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Commercial Real Estate Sales Investments

For my current Seattle area real estate listings for commercial lease or multi-family properties, please use the links below:

As the Argus Affiliate Broker for Washington State I was asked to contribute to the following article posted in ISS Inside Self Storage a industry trade publication.  Argus Brokers regularly contribute to this publication.  It’s a great resource for self storage owners and operators.  If you have any market questions regarding Self Storage in Washington State give me a call I would be delighted to share insights and market trends with you.  For other western states contact the Argus broker for that area.        

The self-storage real estate market has experienced an uptick in sales over the past year, with investors once again looking for quality assets to add to their portfolios. In this article, real estate experts representing self-storage markets in the western states discuss trends in capitalization (cap) rates and sales, and areas ripe for new development. The contributors are:

  • Jim Berry, CRG Utah, Salt Lake City
  • Steve Boldish, Coldwell Banker Commercial NW, Medford, Ore.
  • Alan Davidson, Realty One Group, Laguna Niguel, Calif.
  • Tom de Jong, Colliers International, San Jose, Calif.
  • Jeff Gorden, Eagle Commercial Realty Services, Phoenix
  • Joan Lucas, Joan Lucas Real Estate Services, Denver
  • Jason Wilcox, Gleason and Co. Commercial Real Estate, Kent, Wash.

 

What are the cap-rate and sales trends in the first- and second-tier markets in your state?

 

Berry: There has been little evidence of cap-rate compression between first- and second-tier markets in Nevada and Utah. Asking rates are, for the most part, still in the 6.5 percent range, with deals being finalized around 8 percent. However, that may be about to change. There’s one second-tier property now in the market with a listed rate of 8 percent, and it will likely sell above the asking rate.

Boldish: Oregon’s first-tier market areas of Portland and Salem have not seen a drop in cap rates from those statewide and continue to sell in the 8.5 percent to 9 percent-plus range. Buyers are seeking the Portland market, but good properties are difficult to find as owners are not inclined to sell. [Online real estate listing service] Loopnet has reported six sales statewide year-to-date, with all coming in second- and third-tier markets. The largest property is just under 25,000 square feet.

Davidson: As available properties are in scarce supply in the major metropolitan areas of Southern California, buyers are casting a wider net into the less populated areas such as the Santa Clarita Valley, the high desert (Victorville/Bakersfield) and the low desert (Palm Springs/Palm Desert). Some examples of recent sales include a 9.58 percent capin the L.A.-metro area; a property in an outlying county traded at a 9.95 percent cap; and a facility in the high desert sold at a 7.5 percent cap. Cap rates in the major markets have little room to compress, and buyers are willing to pay a premium for properties in outlying areas, rather than overpaying for similar product in the coastal areas.

de Jong: Northern California has seen a compression of cap rates between facilities based on location and quality. Facilities in second-tier markets are generally seeing a lot of interest, although more from local or regional investors, not as much from the institutional or public entities.

Gorden: In 2012 we saw a reappearance of true market-rate sales of self-storage facilities in Arizona’s second-tier markets. During the period from 2009 to 2012, there were less than a half a dozen trades in these areas, and all were at some point along in the foreclosure process. In Phoenix and Tucson, cap rates have fallen considerably, and there’s just enough interest now in secondary markets to gauge the return premium for comparison. There has been a shortage of available product in the first-tier markets, and communities with a solid employment base will fare well in the coming year as investors look to close deals.

Lucas: Colorado is a bit of an anomaly in that we don’t see properties turning as often as in other states. Packages of two to four properties that we consider B or B-plus are commanding stronger rates than in last several years. The reason is simple, the class-A sites just aren’t for sale at this time. So if buyers are looking in the Colorado market, they’re relegated to acquiring properties less than institutional grade but with big prices. Older, first-generation properties in outlying cities are suffering a bit because there’s less demand, thus lower prices.

Wilcox: Cap rates in Washington state averaged 8.4 percent in 2012. Tertiary markets ranged 9 percent to 11 percent, while facilities close to larger metros ran between 6.25 percent to 7.7 percent. I haven’t seen evidence of cap-rate compression in the tertiary markets. Many investors with whom I’ve spoken have expressed they’re being very careful in their site selections, which is reflected by the relative lack of recent sales activity.

 

 

What markets in your area present a good opportunity for new self-storage development?

 

Berry: There are still “free rent” signs in Salt Lake City, and occupancy rates are running as low as 60 percent in some properties. I’m aware of occupancy rates in the Reno area as low as 65 percent and in the Reno suburban markets as low as 50 percent. Overall, Utah and Nevada will not likely see an increase of development for some time.

