News
Merry Multifamily
December 9, 2011
| With the holiday-decorated charm of the Edgewater Hotel as backdrop (even a harpist we imported), five leaders of the sector pronounced it a very good year at our Bisnow Multifamily Summit Wednesday, with predictions that good times won't stop soon. Appropriate to the season, Amazon, Microsoft, Starbucks, and Boeing remain gifts that keep giving. |
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| There were some caveats. An audience of 250 heard speakers say a potential headwind is oversupply, though it could be as far off as 2017 since challenging financing is ?metering? the flow. But job growth and even wage growth mean rent growth and a continuing flow of talented young people to the area, all of whom need roofs over their heads. On balance the news seems so good we even imagined for a moment that the Beatlemania (for which the Edgewater was known when the Fab Four visited in 1964) might just have been superceded: a Fab Five and Multifamily Mania. |
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| Security Properties CEO John Orehek (the 40-year-old company has developed or owned over 60k apartment units) says he came to Seattle from Cleveland 30 years ago and it's a tale of two Americas, with Seattle lucky to attract so many entrepreneurs and risk takers, which provide ?jet fuel? for the city. He sees local cap rates in the 4?s as unprecedented but warns it's due not just to great fundamentals but also interest rates, which could change. Still, he's never seen as many investors coming to town with ?buckets of cash? as in the last 12 months. Among the reasons: pension funds that have to deliver annuities are searching for yields, and locking in 4.5% works. John hopes tighter standards and better information will allow developers to avoid swings of the past. |
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| Goodman Real Estate CEO George Petrie is busy: his value-add firm has 210 units under way on Western Avenue, 250 at 1915 Second Avenue, 700 in north Seattle, 1,000 entitled in the Boeing area, and other projects in Bellevue and elsewhere. He says Seattle is America's best market with such drivers as not only high tech but exports and manufacturing. But he also sees construction costs as rising over the coming 12 to 18 months. And private equity continuing to expect large yields, and lenders exacting so many conditions, down to number of units and even specs of fittings, that they seem to think they're developers. |
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| Moderator John Hemplemann of Cairncross & Hempelmann marveled that 56% of Seattleites are college grads. It hasn?t been bad for his firm, which has represented many in the room in acquisitions and transactions, land use and permitting, architecture and construction contracts, litigation, insurance coverage issues, tax, and sophisticated financings. John echoed the Fab Five's view about the great long-term opportunities in the Seattle Metro market, especially around all the new transit hubs being built in the region. One challenge, he said with a wink: getting people to spell his email right, which is [email protected]. He says he makes people send a test email first. |
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| Marcus & Millichap?s Justin White thinks we're early in recovery and multifamily expansion, and that the motivation for buyers and developers is looking out over the next 7 to 10 years and feeling the region will need ever more apartments. His firm sees Seattle as practically its best single market; its sweet spot is the $1M to $20M apartment building and it's already done 50 transactions here in 2011. 22% of their transactions, he says, were from out-of-state investors recognizing Seattle?s remarkable advantages. |
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| Holland COO Tom Parsons (whose multifamily-focused firm has 237 units under construction at 1200 Madison and two podium projects on Dexter totalling 385 units, with more to come) says customer demand is spreading from the core (where jobs are being restored) toward other employment centers; he joked that it seems like ?anyone who has ever developed anything is now becoming an apartment developer.? He notes that land didn't soften as much as the general market, and that its prices increased earlier this year fairly dramatically. Rents, he believes, could trend up for the next 24 months, but land and construction costs could temper the pace of development. |
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| Essex Property Trust?s Bryan Meyer has been with the apartment REIT since it went public 18 years ago, and is responsible for acquisitions in the Pacific Northwest, like 882 units it purchased from Archstone in Redmond recently. He says his firm is bullish on Seattle, seeing it just behind Silicon Valley, but that the $64,000 question is the supply side and absorption. He thinks we may see six or seven more ?hot? areas like Capitol Hill, Queen Anne, and Belltown. Bryan says his firm was able to buy well below replacement cost when rents were 20% off peak, but now sees a crossroads, with rents back to peak, cap rates compressed, and pricing therefore at or above replacement. In the last 60 days he's seen a pause in the bidding frenzy but continues to expect low to mid 4's for best products and locations next year, and 5's in secondary markets. |
