Apartments are hot; why so few sales -- Seattle Daily Journal of Commerce -- Dec 2013

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Study of why we have seen so few apartment transactions in 2013, yet sales figures remain high and price per unit are an all-time high

Study of why we have seen so few apartment transactions in 2013, yet sales figures remain high and price per unit are an all-time high

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  • 1. 12/5/13 Seattle DJC.com local business news and data - Real Estate - Lay of the Land: Apartments here are hot; why so few sales? Personalized for DAVID SCHUMACHER MyDJC logoff search articles Thursday , Decem ber 5, 2 01 3 search HOME MyDJC BUSINESS CONSTRUCTION REAL ESTATE ARCHITECTURE & ENGINEERING ENVIRONMENT MONEY TECH WEEKEND BLOGS OPINION DJC Subscriptions Subscribe / Renew Subscribe to the DJC online, newspaper or plancenter.com Contact Us Have a news item or subscription question? Phone, E-mail, Directions Real Estate Email to a friend Print Comment Reprints Add to myDJC [+] [-] Adjust font size Decem ber 5, 2 01 3 Lay of the Land: Apartments here are hot; why so few sales? By DYLAN P. SIMON Special to the Journal Resource Center Tower cranes hov er ov er apartm ent dev elopm ent sites throughout Seattle and Bellev ue. Construction Bids Contracting, IFB's, Sub-Bids Requested, RFP's, RFQ's, Rosters More than 4 2 ,000 units are in the pipeline. Year-ov er-y ear job growth is the env y of the nation. Consultant Services Am azon.com is building 3 .3 m illion square feet of office space in the heart of downtown Seattle. A & E Bids,RFP's, SOQ's,Rosters And a whopping 2 9 apartm ent buildings with m ore than 50 units sold this y ear. Misc. Goods and Services Bids,RFP's,SOQ's, Rosters Wait … only 2 9 ? We are quickly approaching the end of the y ear and fewer than 3 0 apartm ent buildings with m ore than 50 units hav e traded hands in King County so far. In the height of the m arket in 2 005 m ore than 1 00 building sold. Near the m arket bottom in 2 01 0, 2 6 buildings of that size were sold. Public Notices Legal Notices, Government Notices, City Notices Firm Directory The Northwest's top Consultants and Contractors Building Permits With m ore apartm ent dev elopm ent than we hav e seen in 3 0 y ears and an econom y firing on m ore cy linders than we thought it had, transaction v olum e lags prev ious m arket peaks by m ore than 7 0 percent. Why so few sales y ou ask? Listings of building permits from around the Northwest Significant structural and cy clical factors are causing substantially lower transaction v olum e, y et m uch stronger ov erall sales v alues as well as higher prices on a per-unit basis. To what can we credit this phenom enon? Real Estate Urbanism RFP's, Sales, Foreclosures, Leases and Tenants, RFP's Business Licenses There is no doubt that in this m ost recent m ultifam ily cy cle, urbanism has play ed a key role. Take King County for exam ple: Generally 4 0 percent of new apartm ent construction occurs in Seattle, roughly m irroring the percent allocation of King County housing stock located in Seattle. Yet in this current cy cle, nearly 80 percent of apartm ent construction is slated for Seattle. Complete Archives of WA Business Licenses Hav ing m ore urban apartm ent stock is certainly influencing sales m etrics. How? Bankruptcies Filings from: Washington, Oregon, and Alaska Plancenter.com The Most Advanced Planroom Online Special Sections See our recent publications Editorial Calendar Check out our upcoming special sections for 2014 Classifieds DJC.com Classified advertisments DJC Services Publish a Notice Place your legal notice in the DJC Urban apartm ent buildings are generally m ore expensiv e to construct, hav e a higher lev el of finish and greater density . And recent sales are com prised of a newer v intage of building. As a result, each trade results in a higher price per unit sold. Ev en in a y ear of sim ilar sales totals on a unit basis, the result is a lower num ber of ov erall transactions. Urbanism , and the resultant increase in urban apartm ent stock, is play ing a m anifest role in recent sales m etrics. Flight t o qualit y It com es as no surprise that capital is a key driv er of com m ercial real estate activ ity . Whether its apartm ent dev elopm ent or inv estm ent, equity and debt decision m akers play a key role in what gets built, bought or sold and — relev ant to this discussion — when and where. Since the Great Recession, capital play ers hav e decided to stay close to m ajor m etros and place capital in larger, institutional assets as well as high quality core assets. Sales m etrics in our region reflects these strategies. Whether we're looking at the $3 08 m illion sale of The Brav ern, or ev en sm all deals like The Gilbert on Queen Anne, these sales m ark v ery high prices per unit, and ev en higher total sales prices. Conv ersely , these ty pes of sales do not substantially contribute to high m arks in the total v olum e of buildings sold, a num ber which rem ains relativ ely tem pered com pared to prev ious m arket peaks. Additionally , the buy ers seeking high quality assets hav e access to cheaper capital and can av ail them selv es of v ibrancy in the equity m arkets. In both cases, these buy ers are institutional in nature. Both as an inv estm ent thesis and a desire for efficiencies of scale, these buy ers hav e sought institutional-sized, high quality , core assets. As a result, fewer trades can still accom plish both higher total sales figures and higher prices per unit. One final note is the desire of institutional m ultifam ily capital to enter the Puget Sound m arket. As www.djc.com/news/re/12060042.html Most Popular Stories Anot her high rise t ower for Bellt own? Seabrook expands wit h 15 lot s, most overlooking t he beach Lay of t he Land: Apart ment s here are hot ; why so few sales? 1/3
