-month, the increase was 2.6 percent. READ ARTICLE
By Maria Lawson
I had heard about this ‘shopping the competition’ thing from friends in the industry, but I had just chalked it up to simply spying on the competition with no real understanding of the benefits.
I have shopped thousands of apartment communities in one manner or another. In doing so, I learned many lessons, not the least of which is that there are three distinct levels of shopping your competition and the best results come from using all of them together.
Let’s review the 3 O’s of shopping your competition...Click for FULL ARTICLE
So I thought it would be a good idea to get a sense of exactly how important ratings sites are. The first step I took was to dig up some research I had done for a client back in February. In it I wanted to identify whether there was a clear "category killer" or whether multiple ratings sites were important. In an admittedly un-scientific way, I just looked at 10 communities in the Washington, DC market. TO READ ARTICLE CLICK HERE.
Customers prefer options, especially in today’s world where they face a plethora of choices regarding who, when, what, and how to patronize a business. Contemplate these examples:
We simply must get over the false idea that there is one optimal price for a customer. There is a range of optimal prices, commensurate with the value being created. Dutch psychologist Peter van Westendorp developed the van Westendorp Price Sensitivity Meter (PSM) by posing these five questions:
There is strong empirical evidence-from both the rational and behavioral schools of economics-that offering customers at least three options can often times result in them purchasing more, at a higher price, than merely offering one take-it or leave-it option.
In his book, Predictably Irrational, behavioral economist Dan Ariely illustrates the utility of offering options by illustrating The Economist magazine’s offerings. First, he presented the following two options to 100 students at MIT’s Sloan School of Management:
Now compare those results to the actual ad that The Economist offered, which contained three options, not two:
Ariely concludes that there is nothing rational about this change in choices. The mere presence of an option that was not desired—known as the decoy or dominated option—affected behavior, leading to a potential 42.8% increase in incremental revenue for The Economist.
When two options are presented, the decision is mostly made on price, yet when three options are offered it becomes a decision based on value.
Offering options creates the anchoring effect, whereby the customer is now comparing prices to your highest offering. This is why Victoria’s Secret offers a diamond ornamented bra for $6.5 million that no one probably ever bought; and Prada stores always display one incredibly high-priced article that acts as an anchor for all the other products.
All of these high priced items act as an anchor, even if the customer never buys them—throwing a halo effect over the other offerings, allowing for prices to be higher, while increasing average per customer sales.
The first lesson from the above is if you do not offer a high-end premium package, how could you customers ever select one? Second, list your most expensive option first. The third lesson is that by offering three options, you almost always sell more of the middle option, and less of the cheapest offering.
This confirms what most pricing experts know: people are not price sensitive; they are value conscious.
Another behavioral phenomenon is the framing effect. What you compare something to will determine an acceptable price to pay. If I offered to sell you my Unicorn, you’d have no idea what to pay since no one has ever purchased one. But you’re happy to pay for coffee in little pods—which are more expensive than coffee purchased in bulk—because you are comparing it to Starbucks.
This is why brands pay so much attention to what you’re comparing their offerings to: Red Bull is packaged in a skinny can so it will not be compared to a Coke or Pepsi, and Woolite is in a bottle so it’s not compared with Tide, but rather dry cleaning.
When you present three options to the customer, you are also subtly changing their psychology. Rather than thinking about whether or not they will do business with your company, the options nudge them in the direction of thinking about how they are going to do business with your company.
If one were to lay the two theories of valuelabor and subjectiveside by side, it would look like this:
Cost-Plus PricingLabor Theory of Value
Product » Cost » Price » Value » Customers
Pricing On PurposeSubjective Theory of Value
Customers » Value » Price » Cost » Product
Notice how value pricing turns the order of cost-plus pricing inside-out, by starting with the ultimate arbiter of valuethe customer. Goods and services do not magically become more valuable as they move through the factory and have costs allocated to them by cost accountants.
The costs do not determine the price, let alone the value. It is precisely the opposite; that is, the price determines the costs that can be profitably invested in to make a product desirable for the customer, at an acceptable profit for the seller.
