New Mexico News
| Apartment Survey Offers Surprising Data |
| Posted by () on Jun 10 2008 at 7:55 PM |
A new survey offers some surprises on what's going on in the metro's apartment market.
Apartments are not always more expensive in pricey neighborhoods. Rents are not necessarily cheaper in areas where there's lots of apartment complexes competing for tenants. New apartments are not necessarily more expensive than older ones.
The just-released CB Richard Ellis survey also finds that the greater Downtown area is the most expensive place to rent an apartment on a square foot basis. The details in the survey are unprecedented.
“The time and effort put into this created the most comprehensive survey of its type,” said Steven J. Smith, executive vice president of the Apartment Association of New Mexico. “It's the most in-depth.”
Compiled by a six-member team headed by David Eagle and Becky Monette, the survey debuted for the first-quarter covering apartment complexes with 90 or more units in the Albuquerque metro area. The resulting database is 149 properties with 33,705 units.
The metro's overall occupancy rate was 93.6 percent, low enough to support reports that Albuquerque's foreclosure rate for single-family houses is well below the national average. As a rule of thumb in the apartment business, an occupancy rate of 95 percent is viewed as a perfect balance between supply and demand.
But Eagle pointed to a recent Journal story reporting 6,400 detached single-family houses for sale in the city. “There is no way to avoid a shadow market where people are renting homes rather than apartments,” he said.
Despite competition for renters from owners of homes that aren't selling, Eagle said, “Compared to other markets, we look good.”
Unique new data
In what could be seen as a breakthrough, CB Richard Ellis' survey is organized by the same multiple listing service boundaries used by the Greater Albuquerque Association of Realtors.
Use of the multiple listing service boundaries enables a more cohesive look at housing markets in specific areas of the metro, Eagle said. In the past, apartment data was typically available by much broader ZIP code areas or even broader city and county boundaries.
“Now you can look at how the mix of housing is doing by neighborhood,” he said, pointing out that rental apartments and for-sale houses are two sides of the same coin.
There are areas of Albuquerque where apartment rents are cheap and single-family houses expensive. Here are a couple examples from the first quarter:
n The average monthly rent was $623, or 8 percent below the metro average of $675, in the North Valley between Montgomery and Paseo del Norte. The average price of a home was $360,365, or 57 percent higher than the metro average of $229,372.
n The average monthly rent was $557, or 17 percent below the metro average, in the Foothills between Interstate 40 and Montgomery. The average home price was $308,399, or 34 percent higher than the metro average.
The biggest concentration of apartments in the metro is the multiple listing service area north of Montgomery NE, between Wyoming and Tramway. It has 21 apartment complexes with a total of 5,644 units, mostly with one or two bedrooms, and nearly 5 million square feet of space. The average monthly rent is on the high side at $798, or 18 percent more than the metro average.
The multiple listing service area encompassing Downtown and Old Town has the metro's highest per-square-foot rent at an average $1.18. But the area also has the smallest apartments in the metro at 536 square feet, so the monthly rents average a modest $634.
Rents in Downtown and Old Town illustrate two interesting aspects of the apartment market. First, smaller units cost more per square foot than larger ones. Second, most tenants don't care about per-square-foot rents.
“A renter doesn't say, 'You're going to charge me $1.10 a square foot, while down the street I can get the same place for 92 cents,” Eagle said. “It just doesn't happen.”
Price surprises
One of the CB Richard Ellis survey's most surprising finds was that apartments built between 2000 and 2007 cost slightly less to rent than those built in the previous two decades.
The average monthly rent was 86-cents a square foot for apartments in the 14 projects completed in the last eight years, compared to 87-cents a square foot in the 58 projects completed in the 1980s and 1990s.
The surprise stems from the fact that land and construction costs have climbed dramatically in the past five years, not to mention the past 10 or 20 years. Thus, rents for those new apartments would be expected to climb in order to cover those dramatically higher costs.
But the reason for stable rents in new apartments is simple.
Ten of the 14 projects built since 2000 used low-income housing tax credits, a federal incentive to promote affordable housing. Most or all of the apartments in such projects are set aside for households making less than the local median income. Thus the per-square-foot rents are reduced to accommodate low-income tenants.
Despite the reduction, the rents still fall slightly above average for an apartment in the metro, Eagle said. The metro's over-all average rental rate was 85-cents a square foot in the first quarter, dragged down by older properties built in the 1960s and 1970s.
“We are extremely affordable,” Eagle said, pointing out that Albuquerque had the second lowest average rental rate, behind only Tucson, in 12 markets in the West tracked by Novato, Calif.-based RealFacts.
Since 2000, the metro's most active apartment developer has been GSL Properties of Portland, Ore. In addition to several tax-credit projects, GSL built two of the four open-rate apartment properties since 2000.
The company keeps rents for its open-rate apartment projects somewhere close to the market average, said GSL's David Bell. “We have found in the rental market that most people are frugal because they see themselves as temporary renters until they can buy a home,” he said.
The heyday
The 1970s and 1980s were the heyday of apartment construction in the metro area, with two-thirds of all apartments built in that era.
“You had a lot of land available to build apartments,” Eagle said. “In the 1970s, renting was a way of life. Buying a home was conservative — you had to save a lot of money for a 20 percent down payment.”
Albuquerque had seen its population grow significantly, by more than 18 percent in the 1960s and another 38 percent in the 1970s. In those two decades, Albuquerque Public Schools built 29 elementary schools, 11 middle schools and six high schools.
And developers built 65 larger apartment complexes with a total of nearly 12,800 units. Another 35 larger projects with nearly 8,800 units followed in the 1980s. The construction pace was so hectic that many observers saw the local apartment market as overbuilt by the early 1990s.
But apartment construction didn't stop. The 1990s saw another 23 larger projects with 6,203 units, most built in the middle of the decade. Two factors were behind those projects, including the perceived need for apartments on the West Side where most of them were built.
The other factor was the perceived need for upscale apartment complexes, lush with amenities, to cater to so-called “lifestyle renters,” who have the money to buy a house but don't want the hassles of home ownership. The apartments tended to be bigger and far more expensive to rent than anything built before.
“That's when most of our better product was built,” Eagle said about '90s.
How it was done
The CB Richard Ellis apartment survey involved a $50,000 investment in startup costs, including computer equipment, and more than four months of labor-intensive work to produce, Eagle said.
The survey is somewhat of a two-family affair. The team includes Billy Eagle (David's son); Chris and Mikal Monette (Becky's sons); and Sarah Hughes.
It was undertaken because of a lack of reliable data on the metro's apartment market. “From an investor standpoint, our market has been a bit of a mystery until now,” Eagle said.
Comments
Add Comment