Boldish: Oregon continues to suffer higher unemployment rates than the national average. Other than Portland-metro, all other areas in Oregon are second- and third-tier markets. Southern Oregon is overbuilt at this time, with owners slowly increasing occupancy, but with rental rates still equal to or trailing those of four to five years ago. Portland, Salem and Eugene are still good markets for existing storage properties. Buyers have also been seeking under-performing properties and bank foreclosures rather than new construction.

Davidson: Orange County is the current job engine of Southern California, with Los Angeles a close second, followed by San Diego. San Bernardino and Riverside counties continue to lag behind. The “economic bottom” has been reached and a long slow climb upward is likely. Population centers are experiencing increased density, and most urban areas are fully built out. As a result, improving existing facilities or converting existing space is usually the least expensive option to meet future demand. Development sites are rare except in outlying regions, and only well-organized and -financed groups will be able to devote the financial resources and time necessary to build new product.

de Jong: We’ve seen four facilities built in the past 18 months in the Silicon Valley, mostly on arterials and in-fill locations. The residential market is continuing to improve throughout most of the Bay Area and, as such, we should continue to see quality development opportunities. The biggest challenge we’re facing is the rising cost and lack of availability of quality sites. Prices for residential land have been reported at close to $100 per square foot in some Bay Area markets, driving the cost of industrial/commercial-zoned land to as high as $40 to $50 per square foot, a challenge for most self-storage developers.

Gorden: There are several areas that present great opportunities for self-storage in Arizona. There are growth areas in the southeast and northwest Phoenix suburbs of Gilbert and Surprise, respectively. New-home sales are brisk, and there’s steady job growth. Across the state, boat and RV storage has weathered the recession well and is a strong performer in middle- to upper-income communities and those near recreation areas like Lake Havasu City and snowbird havens like Yuma.

Lucas: There are very few places in the Denver market that could really use another self-storage facility. However, we just completed a study to take a look at what’s currently on the drawing boards and were amazed to learn there are 13 facilities totaling well over 1 million square feet in the development pipeline across the Front Range. This is not good news and shows we may be heading into another cycle of overbuilding in the near future.

Wilcox: Nationwide, self-storage supply is estimated at 7.3 square feet per capita. The state of Washington has an above-average supply level at 10.8 square feet per person, and while core metros are slightly overbuilt, occupancy levels are rising. With the delivery of two new facilities in 2011 (Federal Way and Issaquah) and another project in progress in Kirkland, market confidence for long-term demand remains strong.

Ben Vestal is president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self storage buyers and sellers and operates SelfStorage.com, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE; e-mail bvestal@argus-realestate.com.

 

 

 

 

 

Seattle, WASH. — October 15, 2012 —Jason Wilcox, CCIM, has been named the exclusive Argus Self Storage Sales Network Broker Affiliate in Washington State specializing in self-storage properties.  Jason is part of the only national network of commercial real estate brokers who assist buyers and sellers of self-storage real estate by combining the knowledge and expertise of a local broker with the exposure of the Argus national sales and marketing program.

“We are pleased to welcome Jason Wilcox to the Argus Self Storage Network team,” said Ben Vestal, President of Argus.  “We select our brokers based on their reputation, knowledge and experience within their local commercial real estate market as well as national trends. Clients in the Pacific Northwest have trusted Jason for the past 18 years to assist them with the growth of their real estate portfolio. Buyers and sellers of self-storage real estate in Washington State will now have the opportunity to work directly with Jason and benefit from his expertise.”

After a monumental building boom, the United States now has 2.3 billion square feet of self-storage space to accommodate the one in ten U.S. households that now rent a self-storage unit. As of 2011, the self-storage industry in the United States grossed more than $20 billion in annual revenues and has been the fastest growing segment of the commercial real estate industry over the last 30 years. According to Wall Street analysts, the self-storage industry has been considered “recession resistant” based on its performance since the economic recession of September 2008.

Through Jason Wilcox, as the exclusive Argus Self Storage Sales Network broker affiliate in Washington State, clients will be connected to a national network of experienced brokers located throughout America who specialize in the purchase and sale of self-storage properties.

Some of the services offered by Jason as an exclusive broker affiliate include property research, identification and evaluation, access to local, regional and national buyers and sellers of self storage real estate, purchase negotiation and assistance in obtaining financing.