When Lee Iacocca developed the Ford Mustang, he reversed the order of the usual car-making pricing up to that point. Rather than giving his engineers carte blanche to develop a sports car and then marking up the resulting costs to arrive at a price—as GM did with the Corvette—he solicited the opinions of potential customers as to what features they would want in a sports car and what price they thought they would be willing to pay.
Knowing people liked the Corvette, but thought it was too expensive at $3,490, Iacocca wanted the price to be low enough to entice the potential sports car enthusiast. He then went to his engineers and asked if they could manufacture a sports car, with the desired features, sell it for no more than $2,500, and still turn an acceptable profit for Ford.
By building the Mustang on the Falcon’s chassis, in the first two years, it generated net profits of $1.1 billion (in 1964 dollars), far in excess of what GM had made on the Corvette. The average customer was spending another $1,000 on options, and while Ford projected that 75,000 units would be sold in the first year, the 418,812th Mustang was sold on April 16, 1965, only 13 months after the first rolled off the assembly line.
By comparison, the Corvette reached 1 million in sales in July 1992, with the release of a white convertible with red interior, mimicking the first one introduced in 1953.
With all of the evidence assembled, why does cost-plus pricing remain so endemic in the business world today? This turns pricing into a sort of wishful thinking, with no attention being paid to the external value created.
As an economist grounded in the assumption that people, generally, are rational, and businesspeople, specifically, are profit optimizers—or at the least, satisficers—one is drawn to the conclusion that executives perpetuate this pricing method because it is safe and simplistic. Sometimes a theory is accepted because it serves a purpose for the individuals using them, not because it is right or wrong.
Another reason for the popularity and widespread use of cost-plus pricing is the rule of the bean counters. Cost accountants have had a significant impact on pricing decisions in companies, and it is time to bring their tyrannical rule to an end.
Fortunately, this is beginning to happen with the appointment of pricing managers in many companies, often at the C-Suite level.
There is a long history of companies that became obsessively focused on cost, at the expense of providing a product or service of value to the customer. The fact of the matter is you can make a pizza so cheap no one is willing to eat it.
Cost accountants focus on the inside of an organization, yet all value takes place in the external world, beyond the four walls of the organization. By and large, accountants are not well equipped to judge and measure value, despite all the recent blather about activity-based costing.
Read last section of this article at: http://www.linkedin.com/pub/ron-baker/10/988/270Since the turn of the century the U.S. population has grown almost ten percentage points. That’s a lot of heads in beds! Recognizing a full one third of the population rents, how do we find these new customers for multifamily property owners? Where are all these new people? Let’s find some clues in pattern recognition.
In this post we are excluding high-tech or big dollar data sources (like thematic mapping). We will discuss easy-to-find data points that provide guidance about demographics. This discussion relates directly to the acquisition of multifamily property and methods for gaining information about an acquisition candidate.
Consider this a due diligence starter kit for gathering market intelligence. Demographic data can tell us much about an area as we create layers of information related to a specific address- a specific acquisition target.
The following information sources are all public. There is little or nominal costs to obtaining information from these sources. CLICK HERE FOR FULL ARTICLE
I first learned the importance of competitor intelligence in business graduate school. There, our professors emphasized that every business is duty-bound to understand not only who its competitors are but also their competitive strengths and weaknesses. Only then can you evaluate your own firm’s relative SWOTs (strengths, weaknesses, opportunities, threats). Knowing more about your competitors will thus help your business grow and succeed.
While traditional market research is a tactical, methods-driven discipline that measures beliefs and perceptions through surveys or focus groups, competitor intelligence uses both primary and secondary research and goes beyond answering existing questions to raising new ones and guiding action. A broad definition of competitive intelligence, or CI, is “the legal and ethical activity of systematically gathering, analyzing and managing (publicly available) information on competitors.” This is in sharp contrast to industrial espionage, which can be described as attempting to obtain trade secrets by dishonest means, as by telephone- or computer-tapping or infiltration of a competitor, etc.
