Freddie Mac Apartment Investment Index Shows Strong Fundamentals in National and Local Markets
Despite signs of moderation, the fundamentals for multifamily investing are strong both nationally and in most of the 13 major metro markets tracked in the first-quarter for the Freddie Mac Apartment Investment Market Index (AIMI). AIMI is a free online analysis tool that combines multifamily rental income growth, property price growth and mortgage rates into one Index to give investors and market observers an objective view of market investment conditions.
Nationally, AIMI values increased slightly over the quarter to 107.4 from 107 in the fourth quarter of last year. However, on a year-over-year basis, AIMI continues to trend down -- both nationally and in 12 out of the 13 metro areas it tracks -- as property value growth exceeds net operating income (NOI) growth in a flat interest rate environment.
A rise in AIMI values from one quarter to the next implies an increasingly favorable environment for multifamily investment opportunities, while a decline suggests that attractive investment opportunities are becoming more difficult to find.
"The stability in national AIMI values underscores the essential strength of the multifamily market for potential investors. Property price and net operating income growth continue to outperform their historical averages in the majority of metros," said Steve Guggenmos, vice president of Freddie Mac Multifamily Research and Modeling. "What's more, despite relatively high multifamily construction, the overall strength in the labor market and underlying demographic trends are creating robust demand for new multifamily units."
Locally, Orlando and San Francisco experienced the largest year-over-year declines, although for different reasons. In Orlando, strong demand for multifamily units drove up NOI and property prices, while in San Francisco, NOI growth has started to moderate. Meanwhile, in Houston, NOI growth fell and property prices flattened in response to low oil prices.*
Aging Population Fuels Steady Demand for Need-Based Facilities in Senior Housing Market
With an excess of institutional and public capital at the start of 2016, the senior housing market began the year with a slight pause but has now steadied and is poised for long-term growth. Driving the senior housing market is need-based housing, which includes skilled nursing facilities, assisted living, and memory care.
The number of U.S. citizens age 65 and older continues to grow at a record pace. According to the U.S. Bureau of the Census, this group numbered 46.2 million in 2014 -- the last year for which data is available. They represent 14.5 percent of the U.S. population and are estimated to rise to 98 million by 2060, more than double compared to 2014.
"Given the vast number of seniors in the pipeline, it will be very difficult for senior housing to be overbuilt in the long run," says Paul Aase, CCIM, partner at Active Senior Concepts in Johns Creek, Ga. "The challenge is that the bulk of the resident growth will not be hot for another 10 to 15 years as the baby boomers start to age."
Most supply is in need-based facilities. While there is also development momentum in independent living facilities, neither markets show an oversupply.
"Skilled nursing in most states requires a certificate of need, which creates a barrier of entry, so that area has not been overbuilt," says Richard Lynn, associate of the National Seniors Housing Group at Marcus & Millichap in Oakbrook Terrace, Illinois. "Independent living also hasn't been overbuilt because it is want-based and not need-based. The supply could exceed demand for some period of time, but ultimately the demand will catch up."
The senior housing vacancy rates were 8 percent for Q1 in 2016 and 8.3 percent for Q4 in 2015, according to Reis. Cap rate compression has also been seen across the board in senior housing during the last few years.
"On the institutional side, REITs are very dependent on interest rates. So with the expectation of those going up, it does take money out of the public sector," Lynn says. "But below that, there are other sources like private equity, institutional, and the lending environment, which tends to bring balance. There is plenty of liquidity in the industry."
With long-term fundamentals looking strong and demographics moving in the right direction, a significant demand for need-based senior housing will occur. Because of increased regulations and certifications, the trend of senior housing becoming more upscale and focused on health and wellness brings additional challenges to need-based facilities.
"There is a much higher operational risk in need-based senior housing assets, such as skilled nursing facilities, higher-acuity assisted living, and memory and Alzheimer-related facilities," says Robert Stone, CCIM, president for R2S Interests, Senior Housing Brokerage & Consulting Services, in Richardson, Texas. "Close attention should be paid to underwriting during acquisitions of need-based properties because the operations are usually more important than the bricks and sticks."
