Ore. condos, apartments may be first market uptick
PORTLAND, Ore. (AP) - Statistics released recently by the local real estate industry indicate Portland's apartment and condominium market may be the first sector in the metro area to turn around.
The city's multifamily vacancy rate was 4.1 percent for the second quarter of 2010, down almost an entire percentage point from the first quarter of the year, according to NAI Norris, Beggs & Simpson.
It's the first time in two years that rental rates have risen. But before anyone will consider the uptick a full recovery, local brokers say there needs to be more job growth and some new projects in the pipeline.
"These are great indicators that things are moving in the right direction, but seeing those numbers grow - or at least sustain through the fall and winter - will be the truly telling sign," said Robert Black, associate vice president of NAI Norris, Beggs & Simpson.
Black added that even though unemployment has remained high this year, positive in-migration, distrust in homeownership and accustomation with the recession have boded well for the multifamily market. According to Portland State University's Population Research Center, the city is gaining approximately 21,000 people a year.
"People were doubling, and sometimes tripling up in apartments throughout the recession, and that is starting to change," Black said. "There has been a reset on both lifestyle expectations and expected earnings, so renters now feel comfortable going out and finding their own place.
"But in order for these renters to continue renting, there needs to be more jobs."
The positive rental trends are helping close the gap between those looking to sell multifamily properties and those looking to buy, according to Black. While the year-to-date volume of sales is down 36 percent from a year ago, the deals that are getting done aren't distressed sales, like most of the transactions over the past two years, he said.
One example is Tupelo Alley. The 188-unit apartment complex on North Mississippi Avenue last month sold for $38.7 million to Behringer Harvard Holdings, a Texas-based real estate investment firm.
"This was a great deal for us," said Tom DiChiara, managing director for Trammell Crow, which developed and sold Tupelo Alley. "It was a fair price and I think it's an indicator of more market-level deals to come in Portland."
Many of those deals might be driven by out-of-town investors. Gary Winkler, managing broker for Winkler & DuPont Apartment Brokerage, said Portland's decreasing vacancy rates are helping boost the attractiveness of the area's multifamily market.
"Tupelo Alley is a sign that there is a good institutional market out there, but it isn't very deep yet," Winkler said. The deals being made are for properties in good locations and with good occupancy, and not just low prices, he said.
While existing inventory could help attract those investors - Opus Northwest, for example, earlier this month put the 322-unit Ladd apartment tower on the market - DiChiara said any long-term improvement in the local multifamily market will be dependent on new projects starting to replace the inventory that's been sold.
Trammell Crow would love to start more neighborhood projects like Tupelo Alley, but financing constraints and a lack of available land are making it nearly impossible, he said.
"There is a shortage of supply, especially for the medium-priced stuff," DiChiara said. "And there just isn't anything in the pipeline from Trammell Crow, or from anyone else around town."
None of the three real estate professionals have heard of a new project in sight, but agree that there probably should be if vacancy rates stay low. Even 70 percent of the 3,000 units delivered to downtown over the last four years are occupied, even though it is the only overbuilt submarket in Portland, Black said.
While Black remains optimistic about multifamily in Portland, he is going to proceed with caution until employment picks up and some projects are started. But if the trend continues, he believes there could be widespread change.
"Multifamily usually outpaces other markets," he said. "So if we continue to see a turnaround here, we could see one across the board."
The city's multifamily vacancy rate was 4.1 percent for the second quarter of 2010, down almost an entire percentage point from the first quarter of the year, according to NAI Norris, Beggs & Simpson.
It's the first time in two years that rental rates have risen. But before anyone will consider the uptick a full recovery, local brokers say there needs to be more job growth and some new projects in the pipeline.
"These are great indicators that things are moving in the right direction, but seeing those numbers grow - or at least sustain through the fall and winter - will be the truly telling sign," said Robert Black, associate vice president of NAI Norris, Beggs & Simpson.
Black added that even though unemployment has remained high this year, positive in-migration, distrust in homeownership and accustomation with the recession have boded well for the multifamily market. According to Portland State University's Population Research Center, the city is gaining approximately 21,000 people a year.
"People were doubling, and sometimes tripling up in apartments throughout the recession, and that is starting to change," Black said. "There has been a reset on both lifestyle expectations and expected earnings, so renters now feel comfortable going out and finding their own place.
"But in order for these renters to continue renting, there needs to be more jobs."
The positive rental trends are helping close the gap between those looking to sell multifamily properties and those looking to buy, according to Black. While the year-to-date volume of sales is down 36 percent from a year ago, the deals that are getting done aren't distressed sales, like most of the transactions over the past two years, he said.
One example is Tupelo Alley. The 188-unit apartment complex on North Mississippi Avenue last month sold for $38.7 million to Behringer Harvard Holdings, a Texas-based real estate investment firm.
"This was a great deal for us," said Tom DiChiara, managing director for Trammell Crow, which developed and sold Tupelo Alley. "It was a fair price and I think it's an indicator of more market-level deals to come in Portland."
Many of those deals might be driven by out-of-town investors. Gary Winkler, managing broker for Winkler & DuPont Apartment Brokerage, said Portland's decreasing vacancy rates are helping boost the attractiveness of the area's multifamily market.
"Tupelo Alley is a sign that there is a good institutional market out there, but it isn't very deep yet," Winkler said. The deals being made are for properties in good locations and with good occupancy, and not just low prices, he said.
While existing inventory could help attract those investors - Opus Northwest, for example, earlier this month put the 322-unit Ladd apartment tower on the market - DiChiara said any long-term improvement in the local multifamily market will be dependent on new projects starting to replace the inventory that's been sold.
Trammell Crow would love to start more neighborhood projects like Tupelo Alley, but financing constraints and a lack of available land are making it nearly impossible, he said.
"There is a shortage of supply, especially for the medium-priced stuff," DiChiara said. "And there just isn't anything in the pipeline from Trammell Crow, or from anyone else around town."
None of the three real estate professionals have heard of a new project in sight, but agree that there probably should be if vacancy rates stay low. Even 70 percent of the 3,000 units delivered to downtown over the last four years are occupied, even though it is the only overbuilt submarket in Portland, Black said.
While Black remains optimistic about multifamily in Portland, he is going to proceed with caution until employment picks up and some projects are started. But if the trend continues, he believes there could be widespread change.
"Multifamily usually outpaces other markets," he said. "So if we continue to see a turnaround here, we could see one across the board."
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