Our firm first started offering competitive intelligence in 1992 by conducting product comparison mystery shops. These consisted of either visiting or telephoning key competitors to ascertain the pricing of various products. Since then we have been asked to shop the competition for a wide variety of reasons, primarily focusing on relative prices and customer service skills.
A supplier of furnishings and equipment for trade shows and events wanted to know what its key competitors charged for delivering and renting chairs, tables, bar stools, plants, wall hangings, etc., so it could review its prices and learn what was included in delivery and set-up fees as well as assess lead time needed by competitors. Mystery shoppers first checked specific competitor Web sites, then asked a few questions via e-mail and, if necessary, called those competitors personally, asking such questions as: Does your rental furniture meet state standards? How many of each item do you carry? What colors do you offer? What are the prices for rental, delivery, setup, tear down? What is the minimum order?
Sometimes this required several calls in order to gather all the information requested by the client. This client also used the information when restructuring and repricing its offerings.
A client offering TV, Internet and telephone services needed to know how prominently its products were being displayed and promoted in the big-box stores and how well that promotion was being done. Mystery shoppers visited specific stores to observe point-of-sale displays and ask about specific products to see which brands were recommended and why. For example, they looked for signs and brochures from that client, then asked the salesperson a question and noted which providers were mentioned and promoted by that salesperson and how positively each company was promoted. They also ascertained product knowledge and sales ability. This study helped the client measure not only the effectiveness and thoroughness with which its offerings were displayed and promoted but also how that compared with the displays and promotions of its competitors.
Many sophisticated clients appreciate that real competition is based not only on prices, product features or promotions but perhaps even more on the overall customer experience. This is the reason one of our bank clients has periodically asked us to shop the competition for the multiple assessments.
When a new financial institution was moving into this client’s market area(s), mystery shoppers went to branches of that competitor to ascertain the product knowledge, customer service and sales ability of frontline employees, as well as what products were being emphasized and promoted. This was also the case when the client planned on expanding into a new market area. In both cases, shoppers focused on traditional mystery shop questions such as wait time, greeting skills, friendliness, attentiveness, product knowledge, need exploration, cross-selling, etc. Shoppers were asked to convey a sense of the culture and atmosphere of the competitors compared to the client’s branches. This client also wanted data reports which compared the average mystery shop results of the shopped institutions to their own institution. In both instances, the client was assisted in positioning its products, services and employee presentations by the information gathered.
In another example, several financial institutions wanted to know what their top competitors charged for 10 to 20 key products as well as various features of those products. Of course this involved multiple calls, as mystery shoppers were acting as potential customers and couldn’t reasonably ask the cost structure of more than a few products at a time. For example, when exploring checking accounts, the shoppers needed to find out from each financial institution its interest rates, activity charges, balance required to earn interest, minimum balance service charge, exemptions from that charge, overdraft protection fees, annual fees/interest and whether combined statements and preauthorized transactions were offered. Clients used this valuable information to restructure and sometimes reprice their own products and services.
As more and more prospects and customers are shopping online, several clients have had us shop the Web sites of both their own business and those of major competitors to evaluate the look, feel and friendliness of the site, how easy it is to navigate, what products were being offered and response times to an inquiry. The mystery shoppers answered such questions as: Were you able to locate the site easily? What was your impression of the bank (or store) after reviewing their site? What three words best describe the site? How easy was the site to navigate?
They then reported their overall impressions qualitatively by explaining which financial institution or store they would do business with based on their overall experience and why. Obviously, this helped the clients determine whether and how to redesign their Web sites to be more competitive.
So, where do you start to get this information? Some of it you should have on hand if you maintain a resident profile of your community population. If not, we recommend beginning to track this information, as it will provide answers to many of your questions and help develop effective marketing strategies and plans.
But let’s take this a step further. Remember, markets are constantly in flux in that they’re affected by economic events, demographic shifts and government policies such as changes in local tax laws. So maintaining constant awareness of marketplace changes is crucial to the ongoing success of your properties.