Roughly 70 percent of U.S. adults over the age of 65 will need long-term care at some point in their lives, according to U.S. Department of Health and Human Services. As baby boomers start to shift from being the caregivers to being the receivers of care, they are expected to demand more amenities from senior housing facilities. Demand for senior housing will continue to be steady with many new well-structured and capitalized projects coming to market.*
Congress Unanimously Approves Housing Opportunity Through Modernization
The Housing Opportunity Through Modernization Act of 2016 (H.R. 3700) passed the Senate on July 14th and is now expected to be signed into law by The President. The “common sense” legislation received a unanimous vote in both the House and Senate. For more information on H.R. 3700, see below.
June 28, 2016 — The Senate appears to be following the House’s lead on legislation that would reform project-based rental assistance. On June 22, 2016, the Senate Banking, Housing, and Urban Affairs Subcommittee on Housing, Transportation, and Community Development introduced the Housing Opportunity Through Modernization Act of 2016 (S. 3083). The bill serves as companion legislation to H.R. 3700 (see prior story below). Rep. Blaine Luetkemeyer (R-MO), the sponsor of the original House legislation, thanked his fellow Missourian, Senator Roy Blunt, for introducing the bill on the Senate side, hoping that “the upper chamber will follow the House’s lead and unanimously support taking the first step to changing our nation’s housing policies.”
Unanimous passage in the House and now introduction in the Senate indicate a bright future for the bill. That said, many of the provisions within the bill have been widely supported by Congress for almost a decade, but those proposals were never enacted.
Feb. 3, 2016 — A bill is making its way through Congress that would impact public housing and project based rental assistance developments. The Housing Opportunity Through Modernization Act of 2015 (H.R. 3700) would amend the United States Housing Act of 1937 to strengthen the project based rental assistance program, reduce the burden of public housing and PBRA unit inspections, and change the way tenant incomes are calculated, reviewed, and addressed.
The bill would allow public housing authorities (PHA) more leeway to use put their voucher authority toward project based vouchers, instead of tenant based vouchers, and allow more units in a property to be designated for project-based vouchers. The bill also increases the length of the voucher commitment from 15 years to 20 years.
In order to get families into homes more quickly, the bill streamlines the inspection process. Residents can move into a unit as long as it was inspected in the previous 24 months by a federal standard that is as or more strict than the Housing Quality Standards, though the unit would still need to be inspected by the housing agency under voucher program rules. If the unit does not pass inspection to due non-life threatening issues, the voucher holder could still move in as long as the issues are corrected within 30 days. This means that agencies could make initial payments to owners even if the unit does not initially pass inspection.
The bill streamlines the rules used to determine resident rents. For resident households whose income has exceeded 120% of the area’s median income for two consecutive years, PHAs would be required to charge a monthly rent equal to the costs of operating and capital subsidies provided for that unit, or terminate the family’s tenancy. The bill simplifies, and increases, the deductions tenants can make to their income based on factors like child care or a disability.
Rep. Blaine Luetkemeyer (R-MO) introduced the bill in October 2015. It passed in the House on February 2 and will continue to the Senate for consideration.
According to the Center on Budget and Policy Priorities, the Congressional Budget Office estimates that H.R. 3700 would reduce program costs by $311 million over five years, with $195 million of that reduction stemming from the bill’s rental assistance provisions.**
Multifamily Housing Construction on the Rise
It’s earnings season, and the message is clear—acquisitions and dispositions are back in a big way. This week, we clued our readers into Welltower’s massive new senior housing portfolio acquisition on the West Coast and Sabra’s plans to offload a serious chunk of skilled nursing change.
Here in the newsroom, we were keeping up with an assisted living community—for parrots. We are also gearing up to watch the Olympics in Rio de Janiero, Brazil, which opens Friday, August 5. Go USA!
Welltower Inc. (NYSE: HCN) has agreed to purchase a portfolio of 19 senior housing properties on the West Coast for $1.15 billion, which will make the Toledo, Ohio-based real estate investment trust (REIT) the largest owner of senior housing in Northern and Southern California. The announcement coincided with the release of the REIT’s 2nd quarter earnings.
