Industry News

Apartment REITs Expected to be Strongest Performers

As earnings season gets under way for real estate investment trusts, analysts are warning that it isn't going to be pretty. High vacancy rates and low market rents are continuing to drain cash flows from office, retail, and industrial buildings even as many analysts and economists predict an industry bottom will emerge this year. Hotel and apartment companies are expected to be the strongest performers given an increase in corporate and leisure travel and a growing population of renters. But the tepid earnings represent a disconnect from the performance of REIT stocks this year, which have outshone the broader market. For instance, The Dow Jones All Equity REIT index, which tracks 155 REITs, was up 12.8% for the third quarter compared with returns of roughly 10% for the Standard & Poor's 500-stock index and the Dow Jones Industrial Average. The reason: Investors are looking past the current weak fundamentals and into next year, where a strong recovery is expected to take root.

REITs are also benefiting from the greater availability of credit in commercial real estate and the hunger of investors for higher yields.  Most REITs pay substantial dividends because of the rule that they must pay at least 90% of their taxable income out as dividends. Earnings from hotels and apartment operators are expected to come in relatively stronger compared with other sectors, although they will likely be far from robust. Haendel St. Juste, an apartment REIT analyst at Keefe, Bruyette and Woods, said earnings by apartment operators should improve sharply because demand for rentals has surged amid the housing crisis. "People don't want to buy, they want to rent these days," said St. Juste, referring to the wave of national foreclosures and perceived disincentives to buy new homes. He noted that every one percent decline in home ownership adds one million to 1.5 million new renters into the market. Source: The Wall Street Journal

Single-Family Home Builders Weigh Multifamily Options

Multifamily isn’t the only housing sector beginning to deploy sidelined capital into Class A, high-barrier core acquisitions, or distressed commercial real estate for that matter. Following-up an August acquisition of a $1.7 billion FDIC portfolio of some 300 distressed commercial real estate assets, Horsham, Pennsylvania-based home builder, Toll Brothers, announced recently that is has purchased a property in the Upper East Side of Manhattan and will begin construction on a 15-story mid-rise project that will include up to 25 luxury for-sale condominiums. “The acquisition of this premier property is another example of our ability to move quickly to take advantage of opportunities that are emerging in the current challenging real estate market,” said Toll Brothers CEO, Douglas Yearly. “With over $2 billion in available capital, we have been purchasing notes and properties across our various product lines.”

For single-family builders like Toll Brothers, those product lines have increasingly included multifamily, an asset class that several years ago was de minimis. Today, about 10 – 15 percent of Toll Brothers' portfolio is in multifamily. Toll Brothers isn’t the only single-family homebuilder making FDIC waves, the firm’s Miami-based competitor, Lennar, made a $3.05 billion FDIC portfolio buy last February comprising of approximately 5,500 distressed residential and commercial real estate loans from 22 failed bank receiverships. Lennar followed-up that deal this month with the acquisition of a $740 million portfolio of distressed real estate assets in separate transactions from three large, unnamed financial institutions. Source: Multifamily Executive

Apartment Owner/Operator opts for Portal Approach in First Mobile Apps

Pending official approval from Cupertino, California-based Apple, the Archstone iPhone app will hit the Apple App Store this week. Combining account, service request, and contact functionality, the Archstone app steps away from apartment search capabilities in order to focus on what Archstone Group Vice President and Head of Marketing, Donald Davidoff, calls a “transactional” app model.  “It’s really pretty simple: We’ve decided to focus our mobile initiatives around transactions, really trying to get people the steak and not worry so much about the sizzle,” Davidoff says. “What this app primarily does is allow residents to pay online and view account balances and histories with the same pay-online functionality that our resident portal offers. It also allows them to submit and track service requests and includes a direct email contact function.” Regardless of specific functionality, Davidoff encourages his multifamily peers to begin looking seriously at mobile technologies.

Archstone developed the iPhone app using internal IT programmers in an effort to learn more about mobile programming, and the firm is looking at additional mobile initiatives as a follow-up to the iPhone app, including rolling out apps to the Droid and Blackberry mobile platforms. “Programming and development of the applications are not overly difficult. The biggest challenge is being very careful in your design and paying attention to the screen size and stripping down your requirements to just the barebones,” said Davidoff.  Archstone is currently evaluating mobile apartment search functionality, but might surrender those services to other industry providers as it continues the roll-out of its mobile platform. “I’m not going to tell you we’ll never have an apartment search app, but right now we see the value to the prospect in having an apartment search app from one of the ILSs where they are starting their search and there is tons of content,” added Davidoff. Source: Multihousingnews.com

Financial Reform Act's Impact on Multifamily Borrowers Yet to be Seen

The Dodd-Frank Wall Street Reform and Consumer Protection Act will undoubtedly impact commercial real estate lending. But with so much rule-making yet to come, it may be years before the Act’s impact will be fully felt. The Act directs federal agencies to issue nearly 200 rules to implement the law and gives them the authority to act on up to 350 provisions, according to the Financial Services Roundtable and U.S. Chamber of Commerce. So regulators are still in the information-gathering stage, trying to reconcile the Act’s principles with real-world rules and regulations. For multifamily borrowers, there are two specific provisions that may impact access to both construction loans from banks and CMBS loans from conduit lenders. One provision requires banks to keep higher capital reserves to protect against losses, though just how much they’ll need to set aside remains unclear. The second requires conduit lenders to retain some risk, or “skin in the game,” for any CMBS loans they close and issue.

One primary focus of the bill is to ensure that banks are more highly capitalized to prevent the kind of failures that kicked-off this recession. Intuitively, this means that there will be less money at a bank’s disposal to lend. For conduit lenders, the buzz is all about the new “skin in the game” provisions, a possibility that the industry has been fighting since the Obama administration floated the proposal last year. As originally written, the Act required originators and issuers of CMBS to retain five percent of a loan on their books, increasing their capital set-asides. This would have limited access to, and increased the cost of, CMBS loans to the borrower. The idea is that conduits would make more conservative loans if they had some stake in the loan’s performance. Originally, the Act treated all asset-backed securities for commercial mortgages, residential mortgages, credit cards, student loans, and the like, exactly the same. But one size doesn’t fit all. The retention of risk is already an important part of the CMBS industry and third-party investors take the first-loss position and negotiate to purchase the risk. Source: housingfinance.com

Renters Get Chatty During Apartment Search

American consumers want to have a live chat option when researching products and services online. Nearly 45 percent of U.S. online consumers say that having their questions answered by a live person while they are in the process of shopping online is one of the most important features of a website. In response to this demand, Apartments.com is the first rental website to launch "Live Chat," providing apartment shoppers with a new and easy way to connect with the leasing office during their apartment search. Americans spend a collective total of about 160 million hours per month instant messaging. Functioning similar to popular "instant messaging" programs, "Live Chat" enables renters to quickly connect with the leasing office directly from the Apartments.com listing to ask questions, confirm availability, and set-up appointments to tour apartments and the community.

While many renters are choosing to contact the apartment leasing staff through "Live Chat,” this new method of communicating is not replacing the number of phone calls and emails being received by the leasing office. During a trial period, advertisers using "Live Chat" experienced a 20 percent increase in the number of renters contacting the leasing office without unfavorably impacting email and phone activity.  Leads from highly qualified ready-to-rent prospects are delivered to Apartments.com customers, increasing closure rates and decreasing the average cost of leasing an apartment. The Apartments.com network of apartment rental websites includes Apartment Home Living, a leading social media apartment website, proprietary lifestyle matching, and local living guides to help renters find their perfect place to live. Source: multifamilybiz.com