How do you do this? Well, the answers are easy but it takes dedication and involvement with the community to really understand how best to implement these changes.
Area profiles, population, income, households and economic forecasts of a given market and submarket can be accessed online through recent Census bureau stats, the websites of the local Chambers of Commerce, the Bureau of Labor Statistics, and other research sites.
In addition, many areas have economic development groups whose main goal is to bring new businesses into the market. Websites for these groups are a great way to keep abreast of new developing projects, businesses they are contacting and how they are promoting the area. Establishing relationships and networking with those who spearhead these groups will assist in knowing the in and out migration of the businesses and the population of your markets.
Networking in your business arena is also important. You should join as many organizations as you are able and can afford to. And be sure to participate in the events they sponsor. This form of networking is rewarding on many levels and can provide some of the information you seek when segmenting your market.
Finally, knowing your competition and their position in the market is crucial. Online research of other apartment communities in the area helps to identify who competitors are, but what does this really tell you? Not much, actually, other than what they want you to think, location, contact information, floor plans and amenities. The other information you are seeking changes rapidly, and a great way to find this out is to visit the community in-person. Drive the site, take photos and visit the offices and models. Shop your competition as a prospective tenant. This will provide you with the ‘down and dirty’ of the community. During the tour be observant of your surroundings. How are you greeted and treated by the staff? What questions do they ask? How do they respond to your questions? Make note of the cleanliness and tidiness of the office, presence of children’s toys on property, articles found on balconies and patios, types of vehicles, amenities offered and, for occupancy hints, open and closed window coverings and their condition these will tell you a great deal about this competitor and how you stack up against them.
Each of these steps is crucial to the outcome of your research. Overlooking any one could result in adopting a flawed marketing strategy.
Housing indicators for the fourth quarter of 2012 show the recovery in the housing market is gaining strength, although there is regional variation. In the production sector, the number of housing permits, starts, and completions all rose for single-family units. Permits and starts increased for multifamily units, although completions fell. In the marketing sector, sales rose for new and previously owned homes. The seasonally adjusted (SA) Standard & Poor's (S&P)/Case-Shiller® and the Federal Housing Finance Agency's (FHFA) repeat-sales house price indices reported increases in the value of homes in the third quarter of 2012 compared with the previous quarter and the previous year (both indices are reported with a lag). Inventories of available homes for sale at the current sales rate remain at low levels. The months' supply of new homes reached an average rate of 4.7 months, up slightly from 4.6 months in the previous quarter, while the rate for existing homes was 4.8 months, down from 6.0 months. READ FULL REPORT
Is it single-digit vacancy rates and double-digit rental rate growth? Can investors simply look at the most recent data from industry researcher Axiometrics Inc. and make their decisions based on numbers alone? If they do, they might end up investing in markets that are performing well today but lack any future growth prospects.
Or should investors take their cue from Wall Street and stick to the coastal markets-the so-called Sexy Six that regularly attract institutional investors? In doing so, investors might end up competing with every other investor and paying cap rates below 4 percent for assets that have little or no upside.
"You don't want to confuse rent growth, occupancy or architectural attractiveness with the top markets for investments," warns Jeffrey Friedman, chairman, president and CEO of Associated Estates Realty Corp., a Richmond Heights, Ohio-based apartment REIT with a portfolio of 52 properties containing 13,950 units in 10 states.
Ella Shaw Neyland, president of Steadfast Income REIT, agrees. The Irvine, Calif.-based non-traded REIT doesn't limit its activity to coastal markets, nor does it focus exclusively on large markets. Most recently, for example, it purchased properties in Louisville, Ky., and Des Moines, Iowa. "We're looking for signs of vitality," she explains.
Likewise, Camden Property Trust has focused its attention on areas that "are going to grow faster than other areas," says Chairman and CEO Ric Campo. "For example, we bought zero properties in D.C. in 2012 because we don't think it is going to grow as fast as Texas, the Carolinas and Florida."