About Argus Self Storage Sales Network: The Argus Self Storage Sales Network is the only national network of commercial real estate brokers who specialize in self-storage properties. The network assists buyers and sellers of self-storage real estate by combining the knowledge and expertise of a local broker with the exposure of a national sales and marketing program. Contact Argus Self Storage Sales Network at 800.55.STORE, at info@argus-realestate.com, or online at www.argus-selfstorage.com

 

 

CoStar: Commercial Property Pricing June 2012

Kidder Matthews Puget Sound Office Market Report 2Q2012

PS Business Parks, Inc. (NYSE: PSB) has acquired 212th Business Park, a 958,000-square-foot, eight-building industrial park for $37.6 million, or about $41 per square foot, from CBRE Global Investors.

The 44-acre park is located in the Kent Valley submarket of Seattle, WA on S 212th St. and 84th Ave. S in close proximity to Valley Fwy, the Seattle and Tacoma ports, and the SeaTac Airport. The properties were built in the 1960s with renovations approximately every 20 years. The eight buildings were just 53 percent occupied at the time of sale to 13 tenants averaging 38,600 square feet of occupied space each.

The acquisition was funded in part by cash and borrowings under the company’s existing credit facility. PS Business Parks is a self-advised and self-managed real estate investment trust (REIT) that focuses on multi-tenant flex, office and industrial space. As of June 2012 the company owned 27.2 million square feet in eight states.

Joseph D. Russell, Jr., president and CEO of PS Business Parks commented, “The design of the industrial buildings at 212th Business Park will enable PSB to offer prospective customers unit sizes that have broad appeal to smaller industrial users. Once the park is repositioned, PSB will provide a unique combination of flexible industrial spaces in a desirable business park centrally located within the vibrant Kent Valley submarket. We are pleased to enter this submarket to cater to a wide range of users from manufacturing, import/export, aerospace and technology sectors.”

Here is some good news for the commercial real estate market as lenders come back to the multifamily lending and start to take a look at construction again.  CoStar recently posted this article with comments from several banking CFO’s sharing their perceptions of the marketplace.

 

By Mark Heschmeyer  CoStar

The thaw in bank lending for commercial real estate appears to have quickened a bit in the second quarter based on comments from bank executives in their earnings conference call. It is not a unanimous movement back into CRE lending as several of the larger banks are still working through mounds of distressed assets and many are still in cost-cutting mode. However, a number of others have decided the markets are ripening and the time is either right to return to CRE lending, or is fast approaching to do so. Interest in multifamily properties is leading the comeback, but many bank executives said that is just the jumping in point and not the sole purpose for getting back into lending.

“We’re not going into [the commercial real estate] market with just a bet that we’re just doing multifamily,” said Kirk W. Walters, senior executive vice president and CFO of People’s United Financial Inc. “Certainly multifamily will be in the mix, it will be one of the things we’ll be doing, but we’ll be doing all types of commercial real estate.” “It’s a business that we expect that we’re going to build out, one that will be relationship oriented, and that we do have a good strong history on the commercial real estate side, but also other products and offerings that we’ll be able to lever in that market,” Walters said. Nor are banks looking at just financing existing properties for investors. Doyle L. Arnold, vice chairman and CFO of Zions Bancorporation, said the bank expects to see some growth in its construction and development category over the next several quarters. “Most of the new construction loan commitments are in Class A apartment buildings,” Arnold said. “Our multifamily lending continues to be the largest growth category or strongest growth category, up to about 10% annualized growth in the last six months.” Peter S. Ho, chairman, president and CEO of Bank of Hawaii, said in “commercial real estate and construction lending, we’re actually up 5.6% year-on-year which is about the level that we think we can be looking at in the environment that we’re in today. So, I think commercial has some upside, certainly that’s what we’re seeing in the pipeline.” James E. Rohr, chairman and CEO of PNC Financial Services Group, multifamily construction has been a big play this year but also sees the strength of the CRE market not in the product type per se but more in the borrowers. “A lot of different REITs that are in [the market] have basically moved to quality. A lot of the foreign banks have moved away from that market, and clearly the quality that our bank — and the calling effort and the history I think has worked very well for us in that space,” Rohr said. “There has been some CMBS refinancing, and I think that’s going to continue for the next two or three years.” Rene F. Jones, executive vice president and CFO of M&T Bank Corp., said most of the improvement in the CRE space “has lot to do with the low [interest] rate environment.” “We are finding that we are able to either restructure or workout transactions more favorably than we might have thought,” Jones said. “And part of that is because other lenders or the markets are actually willing to sort of step in.” Banks also said the market has turned in their favor in regards to their foreclosed properties and distressed loans. “We’ve continued to execute our strategy to aggressively liquidate foreclosed real estate,” said Clarke R. Starnes, chief risk officer and senior executive vice president for BB&T Corp. “This is having a very positive impact on reducing nonperforming assets and related credit costs and certainly contributing to higher earnings growth. This quarter, we decreased foreclosed real estate $157 million or 41.5% compared to Q1. And since the second quarter of last year, foreclosed real estate is down $926 million or nearly 81%. As these balances are now down to $221 million, and we continue to be aggressive in our disposition as we go into the third quarter, we think we’ll effectively complete the targeted OREO strategy in the next couple of quarters. William Hartmann, chief credit officer of KeyCorp, said there is a tremendous amount of liquidity in the market and that is presenting more opportunities for the bank. “We have had some performing but criticized loans where we’ve received some reverse inquiries from people who were willing to purchase those at relatively close to par,” Hartmann said. “The accounting for that requires that, since there is a slight discount to our carrying value, that we actually move those into nonperforming in order to account for that discount — that discount does flow through the net charge-offs, and then we could actually sell the assets.”

