Commercial Investment Real Estate November/December 2017 | Page 30
Apartment Vacancy Rates
7.1%
Actual
6.5%
5.8%
5.2%
2005
2006
5.5%
5.1% 5.1%
2007 2008
Forecast
20-Year Avg. (5.4%)
5.7%
5.0%
hit the market, it will be interesting to see how those
units are absorbed.”
2009
2010
2011
2012
2013
4.7% 4.6% 4.8% 4.8%
2014
2015
2016
2017
5.0% 5.1%
2018
2019
Sources: 1997-2016 (Q4), CBRE; 2017-2019 (Q4), ULI Consensus Forecast.
Note: The previous ULI Consensus Forecast (released in April 2017) projected 5.2%, 5.3%, and 5.4%,
respectively, for 2017, 2018, and 2019.
trend in downtown Los Angeles is that developers
are building apartments with some of the frame-
work in place, such as condo subdivision maps,
which allows the developer to shift from apartments
to condo sales depending on what the market dic-
tates, she adds.
Baton Rouge, La., also has an ample pipeline of
projects underway, mainly focused on luxury, Class
A apartments, and student housing markets. In
2016, about 770 market-rate apartments and 380
student apartments were delivered.
The pipeline for 2017 and 2018 includes 1,800
market-rate apartments and about 1,000 student
units, according to Chris Gremillion, CCIM, an
investment sales specialist at NAI Latter & Blum in
Baton Rouge. There is a lot of money chasing the
student deals, but those owners and developers
could face a tough market in the next few years due
to concerns about oversupply, he adds.
On the market rate side, developments that have
timed the market right and have Class A locations
are leasing very well. “Baton Rouge is becoming
more pedestrian and biker-friendly,” Gremillion
says. “Projects that are located in areas where peo-
ple can walk to bars, restaurants, and other con-
veniences are in favor. Looking ahead to first and
second quarter of 2018 when more supply is due to
28
November | December 2017
Narrower Window of Opportunity
In some markets, the low hanging fruit and best
development opportunities have already been
snapped up. Some developers are looking to get in
— and out — of the market before the cycle winds
down. Lenders are already starting to pull back on
financing for new construction.
“We have seen nearly a dozen projects drop this
year throughout Florida, and financing is a key
component of the projects not being able to move
forward,” says T. Sean Lance, CCIM, ALC, found-
ing partner of Vertica Partners in Tampa, Fla.
Some lenders have stopped lending altogether,
while others are requiring bigger equity commit-
ments. In Florida, loan-to-cost ratios on construc-
tion loans have dropped from about 65 percent to
55 percent, according to Lance. “Lenders also are
very concerned about the pipeline in virtually every
market,” he says. “As a result, they are being much
more selective on deals.”
There are multiple new projects in the northern
New Jersey market that are proposed and are work-
ing toward approvals, and some that are being built,
says Chris Cervelli, CCIM, owner of Cervelli Real
Estate and Property Management in North Bergen,
N.J. There is a push to get those projects sold early,
because there is a lot of new product that has been
built and is coming online.
Developers are starting to put projects on hold.
“Even though there are a lot of projects that are
entitled, they are not all being built,” he says.
In Florida, the first wave of development was
focused on urban infill and the downtown core
markets. Once those areas became more saturated,
construction shifted more to the suburbs. That sec-
ond wave of suburban development is just starting
to deliver completed projects.
“There is a last wave now as people are back-
filling space and scrambling to find projects to get
going,” Lance says. Some proposed developments
have started to drop out for a multitude of reasons.
Lenders have tightened the access to capital for new
construction, which has provided a headwind to
new projects getting off the ground.
Absorption has gone well for those projects that
have been delivered to date. That said, projects that
are coming online in the second half of the year and
into 2018 will start to test how deep the market is,
especially at the high end, according to Lance.
For example, how many renters in Tampa can
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