Campo and other industry experts outlined five elements that create a top market for apartment investment.
Strong population growth
Nothing generates demand for rental housing like population growth. Markets experiencing significant influxes of new residents are the best locales for apartment investment, according to Neyland.
But not all population booms are created equal. Demographics matter. For example, is the growth primarily because of births or is it due to people relocating to the market? Apartment owners benefit from the creation of new households and from migration. Adding people to existing households is less of a stimulus.
Multifamily experts point to Texas as an example where an influx of residents is taking place. From 2010 to 2011, the Lone Star State boasted four of the five fastest growth metro areas with at least 1 million residents, according to the U.S. Census Bureau.
The Texas markets were Austin, San Antonio, Dallas-Fort Worth and Houston. In fact, Dallas-Fort Worth and Houston added more dwellers between 2010 and 2011 than any other metro area (155,000 and 140,000, respectively).
These two metro areas also were the biggest gainers during the 2000 to 2010 period (with Houston gaining more than Dallas-Fort Worth over the decade).
The fifth market was Raleigh-Cary, N.C., and a number of high-profile apartment investors have identified this college market as one in which they hope to expand. Associated Estates' Friedman ranks Raleigh-Cary as one of the top investment markets for the REIT.
In 2012, the REIT invested nearly $110 million in three Triangle properties including: The Apartments at the Arboretum, a 205-unit community in Cary; the 211-unit Southpoint Village Apartments in Durham; and the 344-unit The Park at Crossroads in Cary.
Young, mobile residents
The age of the new populace influences the desirability and performance of multifamily markets as well, according to Friedman. Younger residents tend to be renters rather than homebuyers since they want to maintain mobility for employment and choose to avoid being weighed down by a mortgage.
Many of the markets that rank in the top 10 for greatest average annual net migration by young adults also rank near the top for apartment investment. According to the Brookings Institute, four of the top 10 markets for in-migration for adults ages 25 to 34 were in Texas, while the number one market was Washington, D.C.
For college graduates ages 25 to 34, the top market for in-migration was Dallas-Fort Worth. Other cities in the top 10 include: Washington, D.C., Houston, Denver, Seattle and Charlotte, N.C.
The impact of younger residents is obvious in Charlotte, Campo notes. "Charlotte has been a surprise for us in terms of performance since a large part of the job base is generated from the financial sector, which is still shedding jobs," he says.
Nonetheless, the REIT's properties in Charlotte have outperformed its other assets, particularly those in California. "If you look at who is losing jobs, it's not young adults," he says.
Expanding employment base
Industry experts point out that job growth plays a huge role in creating demand for the apartment sector, and multifamily investors are keen to put their money into markets that have a strong and expanding employment base. Steadfast Income REIT, for example, is looking to invest in markets that show job growth across multiple sectors and various employers, and has several Texas markets on its radar, Neyland notes.
In Texas, the Dallas Federal Reserve predicts statewide job growth of 2 percent to 3 percent in 2013, down slightly from 2012's 3.2 percent growth but up from 2011's job growth of nearly 2 percent. Energy, exports and construction have driven Texas employment above its pre-recession level.
Recent data from Axiometrics Inc. shows the apartment markets with the highest rental rate growth and occupancy also are the areas that have generated above-average employment growth. Northern California's Bay Area is a perfect example-it consistently shows up as one of the most desirable for apartment acquisitions and is one of the "Sexy Six" coastal markets for overall real estate investment.
San Francisco posted job growth of 3.4 percent from January to October 2012. As of November 2012, its occupancy rate was 94.9 percent, and its year-to-date effective rent growth was 7.4 percent, according to Axiometrics.
Similarly, Houston recorded job growth of 3.2 percent for the same period, according to Axiometrics. As of November 2012, the market's occupancy rate was 93.1 percent, and its year-to-date effective rent growth was 6.5 percent.
Meanwhile, Camden Property Trust experienced much more impressive growth in Houston, according to Campo. He says the REIT's same-property NOI was up 11.1 percent for 2012, following an increase of 9 percent in 2011.
