What is All the Talk About?
It’s proving a challenging year to conduct business in any as-usual fashion. While we are finding both measures and stop-gaps to get by in 2020 – without question the biggest missing link is connectivity. Heading down the hall for office scuttlebutt or attending an industry event to understand the latest-and-greatest are vestiges of way, way back to February.
As a privilege – and sometimes a curse – of the brokerage business, we are on the phone a lot. Whether working through our 20 active listings or calling on clients, as a team of 7 brokers we are tracking to 2,000 phone calls this month alone. That number will likely expand to over 5,000 phone calls by the end of the year.
What are we hearing?
The following are 10 Topics in the Market that are disproportionately commanding the attention of apartment owners, investors, and developers.
1. Seattle versus Eastside
Investor sentiments – and accordingly – demand is shifting East. While its near crickets in downtown Seattle, Eastside markets are bustling (if not literally, they are doing so in an economic fashion). What is all the buzz about and will it last? That remains to be seen, but it’s the Eastside’s time to shine.
2. Collection Loss
If there was ever a specter of concern in the early days of COVID-19, it was the question, “will anyone pay rent.” The short answer was yes – and they did, collections remained high. But that trend is starting to shift. NMHC’s Rent Payment Tracker remains a great resource.
3. Rental Rates vs. Concessions
Through the summer of 2020 rental rates held. During this same time building occupancy remained high – as did renewal rates – and accordingly building owners were not needing to sacrifice rental rates to maintain occupancy. Just this weekend I saw the first posting for 12-weeks free. Later in the week a client told me of a “No Rent Until 2021” special. How rental rates will hold through the tough winter months is very much a topic of conversation. Our latest rent and vacancy research report is available HERE.
4. Eviction Moratorium
Rarely does a conversation on the local apartment market occur without a discussion of political headwinds, in both local Seattle politics and down in Olympia. The conversation on rent control measures is not suspended but is certainly backseat to the various eviction moratoriums in place. It seems like they are here to stay in 2020, but will they remain for all of 2021 is a looming question.
5. Cap Rates / Apartment Values
If you would have told me that in 2020 Seattle would lose 240,000 jobs and the unemployment rate would spike to nearly 15%; yet, capitalization rates would hold, I’d have a tough time believing you. However, capitalization rates held strong. NOI, not so much. And with derogation of income for many buildings, values are taking a hit. Our latest sales research report is available HERE.
6. Construction Cost
How many conversations have I had in the last 4 months about lumber? About 10x more than in the previous 3 years combined. Why? For starters, lumber pricing is up +90% year-over-year. Combine that with over 27,000 apartment units currently under construction and you have a recipe for continually high construction costs. For now, that is the case, but how developers underwriting costing into 2021 remains a topic for debate.
7. Urban vs. Suburban
It’s not just apartment investors preferring Bellevue over Seattle – or ANYWHERE over Seattle for that matter; investors and developers alike are preferring nearly all suburban markets over urban markets. Never before had I heard of so many apartment investors/developers pivoting to a “for-rent” townhome/single-family home investment model.
8. Sell vs. Refinance
Apartment investors are routinely refinancing apartment buildings for sub-3% rates – many with 10-year, interest only loans. For strong borrowers seeking 50% leverage, rates sub-2.5% are achievable. Should you sell in the current environment versus refinance and hold? It depends, but the question is asked quite a bit. Our latest lending research report is available HERE.
9. When will Rent Growth Return
With daily discussions on collection loss, concessions, and rental rates versus vacancy – it’s hard to see through the fog towards a balanced market and rental rate growth. In Pierce County rental rates continue to increase, yet elsewhere the question of when rent growth will return looms. Our latest rent and vacancy research report is available HERE.
10. Bad News
Unfortunately, human nature is wired for negativity. I get it, pterodactyls were both scary and dangerous. It was of dire importance to discuss and postulate what negatives could happen in order to survive, including warnings so as not to get eaten by a 15-foot winged, flying reptile. But it’s not all bad news out there; we actually have quite a bit of good news to report despite all the negative chatter.
Whether you own an apartment building or development land and want/need to sell, or you are looking to get into the Seattle/Puget Sound market–we have the inside scoop in the apartment community. Who is a buyer, who is a seller, and who has the best rates to finance an acquisition or refinance an existing asset?
Working with a capable, experienced, and active team of sales and lending experts is always important–and such sage guidance was never more necessary than it is today.
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