The properties currently are operated by Vintage Senior Living. The 2,590 units include a mix of independent living, assisted living, and memory care. The operations will transfer to three existing Welltower operating partners: 11 will go to Senior Resource Group, seven to Sunrise Senior Living, and one to Silverado.
“Bringing in Welltower’s established operators to take over the operations of these buildings will bring additional value to the portfolio,” Mike Garbers, managing director at Greystone Real Estate Advisors, told Senior Housing News. “Their operating partners are well established, institutional quality operators – the best in breed.”
‘The Sexy Six’
With properties concentrated in Northern California and Southern California—including the Los Angeles and San Francisco metropolitan areas—the portfolio will enable Welltower to be the largest senior housing owner in both regions of the state. The portfolio also includes properties in Washington.
“These properties are in attractive markets including irreplaceable locations near San Francisco’s Golden Gate Park and Nob Hill, with a growing population of seniors, favorable supply-and-demand fundamentals and high barriers to entry,” said Welltower CIO Scott Brinker in a press release.
The regions are within Welltower’s designated core markets.
“This is an ideal, strategic acquisition for us,” Welltower CEO Tom DeRosa said during a quarterly earnings call with analysts Tuesday. “It allows us to go deeper into two important core markets, solidifying our No. 1 market share in Los Angeles, gaining the No. 1 position in San Francisco. That adds to our No. 1 position in New York, Boston and Seattle – five of the sexy six core markets in the U.S.”
The nine Vintage properties in Northern California currently have an occupancy of 87%, and adding them will bring Welltower’s total ownership in the area to 36 communities. The eight Vintage properties in Southern California currently have an occupancy of 82.6%, and their addition will take Welltower to 58 senior housing properties owned in that part of the state. The portfolio has an expected stabilized yield of mid- to high-6%.
Welltower expects to increase service offerings across the West Coast portfolio and boost occupancy over time, executives said on the conference call Tuesday. Some of the properties also include excess land that could be used for potential development. However, Welltower is focused first on “filling the buildings we have,” Scott Brinker, Welltower executive vice president and chief investment officer, told analysts.
“This acquisition reinforces our high-quality health care real estate portfolio and leading presence in two of the top U.S. metro markets,” stated DeRosa. “We have a unique platform for delivering operational improvements and driving value for our shareholders.”
The price tag on the deal is the most recent major REIT acquisition, following a slow start to the year. Rebounding stock prices may have had a hand influencing REITs to make big acquisitions later in 2016.
“It’s helped that the REITs’ stock prices have increased approximately 44% since the lows of February 2016,” Garbers said. “This increase in stock prices has been driven mainly by the low interest rate environment, as investors are seeking higher yields.”***
- Gill Group plans to attend THDA’s Annual QAP Meeting August 9th in Austin, TX.
- Gill Group attended NH&RA’s Summer Institute July 20th in Martha’s Vineyard, MA.
- Gill Group attended NCSHA’s Housing Credit Connect Conference June 13th – 16th in Seattle, WA.
- Cash Gill spoke on a panel entitled “Rural and Native American Development Strategies” with Bryan Hooper (Deputy Administrator of Multifamily Housing at Rural Development), Joline Kline (Executive Director of the North Dakota Housing Finance Agency), Don Beaty (The Summit Group), and Elizabeth Glynn (CEO of Travois).
- Gill Group attended CARH’s Mid-Year Meeting and Conference June 12th – 13th in Washington, DC.
- Gill Group attended NH&RA’s Spring Developer’s Conference May 16th – 18th in Marina del Ray, CA.
- Gill Group attended PHADA Annual Conference and Exhibition May 22nd – 24th in Las Vegas, NV.
- Gill Group attended Texas NAHRO’s 40th Annual Conference and Tradeshow April 19th – 21st in Houston, TX.
- Cash Gill attended the Missouri Real Estate Appraisers Commission Quarterly Commission Meeting March 22nd in Jefferson City, MO.
