Apartment - Kasten Long Commercial Group

klcommercialgroup.com

Apartment - Kasten Long Commercial Group

KASTEN LONG COMMERCIAL GROUP

Specializing in Apartments since 1998

February 24, 2010


Group’s Sales History

Agents Sales Volume

$700,000,000


www.KLCommercialGroup. com

Apartment t Market Data

Quarterly - Apartment Newsletters

Vacancy by submarket

Map of apartments under construction

‣ KLCG Listings (flyers & data packages)

‣ Sign up for e-zine (weekly apt. news

updates)


Greater Phoenix Apartment

Owner’s Newsletter

‣ Vacancy Rates

‣ Newly Permitted

(Every Quarter Since 1998)

‣ Recent Apartment Completions

Apartment Sales (w/Data)

Apartment Market Overview


Greater Phoenix Apartment Market

February 2010


Greater Phoenix Apartment Market

Apartment tStatisticsti ti

‐ Factors Affecting the Apartment Market

‐ Typical Owner’s sScenario and dOptions

‐ Concerns Going Forward

‐ A Bright Future


Number of Apartment Sales (20+ units)

N umber of Sales

450

400

350

300

250

200

150

100

50

0

2000 ‐ 2009

Year


Comparison to Last Sale (2003 – 2007)

(All Cash, , 20 – 256 units, Built: 1958 – 1986)

3 rd Qtr 38.3% $20,225/u $29.00/sf

4 th Qtr 35.4% $18,173/u $23.45/sf

Note: Represents Average of 16 sales


Comparison to Last Sale (2003 – 2007)

(FINANCED, 10 – 159 units, Built: 1948 – 1981)

3 rd Qtr 62.6% $27,748/u $41.16/sf

4 th Qtr 64.2% $34,080/u $49.95/sf

Note: Represents Average of 12 sales


Reported Vacancy and Economic Vacancy

Reported Vacancy (by ASU) year‐end end 2009 (14.2%)

• Actual Vacant Units

Economic Vacancy (20% ‐ 25%+)

• Actual Vacant Units ‐ plus loss of Rent due to:

‐ Move‐In Specials

‐ Discounted Deposits

‐ Renewal Incentives

‐ Collection Problems


Vacancy Rate by Unit Size

Units ‘09 3 rd Qtr ‘09 4 th Qtr

2‐ 24 13% 18%

25‐ 50 16% 17%

51‐ 75 13% 13%

76‐ 99 11% 12%

100‐150 150 12% 14%

151‐200 14% 15%

200+ 13% 14%

13.4% 14.2%


Permits Issued for New Apartments

1992 ‐ 2009

10,000

20.0%

18.0%

8,000

16.0%

14.0%

Permits

Vacancy Rate

6,000

4,000

2,000

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0

0.0%


New Apartment Construction

As of end 4th Quarter 2010:

7 Complexes Under Construction

• 2,919 Units


Greater Phoenix Apartment Market

Apartment Statistics

‐ Factors Affecting the Apartment Market

‐ Typical Owner’s sScenario and dOptions

‐ Concerns Going Forward

‐ A Bright Future


Factors Affecting the Apt. Market

• The Economy –Slowed Population Growth

• High Unemployment – Job Loss

• Many, Low‐priced Apartment REO and Short Sales

• The Shadow Market (single‐family rentals)

• Lenders (Agents) not restructuring loans

• Tight credit markets

• Employer Sanctions Law

• Fild Failed condo projects bi being rented td


Greater Phoenix Population Growth

1970‐2009

5,500,000

,

5,000,000

4,500,000

4,000,000

Population

3,500,000

3,000,000

2,500,000

2000000 2,000,000

1,500,000

1,000,000

500,000

0

Year


Total Residential Units

1,070,902

144,675

336,338


2014

2

120

100

80

60

40

20

0

Employment Change 1975-2009

1976

1978

1980

1982

1984

1986

1988 8

1990

1992

1994

1996

1998

2000 0

2002 2

2004

2006

2008

2010 0

2012

-20

-40

Year

Job

Growth (thousands)


Unemployment Rates 1990 ‐ 2009

10

9

8

7

6

5

4

3

2

1

0


Apartment REO and Short Sales

42% of the sales in 2009 were “All CASH”