In comparison, some of the worst-performing rental markets have little or no job growth. In fact, some of them have negative job growth. Albuquerque, for example, posted a 1.0 percent decline in jobs from January to October 2012 and a 0.14 percent decline in rental rates.
Job growth alone cannot compel investors to make a bet on a specific market. Norman Radow, president and CEO of the RADCO Cos., says it's the type of new jobs that determine the apartment investments his firm makes.
For example, RADCO recently inked a deal to acquire seven properties in suburban Atlanta. Radow says the firm sees plenty of demand for class-B properties since much of the job growth in Atlanta is blue collar.
Tight submarkets
In the multifamily world, investors are familiar with the concept of high-barrier-to-entry markets. In fact, some of the most desirable investment markets are classified as having high barriers to entry-the coastal markets of New York City, Boston, Washington, D.C., and San Francisco, for example.
It's worth noting, however, that many investors are interested in markets that do not have high barriers to entry. In fact, most major markets in Texas and Florida have a reputation for being "easy"-that is, easy to build in.
"For us, it's a submarket story," Friedman explains, adding that there are a number of situations in which specific submarkets are more attractive than overall market. In Dallas, for example, Associated Estates is developing an apartment property in the Uptown submarket just north of Dallas' city center. The Uptown submarket has little or no land left to build upon; moreover, there is plenty of demand in the Uptown market to absorb new inventory.
And in Florida, Campo points to Camden's recent developments as examples of strong submarkets in a state that is well known for its housing woes. Camden Montague, a 192-home project in Tampa, Fla., is currently 96 percent occupied, while Camden LaVina, a 420-home project in Orlando, Fla., is currently 96 percent occupied.
Based on research by economist Stephen S. Fuller, Ph.D., of George Mason University's Center for Regional Analysis, the report covers the economic contribution of apartment construction, operations and resident spending on a national level plus all 50 states. In addition, construction and operations data is available for 12 metro areas: Atlanta, Boston, Chicago, Dallas, Denver, Houston, Los Angeles, Miami, New York City, Philadelphia, Seattle and Washington, D.C.
Highlights from the report include:
"Last year was a banner year for the multifamily market, and our baseline forecast calls for further steady growth in the rate of multifamily production," said NAHB Chief Economist David Crowe. "We are forecasting construction of 299,000 new multifamily residences in 2013. While this is an improvement from just a few years ago, it is still well below the 350,000 units that are required to keep supply and demand in balance."
Click here to read the full article.
Headlines continue to chronicle the nation's demographic growth of its minority populations. So it should come as no surprise that each new data release from government agencies shows the trend growing in momentum. For example, in 2012 the U.S. Census Bureau reported that, for the first time in U.S. history, more minority babies were born than white, non-Hispanic (non-minority) babies. Projections suggest that the United States as a whole will become "majority-minority" sometime in the 2040s. Read the full story.
MarketSurveyTools.com users have recently noticed upgrades appearing inside their apartment market survey software. No-cost upgrades are most welcome during these difficult economic times, especially when focused on sharpening a competitive edge.
MarketSurveyTools.com is a sophisticated, business intelligence program that creates a competitive market profile and comparable analysis. It references pertinent pricing data available online and generates some magnificent reports in presentation format. Being web based, it eliminates many of the difficulties associated with desktop spreadsheets: incompatibilities, corrupted formulas, advanced learning curve, and mediocre presentation options, to mention a few.
It’s interesting to see how companies use mystery shopping programs, and how they adjust their schedule of shops during certain times. We are into one very interesting period of the year – the holiday season – where companies are mixed on ideas for their mystery shopping programs.
We’ve seen some companies opt to reduce their programs during the holiday shopping season, citing that customer traffic is much higher, and they want to focus on holiday traffic and not have mystery shoppers “take up” time that can be spent with true customers.
Interesting concept, and in a way I can see the point. For example, we would never send shoppers into retail venues on Black Friday, unless it was requested by the client. This is a completely non-typical shopping day, and any results gained at that time would not be truly reflective of service standards (possibly).