- Gill Group attended Bank of Advance’s Annual Meeting March 17th – 20th in Norfork, AR.
- Gill Group attended the Maco Companies’ Annual Meeting March 10th – 13th in Biloxi, MS.
- Gill Group attended the Council for Affordable Rural Housing’s Quarterly Board Meeting March 4th – 5th in Washington, DC.
- Gill Group attended the National Housing and Rehabilitation Association’s Annual Meeting February 24th – 27th in West Palm Beach, Florida.
- Gill Group attended the Council for Affordable Rural Housing’s Midyear Meeting January 25th – 27th in San Antonio, Texas.
- In 2015, Gill Group attended over 50 meetings and conferences from California to New York, and just about everyone in between.
GROWTH (2015 - Highlights):
- Gill Group added two offices in Michigan and one in Wisconsin, further expanding our staff of architects and engineers.
- Gill Group and Greystone formed a Joint Venture to provide a full line of consulting and development services for Rental Assistance Demonstration (RAD) transactions. Gill Group and Greystone are utilizing each of our areas of expertise in a collaborative effort, with a mission to partner with PHAs across the nation in preserving and expanding the affordable housing inventory under the HUD RAD program. Our team fully understands the intricacies of the real estate and affordable housing industries, and our services are provided by professionals who are fully immersed in LIHTC executions, construction management, project accounting, regulatory compliance, real estate transactions, and opportunity development. We sit on national and state boards and have in-depth knowledge of industry trends and best practices. As a developer team, we operate as three individual entities, each with a unique set of previous transaction experiences that add value to the project at hand. As a collaborative unit, we draw upon those experiences to bring to the table creativity, fresh ideas and unsurpassable development advisory services.
- Gill Group’s subsidiary, National Title & Escrow, added two new offices in Missouri and Arkansas, further expanding our ability to service our nationwide base of customers.
- Gill Group attended 40+ meetings and conferences throughout the United States in 2014.
GROWTH (2014 - Highlights):
- Gill Group began the process of working with owners of affordable housing to develop a web-based program that will work hand-in-hand with our services. It will give the users of our appraisals, market studies, capital needs assessments and many other services easy access and real time usage.
- Gill Group added 2 offices with appraisers, market analysts, engineers and architects.
- Within the offices are 11 architects, one MAI appraiser, one general certified appraiser, four market analysts and 12 additional support staff.
- Gill Group attended 22 conferences and meetings throughout the United States in 2013
GROWTH (2013 - Highlights):
- Gill Group expanded our cutting-edge market analysis software and added our own in-house developed needs assessment software for CNAs, PNAs, PCNAs, PCAs, RPCAs, and every other acronym for this type of service.
- Gill Group added 4 offices with appraisers, market analysts, engineers and architects.
- Within the offices are three architects, one MAI appraiser, two general certified appraisers, five market analysts and 10 additional support staff.
- Gill Group expanded the footprint of its subsidiary, National Title & Escrow, to cover the entire United States with a local presence.
- Gill Group attended 20 conferences and meetings throughout the United States in 2012
GROWTH (2012 - Highlights):
- Gill Group developed cutting-edge market analysis software that will allow us to do preliminary analysis that is subject-specific in any market in the United States within minutes.
- Gill Group added 11 offices with appraisers, market analysts, engineers and architects.
- The offices now employ an additional 34 people.
- Gill Group expanded coverage of its subsidiary, National Title & Escrow, to cover the entire United States.
- Gill Group expanded coverage of its subsidiary, Gill Insurance Group, to cover the entire United States.
Gill Group has published the following:
- New York Real Estate Journal - How can low-income housing facilities translate into high profits?
- New York Real Estate Journal - Up, up and away: Home mortgage interest rates and gasoline prices continue ascending.
- Tax Credit Advisor - Boston MSA Market Snapshot
- Tax Credit Advisor - Seattle MSA Market Snapshot
- Northeast Industrial Development Resource Guide - What Appraisers Know About Investing.
- Affordable Housing Finance – Urban and Rural Market Studies.