  • 2. 12/5/13 Seattle DJC.com local business news and data - Real Estate - Lay of the Land: Apartments here are hot; why so few sales? Advertise Market your business to decision makers around the Northwest Buy A Copy Locations around Seattle Reprints Order a reprint in hard copy, PDF or linked HTML. Contact Us Phone, E-mail, Directions a relativ ely new “m ust” area for inv estm ent, Puget Sound has receiv ed substantial inv estm ent by a new cadre of inv estors focused on core-located, institutional-grade m ultifam ily assets. In the com petition for them , inv estors hav e both driv en up prices of institutional-quality assets and pushed up the num ber of pre-sales, that is buildings being sold before occupancy . Again, the result is high priced sales with ev en m ore im pressiv e price-per-unit m etrics, y et a sm aller influence on total num ber of transactions. PSE preparing for $ 300M upgrade t o keep up wit h East side power demand Alabama will bid on new Boeing plant t oo Regional fact ors The econom ics of rent growth has also greatly influenced apartm ent sales. Like m any prev ious cy cles, rent growth since the Great Recession has m ov ed out from Seattle in som ewhat concentric rings, first to Bellev ue/Kirkland and then north toward Ly nnwood/Ev erett, east towards Bothell and finally , as late as this y ear, south toward Renton and South King County . The effects of the foregoing are two-fold. Prim arily , the desire of m ultifam ily inv estors to inv est in “safe” m arkets that assure econom ic stability and growth is exhibited in trades occurring in Seattle. Why Seattle? It doesn't take m uch econom ic analy sis to understand the econom ic v ibrancy of Seattle right now. With sales occurring in Seattle, the patterns prev iously discussed perpetuate: newer buildings of higher quality and larger, institutional size. The result is again fewer trades producing higher sales prices as well as higher prices per unit. On the other side of the coin are sellers reaping the rewards of rent growth and hav ing fewer choices in alternativ e high-y ield inv estm ents. As a result, they hav e little incentiv e to sell. In m any cases, despite historically low capitalization rates, long-term inv estors hav e chosen to hold onto apartm ent buildings and bet on continued rent growth and plunging v acancy rates. Conv ersely , m erchant builders, following the trend of building in core urban m arkets, are net sellers. Sales of these recently built and often core-located buildings again follow the pattern of high sales prices and price-per-unit v alue relativ e to the ov erall num ber of transactions. Expect to see sales v alues and price per unit v alues rem ain high in 2 01 4 , but also expect transaction v olum e to increase in 2 01 4 . We are already seeing rent growth propagate across King and Snohom ish counties at a steadier pace in 2 01 3 than in the prev ious two y ears, which ultim ately leads to sales. Additionally , pent-up acquisition dem and and the threat of ov er-supply will influence m ore owners to sell in 2 01 4 . Regardless of all prognostications, one result is certain: as our region continues to gain national attention for its econom ic strength and desirable lifesty le, we will rem ain one of the strongest and m ost watched apartm ent inv estm ent m arkets in the nation. Dylan Simon is an investment sales broker at Colliers I nternational in Seattle and specializes in the marketing and sales of apartment complexes and development opportunities in the region. He blogs at www.nwmultifamily.com . 0 comments FEATURED NOTICE New Bid Calls 7 New Consultant Notices 6 New Supply Bids 3 New Sub Bids Requested ALASKAN WAY VIADUCT - REPLACEMENT, NORTH ACCESS CONNECTION MidMountain Contractors, Inc. SR 99 ALASKAN WAY VIADUCT REPLACEMENT NORTH ACCESS CONNECTION Atkinson Construction Company STUDENT LIFE BUILDING Porter Brothers Construction 0 SR 99 ALASKAN WAY VIADUCT REPLACEMENT NORTH ACCESS CONNECTION Max J. Kuney Company Start the discussion… Oldest In Today's Public Notices Community Share Login No one has commented yet. CITY OF EVERETT WATER POLLUTION CONTROL FACILITY EXPANSION - PHASE C1 IMCO General Construction more » ALSO ON WWW.DJC.COM WHA T ' S T HI S ? Seattle DJC.com local business news and data - Real Estate - … Seattle DJC.com local business news and data - Environment - … 1 comment • 2 days ago 1 comment • 2 months ago P hil B rown — Maybe the county Jes s e Mc Lean — That's should just sell it okay...Washington State is opening lots and lots of pot stores, so we … Seattle DJC.com local business news and data - Construction - … Seattle DJC.com local business news and data - Construction - … 1 comment • 2 months ago 1 comment • 2 months ago Jac e Muns on — The information in A very B ang — Great article. Thanks this article is incorrect. The Berschauer Group has no affiliation … Brooke and PCL for helping Bridges to Prosperity in Nicaragua! Read … Su b s cri b e www.djc.com/news/re/12060042.html Ad d D i s q u s to yo u r s i te 2/3
  • 3. 12/5/13 Seattle DJC.com local business news and data - Real Estate - Lay of the Land: Apartments here are hot; why so few sales? Search Stories Find: With: all of the w ords In: All new s Depth: Last 7 days Sort by: Score Advanced options Search MyDJC | Breaking News | Traffic | Business | Construction | Real Estate | Architecture & Engineering | Env ironment | Machinery | Technology | Weekend Copy right 201 3 Seattle Daily Journal of Commerce | Terms of Serv ice | Priv acy Policy | Contact Us | Adv ertising | Site Index -Page executed in 0.05 seconds www.djc.com/news/re/12060042.html 3/3