The return of the renters: Upended housing market spurs Portland's apartment market
Portland Business Journal - by Wendy Culverwell Business Journal staff writer
The mortgage meltdown is good news for apartment owners.
Owners of multifamily buildings will benefit when former renters who overreached and face foreclosure return to the rental market. Grubb & Ellis, in its 2008 real estate forecast, notes that multifamily housing is the only commercial real estate sector to benefit from the housing slump because more people are renting.
Metro-wide, apartment vacancy rates stand at about 4.4 percent, down from 4.9 percent a year ago. Average rent has climbed to $781, up 5.7 percent in the past year.
The numbers are helped by a slowdown in new construction, with about 770 units expected to be constructed in the area this year, somewhat below the annual average of 1,000.
About 3 percent of the city's apartment inventory of roughly 250,000 units has been converted to condominiums in recent years, further dampening supply.
Jerry Johnson, a real estate consultant and principal with Johnson Gardner LLC, talks of one owner who plans to offer a "Welcome Back" package for former tenants facing foreclosure and returning to the rental market. His theory: They'll be solid renters for several years to come as they rebuild their credit.
Phil Oester, a multifamily broker with Hendricks & Partners, said mortgages with low interest rates and 100 percent financing took some of the most financially stable renters out of the market.
"Now they're back," he said.
The bigger impact will likely result from current tenants who might have become owners when mortgages were easier to come by. The days of easy mortgages are quickly drying up.
It's been a long wait for owners. Rising levels of homeownership helped push up vacancy rates and lowered rents.
Nationally, the rate of Americans who own their own homes climbed nearly three points to 68.2 percent in the past decade, according to U.S. Census data. In Portland, one percentage point equals about 7,000 households. A three point rise in homeownership here translates roughly to 21,000 fewer rental units.
That has a huge impact on a market this size, said Johnson.
Now, however, it's starting to correct.
According to Hendricks & Partners, the Portland apartment market is benefiting from the addition of 14,500 jobs in the past year along with a drop in home sales, as reflected by the rising inventory of unsold homes.
According to the Regional Multiple Listing Service, the number of closed sales fell more than 25 percent in October and pending sales were off by 22 percent. With 15,567 homes actively for sale in October, the inventory would satisfy demand for 8.4 months, up from 4.6 months in 2006.
Oester has noticed a surge in buyers for complexes built in the 1980s and 1990s. They're updating the interiors with new cabinets, counters and trim, raising rents and planning to sell in just two to five years.
"Most activity is in rehab," he said.
Joseph Chaplik and Bernard Gehret, partners in the multifamily brokerage Joseph Bernard Investment Real Estate, agree that apartments are attractive to buyers and to banks.
While bankers are sweating over bad mortgage loans, financial institutions continue to write loans on income-producing properties, such as apartments. Interest rates have even dropped in recent weeks, they said.
The reason: Good fundamentals and the rarity of foreclosures on multifamily properties.
According to LoopNet, the California-based real estate data service, the average price per apartment unit in the Portland area is up to $103,658, a 39 percent increase from just a year ago.
At the same time, eager buyers are accepting a lower return on their investments, anticipating a future rise in value. The average capitalization rate for apartment deals in the past year is about 6 percent, down from 6.3 percent a year ago.
wculverwell@bizjournals.com | 503-219-3415
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