Here's a rundown on the latest developments - good and bad - in the real estate development industry. And, yes, there continues to be an ugly side to things, but if you stay focused on the long-term, there will be a recovery.
MULTIFAMILY
The Good: According to data from Reis, Inc. reported in the Wall Street Journal, the multifamily (apartment sector) has enjoyed rent increases for the third consecutive quarter. Not surprisingly, the national vacancy rate for the third quarter of this year is down .7% year-over-year.
The Bad: The recently passed summer months represent the prime rental season for the year as families relocate and students enter school. In addition, the continued health of the sector depends essentially on the creation of jobs; otherwise, these recent gains in occupancy and rent increases may be lost. Unfortunately, the latest jobs data, just out at 8:30EDT this morning, shows continued job losses and a continued unemployment rate of 9.6%. Finally, these data points are national in scope and don’t bring much solace to those parts of the country where there have been continuing declines in occupancy and/or rental rates.
COMMERCIAL
The Good: The commercial property price index maintained by Green Street Advisors, which is comprised of $300 billion in commercial properties and assets owned by 53 Real Estate Investment Trusts (REITs), reports that commercial property values have risen almost 30% since the bottom reached in the recession.
The Bad: National averages combine data from around the country and, obviously, average the highs with the lows. If things are rosy in Manhattan, they aren’t necessarily the same in Buffalo, Detroit, Phoenix, or Jacksonville, or anywhere where there continues to be fallout from overbuilding, short sales, and foreclosures. The properties that have been selling recently to a low cap rate (indicating that the sales prices were very healthy) have been well located core assets with very high occupancy by über creditworthy tenants on long-term leases.
RESIDENTIAL
The Good: The latest S&P/Case-Schiller Home Price Indices report that home prices appeared to be stabilizing. Further study indicates that home prices in half of the 20 Metropolitan Statistical Areas (MSAs) actually experienced a negative annual growth rate.
The Bad: ZipRealty’s latest review of properties listed with Multiple Liting Services (MLS) in 26 markets reflects both an increase in housing inventories and reductions in list prices.
The Ugly: As has always been the case, most data, if not all, can be misinterpreted, or worse yet, manipulated to appear to support almost any point. What we in the real estate development industry are most interested in professionally is the health of our industry. Grasping at positive changes in data on a month-over-month basis is wishful thinking. Trends, real trends, are long-term.
While few of us in the industry believe that a return to the halcyon days of 2005-2007 is beneficial, we do look for the recovery from the current disastrous state of affairs. The litany of the elements contributing to that disastrous state is a lengthy one. But the situation is not hopeless. There is one area that can spark the turnaround.
In past recessionary economies, the shelter industry – housing – was a major contributor to recovery. Not so, this time. The reason: uncertainty about the future caused by lack of confidence in the policies and direction in Washington. Loathe Mr. Obama or love him, the fact remains that his administration seems more intent on recreating the American culture and political structure than restoring economic viability.
Until the distinct majority of Americans are confident that jobs are being created on a scale sufficient to significantly reduce unemployment, that opportunities are being developed by the entrepreneurial class, and that businesses are expanding, consumer demand will remain dormant, business leaders will not take financial risks by expanding and hiring, and investment capital will continue to seek “fire sales”.
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©2010 by The Falbey Institute for the Development of Real Estate
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