Mobile technology has become an integral part of our everyday lives.  These mobile apps are now becoming more common in the work place.  Here is a link to an article by CIRE magazine speaking to mobile apps for commercial real estate.

CIRE – Apple’s App Store recently surpassed 25 billion app downloads. How many of those were for commercial real estate? Not many, especially when compared to the number of residential real estate apps. But in commercial real estate, an industry where hustle pays off, an app’s ability to quickly supply answers can provide crucial momentum to keep a deal moving forward.

We asked CCIM members to discuss how they are using the current batch of commercial real estate apps, which includes listing, financial, and demographics programs.

Link to PDF of article

April retail sales, released today by the U.S. Department of Commerce, showed total retail sales (which includes non-general merchandise categories such as automobiles, gasoline stations, and restaurants) increased 0.1 percent seasonally adjusted month-to-month and 4.5 percent unadjusted year-over-year.

National Retail Federation – Retailers Mark 22 Consecutive Months of Growth even as Retail Sales Soften in Aprilnrf.com

Unseasonably warm weather in February and March and an early Easter holiday shifted consumers’ spending appetite last month, though retailers in April still reported positive but modest growth. According to the National Retail…

The busy Kent Industrial area draws National investors as Strategic Investment LLC, a Denver-based investment management company, acquires the one-story industrial building at 19437 66th Ave. S in Kent, WA from Top Worth LLC for $3.05 million, or about $67 per square foot. The warehouse building was delivered in 1981 in the Kent Valley N Industrial submarket of Seattle. It totals just over 45,000 square feet and was 50% leased at the time of sale, according to CoStar research.  Current market rates for industrial leases range from .35 to .42 for shell space and attached office is offered from .50 to .75 with average NNN’s between .14 to .17.   

Posted today by Costar the following article shows that the multifamily sector could have a strong impact in helping housing market as fewer people own and more turn to rentals.  

The nation’s housing finance overseer and Freddie Mac are citing the strong multifamily investment market as a reason for pushing ahead on their agenda to gradually eliminate government guarantees in the multifamily sector business and replace them with new private capital sources well ahead of efforts to begin unwinding their single-family finance operations.

Earlier this year, the Federal Housing Finance Agency (FHFA), issued a strategic plan for Freddie Mac and Fannie Mae that envisioned different kinds of roles for the two big government-sponsored enterprises (GSE) within the single-family and multifamily financing business. Doing so, the FHFA argued, could help revive the lagging housing market.

Unlike their single-family credit guarantee business, the GSEs’ multifamily businesses have performed quite well, generating positive cash flow. Last year, the GSEs multifamily businesses produced $1.9 billion in net income, with Freddie Mac accounting for 70% of this gain, as investors poured into the apartment sector. The trend continued in the first quarter of 2012, with Freddie Mac alone producing $624 million in multifamily net income.

This week, David Brickman, senior vice president of the multifamily business for Freddie Mac, pressed the case further by outlining other reasons why multifamily finance should have a separate and distinct role in housing.

With fewer people owning homes, Brickman said there is a clear need to support more rental housing.

Private capital is beginning to flow back into the multifamily market.

The business processes and systems for single-family and multifamily financing and development are not alike.

Multifamily might aid in the recovery of single-family housing by transforming the large volume of distressed single-family properties into rental housing.

But for such a plan to work, the private sector would have to step up their role significantly in multifamily finance, CoStar Group’s financial analysts argue.

This program is compliments of CoStar Professional. It is about 1 hour in length. Even if you aren’t involved in the office markets, it gives great information and insights into the economy and the real estate markets overall. Thanks to Costar for these great presentations!