RESULT: New owners, without a loan

payment, drop rents to stabilize occupancy

drives nearby apts to lower rents

decreases nearby apts cash flow

more REO’s and Short Sales


The Shadow Market

Low‐Priced houses and Condos

Purchased dby Investors and

Turned into Rentals

2009

80,010 Total Single Family & Condo Sales

70% were REO or Short Sales


50,000-80,000

Shadow Market


The Shadow Market –Feb. 2010

(Single Family and Condos)

50,305 In Foreclosure

26,817 REO’s


Greater Phoenix Apartment Market

Apartment Statistics

‐ Factors Affecting the Apartment Market

‐ Typical Owner’s Scenario and Options

‐ Concerns Going Forward

‐ A Bright Future


Typical Owner Scenario

‐ Purchased with 70% to 80% LTV

‐ Strong Buyer (assets, FICO score, etc)

‐ Initially had Good Cash Flow

‐ Vacancy Rates Increased

‐ Cash Flow Decreased

2008 – Trouble

THE DEFINING MOMENT

‐ Reduction in maintenance to make loan payment

Property Spirals Down in Occupancy, Cash Flow and Value


Owner Options

1. Support Negative Cash Flow

2. Restructure Loan Payments

3. Foreclosure or Deed in Lieu

4. Short Sale

5. Bankruptcy


Considerations

a. Recourse or Nonrecourse Loan

b. Ability to Cover Negative Cash Flow

c. Credit Concern if Default

d. Deficiency Judgment

e. Tax on Debt Forgiveness

f. Type of Loans (Lender Held, CMBS, Fannie/Freddie)


Lender Held

Types of Loans

‐ Ability to restructure. Examples: Wells Fargo

(Wachovia), Chase (WaMu), Wash Fed., Zions, United

Western, Life Companies …….

CMBS

‐ Difficult (maybe impossible) to restructure

‐ No Lender

– only Servicing Agents

Fannie Mae – Freddie Mac


Short Sale

- Keeps Owner in Control

- Ability to Select Agent and Obtain Highest Price

- Ability to Negotiate:

- Deficiency Judgment

- Debt Forgiveness

- Better on Credit Report


Receivers – Caution!!!!!!!

‐ Being granted at Court Hearing the ability to market,

sell and Convey property prior to Trustee Sale.

‐ Owner loses all control of property and agent will lose

listing.

‐ Receiver has little brokerage experience – resulting in

lower price and often an inside buyer.

REMEDY Owner can go to Receiver Hearing Simply ask

REMEDY Owner can go to Receiver Hearing. Simply ask

judge to show where this ability occurs in the loan Note and

Deed of Trust. It does not exist – judge will strike this ability.


Deficiency Judgment

‐ Arizona is a Deficiency Judgment State for 3

units or more – allows lender to both take

property back AND go after borrower for

shortfall in monies received for loan.

‐ If foreclosure: lender has 90 days to file

deficiency claim.

‐ If Short Sale: lender has 6 years to file

deficiency claim (falls under contract law)

‐ If doing a short sale – impt. to negotiate!!!


Greater Phoenix Apartment Market

Apartment Statistics

‐ Factors Affecting the Apartment Market

‐ Typical Owner’s Scenario and Options

‐ Concerns Going Forward

‐ A Bright Future


With these signs

everywhere,

is it a good time to buy?


Future Concerns

1. $1.4 Trillion in Commercial Loans coming due

2010 – 2014

2. CMBS Loan Defaults Increasing (4.7% now –

10% projected)

3. Few Banks Lending –More Bank Failures

4. REO and Short Apartment Sales –being

purchased at very reduced prices

5. The Shadow Market


Will we

get back

here?


Greater Phoenix Apartment Market

Apartment Statistics

‐ Factors Affecting the Apartment Market

‐ Typical Owner’s Scenario and Options

‐ Concerns Going Forward

‐ A Bright Future


A Bright Future

As U.S. Economy rebounds – Arizona’s great

weather and favorable business environment will

again attract new residents

Job Growth Will Return

‐ Housing construction will rebound

‐ New Employers –and expansion of current

companies


A Bright Future

With an Increased Population the Lack of New

Apartment Construction will Create a Supply

Shortage. Result:

‐ Low Vacancy Rates

‐ Higher Rents

‐ Elimination of Move‐in Specials

‐ Strong Cash hFlow

Increase in Property Values


Arizona Will Be Back


KASTEN LONG COMMERCIAL GROUP

2821 E Camelback kRoad, Ste. 600, Phoenix, AZ 85016

www.KLCommercialGroup.com

Jim Kasten, CCIM

Jim@KLCommGroup.com

602 445 4113 office

602 702 5202 e‐fax

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