Foreclosed, vacant homes pressure apartment rents
Fri, Apr 10, 2009 (2 a.m.)
- Apartment occupancy dips due to economy, unemployment (2-20-2009)
- Foreclosure crisis also hitting renters hard (1-30-2009)
- Apartment rental, occupancy rates fall with home prices (1-22-2009)
When the foreclosure crisis hit Las Vegas, many expected apartment-complex owners to be the beneficiaries because those out-on-the-street homeowners needed to live somewhere.
But the reality is that the shadow rental market of homes and condominiums continues to put pressure on apartment-complex owners, whose vacancies are increasing. They must offer incentives and cut rents to lure tenants.
“Obviously, the problem with foreclosures is they dramatically impact apartments, and the shadow rental market is continuing to grow,” said Dennis Smith, president of Home Builders Research. “The people moving out of their home because of foreclosures — they think they are going to move into an apartment, but chances are they can go out and find a 1,600-square-foot house for $1,000 or $1,100. And it is easier for them to qualify with the owner of the property than to go to an apartment and try to qualify through their process.”
Unfortunately for apartment-complex owners, home foreclosures aren’t slowing and won’t provide relief anytime soon, Smith said. The federal government’s efforts to ease the housing crisis won’t help overnight, he said.
“We are in this for a number of years,” Smith said. “I don’t see anything changing until late 2010 or 2011 at the earliest for any kind of turnaround and prices to stop going down. I think you are going to see single-family (homes) put downward pressure on the apartment segment for at least another two years at a minimum.”
It’s incorrect to call home rentals the shadow market any longer because it is in full-blown competition with apartments, said Frank Castro, supervisor for the Housing and Urban Development’s local office. With foreclosures getting worse and condominiums coming on line as rentals, they are putting a lot more pressure on the industry to trim rents, he said.
“I think 2009 will be our worst year in every aspect as far as multifamily (housing) is concerned,” Castro said.
In the past, apartment-complex owners could get rents that paid for property amenities, but that’s no longer the case, Castro said.
“We just need to hold on to this year, and see what we can do,” Castro said.
John Tippins, a broker with Northcap Commercial and owner of Tippins Holdings, said he’s worried about the inventory that’s about to come on line to compete against apartments. Many condominium towers are going to provide some stiff competition, he said.
“It is not the current inventory I am worried about, but the new inventory,” Tippins said.
Tippins also said competition is stiffer from homeowners as well.
“For the first time in four to five years, you can get a three-bedroom, two-bath on the beltway market from Summerlin to Green Valley for $1,150 a month. That is pretty scary,” Tippins said.
Tippins suggested apartment-complex owners create alliances with retailers, health clubs and other local businesses and make it more attractive for people to rent their units instead of homes.
“Single-family homeowners are not going to have those alliances,” Tippins said. “They have to get more than just the complex when you are competing for the same dollar.”
Castro said even though the high-end apartments are struggling, it’s the lower-end properties that are hurting the worst. When casino jobs are cut, that means fewer renters, and all anyone has to do is drive around and see vacant commercial space to see there are fewer jobs in the valley, he said.
“Those were people who were renting,” Castro said. “And unlike the Arizona rental market, many of the folks here don’t have any ties to Las Vegas and if they lose their job, they are not going to stay around and see if they can make it. They are gone.”
As for new complexes, many were built when land prices were much higher than they are today, and that restricts what rents can be charge to be to be profitable, Castro said.
Tippins said the drop in land prices, however, will pave the way for future projects. Land is cheaper today, for example, in the southwest valley than what apartment developers paid for in North Las Vegas.
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