Click here to view the CoStar 2012 Quarter 1 Office Market Review and Forecast

The difference between a Class A, Class B, and Class C buildings vary in each market with no definite formula for classifying a building, however, the general characteristics of each are as follows:
• Class A buildings represent the most prestigious buildings with the highest rents within a metro area. Typically a Class A buildings will have the highest quality construction, a premier location, and contain the highest quality of tenants.
• Class B buildings are generally a little older but still well maintained with rents in the average range for an area. Class B buildings do not compare to Class A properties, however, investors target these buildings as investments since well-located Class B buildings can be returned to their Class A status after renovation and improvements within the area.
• Class C is the lowest classification of a building with rents below the average for the area. These are older buildings in less desirable areas and are in desperate need of renovation.

CPI Properties has recently sold the 131,000-square-foot Carillion Heights Apartments to national developer/owner Archstone for $47.5 million, or about $363,000 per unit. The property is located at 5306 Lake-view Drive in Kirkland, WA.
Originally constructed in 1990, Carillon Heights sits on 8.9 acres and is comprised of 160 units in 10 separate buildings. The property was 99 percent occupied at the time of the sale, with only one vacancy reported.

This property represents the eleventh apartment acquisition for Archstone in the Seattle area reflecting the continued confidence in the local economy and employment outlook.   

Just released 4th quarter 2011 market segment reports show apartments leading other sectors in the recovery.  Retail  and Office absorption are starting to reflect positive absorption as consumer spending and job growth slowly pick up.  The data below reflects national trends, here in the Pacific North West we are in better shape due to the strong local economy and diverse employment.  

  

The Apartment Market Stays Strong

  • Vacancies were down to 5.2% by the end of 2011, a level last observed in 2001.
  • Rent growth has been consistently positive for eight straight quarters, and may accelerate even more.
  • Tight supply has helped fundamentals, and expect 2012 to be similarly good. Large completion figures in 2013 may complicate matters.

Retail Sector Seeking Stabilization

  • Vacancies remain pegged at 11.0, unchanged for three quarters and moored at a level last seen in 1991.
  • Asking and effective rent increased by 0.1% in the fourth quarter; the first recorded increase since 2008.
  • Occupied stock increased by 3.18 million SF in the fourth quarter. This is the largest positive value for net absorption since the first loss of occupied space in early 2008.

Office Properties Continue to Improve 

  • Slow but steady decline in vacancies (30bps over the course of 2011) mirrors the slow but steady pace of job creation in the overall economy.
  • Absorption has been positive for five quarters, implying favorable churn in leasing.
  • Effective rent growth was also positive for five consecutive quarters ending at $22.53.  

Results from latest Kingsley Associates’ Resident Survey 

Apartment resident renewal intent continued its downward slide during the fourth quarter of last year as the year ended with only 59.5% of renters indicating they “definitely” or “probably” would renew their lease. This figure, based on Kingsley Associates’ latest resident survey results, represents a new three-year low and is down from a high of 65% reported as of June 30, 2010.  What this means to you as a landlord is that your renters are becoming more choosey.  Providing rental space is a service industry and amenities count! With the recent economy being what it has many landlords have postponed tenant improvements.  Aging kitchens and baths and neglected landscaping will result in higher turnover.      

While renewal intent trended down in 2011, overall resident satisfaction remained stable. For the most recent four quarters, 76.2% of residents rated their overall satisfaction as “excellent” or “good,” compared to 76.3% for the prior period and 76.0% at the end of the second quarter of 2011. “In many ways, multifamily real estate has led the economic recovery,” said John Falco, principal of San Francisco-based Kingsley Associates. “As renters themselves recover, there are indications that more of them are renting by choice. They aren’t unhappy – just choosy.” Three observed trends support the hypothesis that more residents are choosing to rent in multifamily housing rather than enter (or re-enter) the ownership market, Falco said.

First as of the end of 2011, 45.9% of surveyed apartment residents indicated that they live alone, an increase of more than 2 percentage points from earlier in the year.

Second residents 55 and older now make up 13.4% of surveyed renters, compared to 12.6% for the period ending in Q2 of 2011.

And for the first time in recent memory, households with incomes of $75,000 or more now comprise a greater share of surveyed renters (32.0%) than those earning less than $40,000 (30.7%).

  With today’s commencement of tolling on the 520 bridge and steadily increasing traffic congestion on I5, Capital Hill with its new light rail station and vibrant restaurant and social scene is ground zero for in-city redevelopment projects including mixed use, street retail and multifamily housing. This is evidenced with the recent sale by Washington Real Estate Holdings LLC of its15,400-square-foot office building located at 1127 Pine St. in Seattle, WA to Gerding Edlen Development, Inc. for $5.5 million, or about $357 per square foot. The building was 100 percent vacant at the time of the sale. The buyer has purchased the property as a redevelopment project, and is planning to build apartment units on the site following the scheduled demolition of the existing building.           