However, there are other retail and restaurant clients that actually increase frequency during the holiday shopping season. Their thinking is that this is when the bulk of their sales come into play, and with all of the competition out there, they have to be on top of their game. Mystery shopping is used to measure their service levels, and they watch reports very carefully and make adjustments as needed to ensure that holiday shoppers keep coming back to them.
With that said though, I do see value in adjusting frequency based on typical consumer traffic. Park districts, for example, tend to be busier in the summer months and, for those with fitness center options, at the start of every new year when people are making resolutions to lose weight or become more fit. There are lulls in traffic patters during slower times of the year, and mystery shopping programs are reduced slightly, not only to keep costs down, but to mirror customer traffic.
Another example is based on performance. Some businesses, especially with several locations, may employ a performance based schedule. For example, if a particular location scores over a specific percentage for several months in a row, their frequency will decrease. Conversely, locations who score under a specific percentage will receive a follow up shop within two weeks, or their frequency will increase.
Companies need to consider the benefits of the mystery shopping results when determining frequency of their program. We are always a slave to budgets, but mystery shopping programs have great value and can actually save money in the long run.
http://blog.annmichaelsltd.com/mystery-shopping-during-the-holidays/
Mystery shopping doesn't apply only to retail stores. Companies in all business sectors engage in the practice because they need to know what their competition is doing.
Why bother shopping your competition? You already know what they do -- the same thing as you, right?
But what's most important is how they're saying it. It's not about what they actually do, it's about what they say they do. If your prospects aren't experts on your industry, it may be hard for them to determine who offers the best value. That's why learning what the competition is saying is important -- so you can differentiate yourself.
Mystery shopping also allows you to test new product or service ideas, and find out if anyone else is offering them.
But is spying on your competition ethical? On the continuum of black and white, this common -- and necessary -- business activity is generally considered gray, mostly because nobody wants to dupe or be duped.
Here's what we learned from an attorney: Mystery-shopping one's competition is not illegal. In fact, it's done in most industries. Anyone is entitled to ask questions. If people don't want to answer them, they don't have to. But the propriety depends on your approach.
There's a difference between seeking general information that helps you benchmark your sales efforts and being disrespectful. It's inappropriate to request a proposal or ask for a meeting. Your call should remain within the time and content boundaries of a typical information-gathering inquiry.
Most companies don't put competitors on their mailing list. Requesting collateral isn't illegal, but it may cause problems. Why? Because it's asking them to spend hard dollars on printing and postage. If they volunteer to send something, let your conscience be your guide. And remember that today, most collateral can be found on the company Web site.
Respect their time. If the sales rep is continually following up with you, know when to draw the line. Tell them the initiative has been abandoned or you've been assigned to another project. You'll want to note that they have a strong follow-up process, but don't let them pursue a bogus lead.
What you're really fishing for is what their sales force is saying and how they treat their prospects. You'll encounter behaviors you'll want to model and others you don't. Afterwards, visit your competitors' Web sites for information that wasn't covered in your call -- especially differentiators. Make note of whether their site is more user-friendly, thorough and/or clearer than your own.
Make note of how many transfers it took to get you to the right person. Did someone get back with you promptly? Did they take time to ask you questions or instead direct you to their Web site? Did they even seem to care?
Did they offer to send you information? Did they follow up, especially if promised?
Take great notes during your call. Don't expect to remember everything. Immediately write a report about your experience and keep a separate file so new hires can learn about the players in your marketplace.
What should you do if you discover you're being mystery-shopped? Pretend you don't know and have fun with it. Answer their questions with great enthusiasm.
Whether the caller is a legitimate prospect or not, you shouldn't give any proprietary information, but you can always be proud of your company's strengths and differentiators.
If you're good at what you do, you have nothing to be afraid of. And when you treat your competitors with respect, you'll earn their respect in return.
Click link below to read rest of the article...
http://www.bizjournals.com/denver/stories/2006/01/30/smallb2.html?page=all
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