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.

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

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.   

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.  

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.           

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.

 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.