 

“Measure twice and cut once.” This is an old-time saying from the tailoring industry, and it means that good planning is what enables us to perfectly complete our task. There is a lot of correlation here with the Real Estate industry. We are doing business at a time when the art of the deal depends largely on our ability to be at the negotiating table with our I’s dotted and our T’s crossed. If you want to play the game, you have to pay the price, and in this case the “price” is more than money. The “price” is the legwork we put into organizing ourselves, whether it’s documenting our financing, properly organizing an LLC, or simply making sure we know when the deadlines are coming. It’s about being proactive. And in Real Estate, being organized can make the difference between a life of wealth, or a history of missed opportunities. That’s why it’s critical to choose the right broker. It’s my job to get your documentation in order, and to be cognizant of the deadlines, so that we can best capture opportunities and profit for you. But not only do you need the piece of mind to know your broker is on a project for you; you need to be aware of what, precisely, your broker is doing for you. One of the biggest things clients are frustrated about is that although their brokers are working hard for them, they’re not aware of it. You need systems in place to maintain communication. With my clients, I keep them up to speed with REA9 Connect software. Having this technology in place means that every time I’m working on a file, and every inquiry I make on a project, it’s recorded. And with the ease of a password, you as my client, can log in and see what I am doing for you. It’s the same software I use in providing you with a weekly update. But you also have the freedom to check in whenever you need to, in order to adequately assess what I am doing on your behalf. The best broker is someone who is completely transparent. With my background as a veteran Real Estate specialist and designation as a Certified Commercial Investment Member (CCIM), I can incorporate my skills as an expert in commercial and investment real estate, and my personal commitment to transparency with all my clients to help you capture the opportunities in the growing Puget Sound Real Estate market.

The CCIM designation is carried by just 6 percent of all commercial real estate professionals in the country. Professionals holding the designation are recognized experts in the professions of commercial and investment real estate. CCIMs function as a critical resource across the board in the real estate industry: from the commercial property owner, to the investor and the property user.

The year 2011 won’t be remembered as anyone’s favorite annum for finances, but it is about to end on a positive note for those in the Puget Sound apartment market.

 According to the December edition of the Apartment Advisor for Puget Sound, the average price buyers were willing to pay for complexes of 5 or more units climbed nearly 7 percent over last year’s average. That translates to an average price of $117,259 per unit, in what is termed the Seattle MSA or Tri-county market (King, Pierce and Snohomish counties.)

 While the uptick is a bright spot in a year that has experienced much challenge, it’s still below what buyers were willing to pay in 2008, a peak time when the average price per unit for the Tri-county market totaled $125,749.

 Nonetheless, the increase should give investors affirmation that Puget Sound’s economy and apartment market is recovering ahead of many other US market areas.

Seattle’s more robust recovery can be attributed to its status as a gateway city and quality of lifestyle. The numerous transportation links, especially air: with Seattle being just nine hours from either London or Tokyo have make it an ideal location for business. We are home to eight Fortune 500 companies, multiple technology and biomedical firms which attract a highly educated workforce. Geographical restrictions, lakes, mountains, the sound and the growth management act all limit our developable land, but enhance our quality of life here in the Pacific Northwest. Add a little congestion to our freeways, great urban amenities, neighborhood redevelopment and you have a formula for sustained in city rental growth.

It helps also to remember that while prices aren’t yet at their peak level, there has been consistent growth in the market over the long term. According to the Apartment Advisor, prices have in fact climbed 5 percent compounded annually over the past 10 years. Broken out, King County has seen a 4.3 percent compound annual increase since 2001, while prices in Pierce County upticked at 3.8 percent per year.

And, on an even more hopeful and surprising note, Snohomish County’s market grew just over 5 percent, compounded annually.

Five percent growth sounds pretty good when bank CD rates are just above 2 percent, but when you consider that returns on real estate investments also comprise of tax savings and sheltering, operating cash flows and equity growth through debt reduction, the total returns stack up much higher.     

Hazel Gardens in Kent brings $7.6 million at sale

Showing investor confidence in the continuing redevelopment and business expansion in Kent, Washington’s sixth largest city, Trinity Property Consultants headquartered in Newport Beach California acquired the Hazel Gardens Apartments at 10710 256th Street in Kent, WA from Dana Mower owner of DBM Investments in Auburn for $7.6 million, or $100,000 per unit.  The 77,647-square-foot, 76-unit apartment community consists of 21 one-bedroom, 49 two-bedroom, and 6 three-bedroom units in eight buildings. The complex was built in 2002.  The property had a 95% occupancy at time of sale reflecting the viability of the site location.  The Kent market has ongoing multifamily investment opportunities, one such property to keep watch for will be marketed by Real Estate Investment Services of Kent in the spring of 2012, offering investors a renovated and fully leased 24 unit multifamily investment property.