- Tax Credit Advisor – LIHTC Appraisals 101
Cash Gill, MAI has had the opportunity to speak on the following topics:
- (Indianapolis, IN) National Council of Affordable Housing Market Analysts - Maximize Your Market: Understanding the Methodology Behind Market Studies.
- (Reno, NV) Nevada Council of Affordable and Rural Housing - Don't Get Caught in the Red. New Guidelines for Audits and Inspections.
- (Washington, DC) The Institute for Professional and Executive Development - Nonrecourse HUD Deals - So You Closed Your Nonrecourse HUD Deal. Now What? And Is It Really Nonrecourse?
- (Arlington, VA) Council for Affordable and Rural Housing - Property Valuation: The Correct Way to Value Properties.
- (New Orleans, LA) National Council of Affordable Housing Market Analysts - Affordable Housing Site Analysis
- (Las Vegas, NV) Nevada Council of Affordable and Rural Housing - Auditing and Accounting Guidelines for Section 42 Low Income Housing Tax Credits.
- (Washington, DC) Council for Affordable and Rural Housing - Rural Development Appraisals and Market Studies
- (Miami, FL) Council for Affordable and Rural Housing - The Equity Market - Impact on Rural Housing
- (Washington, DC) Council for Affordable and Rural Housing - How to Foster Affordable Green and Rural Housing Needs Assessments
- (Indianapolis, IN) Affordable Housing Association of Indiana - Market Analysis – Best Ways Use Market Studies to Ensure Application Points
- (Portland, ME) Enterprise Buyer/Seller Conference for RRH 515 Properties – Valuing the Product. What Is My Development Worth?
- (Washington, DC) National Housing and Rehabilitation Association – Financing and Underwriting Special Needs Housing.
- (Atlanta, GA) National Council of State Housing Agencies – Comprehensive Market Analysis.
- (Chicago, IL) AHF Live – Strategies for Rural Deals.
- (Dallas, TX) Crittenden Multifamily – Financing Special Use Properties.
- (Washington, DC) Council for Affordable Rural Housing – Rural Housing Preservation
- (Denver, CO) National Council of State Housing Agencies – Rural Housing Strategies
- (Denver, CO) National Council of State Housing Agencies – Y15: Preservation and Disposition Seminar
- (San Antonio, TX) Rural Rental Housing Association – LIHTC Legislative Update
- (Key Largo, FL) Council for Affordable Rural Housing – How National Appraisal Practices Impact USDA Assisted Properties
- (San Francisco, CA) National Council of State Housing Agencies – Changes and Challenges in Rural Housing Development
- (Chicago, IL) AHF Live – Preservation of Older LIHTC Deals
- (Franklin, TN) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
- (Columbus, OH) Council for Rural Housing & Development of Ohio – Rural Housing Market Research
- (South Bend, IN) Great Lakes Capital Fund’s University of Affordable Housing – Valuation Risks Using Financing for RAD Deals
- (Chicago, IL) National Council of State Housing Agencies – Rural Development Opportunities
- (Orlando, FL) National Association of Housing and Redevelopment Officials – Affordable Housing Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies
- (Alexandria, LA) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
- (Ft. Lauderdale, FL) Southeastern Affordable Housing Management Association (SAHMA) – Rent Comparability Studies 101
- (Indianapolis, IN) Midwest Buyer/Seller Conference – CNAs and Appraisals
- (Chicago, IL) AHF Live – Acquisition Challenges and Opportunities (2014)
- (St. Pete Beach, FL) CARH – Preservation Challenges and Opportunities
- (Nashville, TN) TAHRA – Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies for LIHTC and RAD Transactions
- (Los Angeles, CA) NCSHA – Successful Development in Challenging Markets
- (Chicago, IL) AHF Live – Acquisition Challenges and Opportunities
- (Seattle, WA) NCSHA – Rural and Native American Development Strategies
- (French Lick, IN) AHAIN – Appraisals and CNAs
- (French Lick, IN) AHAIN – Pulling it All Together
*as seen on multifamilybiz.com
**as seen on housingonline.com
***as seen on seniorhousingnews.com
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