 

 

 

Here is today’s post from co-star which echo’s what we’ve been seeing here in the Seattle metro area. Rents are up and there is increasing competition for available units. Landlords it’s time to revisit your rent strategies! For a consultation in increasing you buildings NOI and value give me a call.

 

The Coming Rental Housing Wave

Protracted Economic Distress in Housing Sector has Created Legions of Renters in New Markets and New Age Groups

 While widespread recovery continues to elude the housing sector, the apartment market has become one of the real estate industry’s — and the broader economy’s — best hopes for a return to the good old days, with robust property values attracting keen investor interest. And it has the Great Recession to thank for it.

The multifamily market is benefiting from changing demographics and consumer attitudes toward renting resulting from the growing number of financially stressed households. The increase in young and newly formed households that have decided to postpone or even reject home-ownership in favor of the lower debt and flexibility afforded by renting during these last unsettled economic years.

“It’s an exciting time to be in this growing sector where it is projected that $1 trillion in capital and 10 million additional apartment units are needed in the next 10 years as more individuals turn to apartment living,” said Freddie Mac Multifamily Senior Vice President David Brickman.

Renters now make up more than 40 million households – about one-third of total U.S. households, according to Brickman. For every 1% that the current home ownership level of 66% decreases, one million individuals become renters.

The changing demographics also show a significant increase in immigrants, 20-34 year olds, and baby boomers entering the rental market.

 

With the U.S. real estate market in the throes of recession, growing numbers of investors are adding real property to their portfolios.

Under the right conditions, that could be a wise investment strategy, good for long-term yields and expansion of portfolios beyond the usual stocks and bonds.

But it’s important to have all the facts before jumping into the fray of today’s real estate market. That becomes especially true when you are dealing with a seller who is “motivated.”

Under some circumstances, frankly, you might be better off investing elsewhere, instead of a property that’s priced to move.

Questions abound: Why is the seller motivated? What kinds of liabilities are associated with the property? Is there some outside timeline that could be problematic to the buyer of this property? Will the buyer actually see a healthy return on their investment?

“When I hear the term ‘motivated seller,’ I often sense there might be some opportunity there, but I also tend to be more cautious,” said Jason Wilcox, a Realtor holding the coveted status of Certified Commercial Investment Member.

“There are a lot of opportunities, but a lot of so-so investments.”

CCIMs like Wilcox are specially trained to do something realtors are not: To analyze the property from the buyer’s perspective. That includes doing a current-market analysis, as well as what is called a discounted cash-flow analysis (assessing the projected return on the investment, based on aspects such as inflation, risk and vacancy rates, cash flow from the property, and  how long the investor wants to own the property.)

“We assess the property on that basis,” Wilcox said. “We check the value from the buyer’s perspective. To the seller, they may say a property is worth $1 million. But with our own criteria, that investment may be worth $800,000 to us.”

That opens the door to another facet of real estate in which CCIMs are especially versed: the art of the deal.

Sometimes, the best deal isn’t in dollars, and CCIMs like Wilcox can help an investor navigate the issue for the best return.

“The price may not be the most important thing,” Wilcox said. “It may be the terms. Does the seller want a lump sum and be saddled with a tax burden, or a down payment, with an amortized income stream from multiple payments? Structuring a deal that addresses the critical needs of the seller, while meeting the goals of the investor, can create a winning situation for all parties.”

“The goal is to find the best opportunities that meet the goals of the investor.”

Jason Wilcox, a veteran commercial real estate specialist, has joined forces with REIS Investments, a real-estate investment company based in the Puget Sound area.

The new relationship will unite Wilcox, a Certified Commercial Investment Member, with fellow CCIMs Chad Gleason and Chad Anderson, both owners/brokers of the firm.

Wilcox pointed out the advantage of having multiple specialists with the coveted CCIM designation under one roof.

“I’m excited to work with two other CCIMs, because it gives me the strength to take on more projects, with a broader scope of resources with them,” said Wilcox, whose specialty is multi-family real estate development.

“Our team can provide development help and guidance into where to place capital,” he added.

The CCIM designation is carried by just 6 percent of all commercial real estate professionals in the country. Professionals holding the designation are recognized experts in the professions of commercial and investment real estate.

CCIMs function as a critical resource across the board in the real estate industry: from the commercial property owner, to the investor and the property user.

“Typically you work with clients for many years,” Wilcox said, noting the idea is to provide complete service, from acquiring real estate for investment portfolios to managing those properties for the owners.

“We can provide services during acquisition, property-management analysis and disposition strategies, and redevelopment strategies for that property.”

Wilcox has been an investment realtor for 18 years and a full-time commercial broker for five years.

REIS Investments has been in operation since 1983, and presently operates offices in Seattle, Tacoma, Kent and DuPont. The firm provides a full range of real estate services, including commercial and residential sales and leasing, property management, retirement real estate investment, receiverships and 1031 exchanges.

Rising Rents and Few Concessions

In a recent survey seventy percent of Seattle landlords who participated reported that they plan on increasing their rents by an average of three percent while thirty percent planned no rent change.  The tightening rental market and high demand is allowing landlords to once again pick and choose their tenants while increasing revenues with higher rents.  In 2010 rent concessions where the norm with more than twenty-seven percent surveyed properties offering some form of incentives, in 2011 less than one percent of Seattle landlords felt the need to offer concessions.         

CCIM.com has an interesting article about student housing operating expenses.  While renting to students can pose challenges, keep in mind the movie animal house.  The rentals can be very predictable buildings are usually pre-rented for the next school year and the leases are often a group lease with rents guaranteed by the parents.  The area just north of the UW campus is predominately rental, but opportunities to purchase student rentals can be found as far north as 65th and west into Wallingford .     

       

New Study Looks at Off-Campus Student Housing

Posted October 19th 2011

 Approximately 53.6 percent of rental income from off-campus student-housing properties is spent on total operating expenses, according to a new benchmarking survey from the National Multi Housing Council’s National Student Housing Council. Other top expense categories include total compensation (11.9 percent), utilities (11.0 percent), taxes (9.0 percent), and maintenance and repairs (5.2 percent).

Based on property age, total operating expenses were slightly lower for properties built since 2003 (52.3 percent) compared to 54.1 percent for properties built between 1998 and 2002 and 54.6 percent for properties built prior to 1998. Compensation was higher for older properties (14.0 percent of expenses) compared to 10.9 percent and 11.0 percent respectively for properties built since 2003 and properties built between 1998 and 2002.

The Northeast region spends significantly less on total operating expenses — 39.5 percent — compared to 56.6 percent in the Midwest.

In the Seattle apartment building market, risk can be defined as the uncertainty with respect to an apartment building’s income-earning capacity and value. Investor risk perceptions regarding the prospects of an apartment property are influenced by the economic and apartment market conditions prevailing at the time of the purchase, especially with respect to household income and population growth, as well as apartment supply growth. All else being equal, one would expect that when the apartment market is strong, with climbing rents, high levels of absorption, and decreasing vacancies, investors will feel less uncertainty about apartment property future cash flows and appreciation prospects. This lower uncertainty will translate to lower apartment risk perceptions, allowing investors to accept lower returns and, therefore lower apartment cap rates. Market CAP rates will compress or decompress in reaction to these perceptions and economic conditions as shown by historical results.

Besides the effect of broader apartment market conditions in the Seattle metro area, the investment performance of an apartment property is also affected by property-specific and location factors. Hence, these location and property-specific factors also shape risk perceptions and the cap rate that may be used by an investor in determining the price he/she is willing to pay for an apartment property. For example, an investor may consider a 30-year-old apartment building as more risky than a new one because of greater risk of functional obsolescence and greater uncertainty regarding the building‘s required maintenance expenses.

The Seattle metro area has experienced a favorable vacancy rate decline in the apartment sector throughout 2010. If you’d like to learn more about the rent or other market conditions in your part of the state, contact Jason Wilcox for just released Q3 findings for all major sectors in commercial real estate.

Local Washington markets are in constant flux and the most successful owners, investors and tenants are consistently striving for the competitive advantage that comes from having access to timely, high quality market intelligence. Even subtle changes in rents, concessions, vacancies, construction activity and transaction prices may alter your analysis and pricing of an investment opportunity or leasing commitment. When negotiating your next real estate opportunity, we suggest you come armed with the advantage of the latest and most accurate insights on your local market from me and my team, where we are are ready to help you throughout your next transaction.

I’ve been helping investors find excellent opportunities for multi-family home and commercial properties in the Seattle real estate market for years. Even though the economic times are difficult, investments in multi-family housing may actually be improving as many homeowners choose to sell and look for less risky rental housing. Here on my new home website, Seattle real estate investors will find some tools to help analyze property investments, and I’ll be sharing my thoughts on the local markets and trends. You’ll also be able to see my latest listings and some thoughts on their potential as investments. If you’re interested in exploring the multi-family home market in Seattle or the Greater Puget Sound area, I encourage you to give me a call so we can discuss your investment goals.

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