Apartment rents expected to rise faster than inflation in 2019

Rents are likely to rise the most for class-B apartments, and the least for class-C and -D units.
Rents are likely to rise faster for older, class-B apartments in 2019 than for any other class of apartment property.“We expect Class-B to continue to have the strongest average rent growth, as it has through recent history,” says Andrew Rybczynski, senior consultant at research firm the CoStar Group.

“While occupancy is sky high in class-C product, rent growth in that sector is beginning to slow a little,” says Ron Willett, chief economist for MPF Research, a RealPage company.

 

 

 

Read more at National Real Estate Investor

 

 

 

 

The shopping mall’s savior is starting to eat itself

Restaurants, one of the supposed saviors of regional malls, have been hurt in the past 12 months by too much expansion and a slowdown in consumer spending.

Stephen Wall’s restaurant chain Pho is the kind of tenant that mall landlords would love to attract. The Vietnamese menu is right on trend, the business is expanding and, even better, it has a track record of success in shopping centers.

Yet he thinks that even restaurants like his won’t be the savior of malls suffering from the rise of internet retailing and mobile phone addiction.

As competition from the likes of Amazon.com Inc. and Asos Plc intensified, British mall owners looked to food as a way to stay relevant. People would come to the restaurants to eat, buy some clothes in the shops while there, and the extra spending would allow the landlord to boost the rents. A simple, virtuous circle.

Instead, food and beverage operators have been hurt over the past 12 months by a combination of rapid expansion and a consumer-spending slowdown. An influx of private-equity investment into restaurants led some chains to open too many outlets that aren’t breaking even. Popular names like Gourmet Burger Kitchen, pasta place Carluccio’s and the Jamie Oliver chain — often found at big malls like Westfield and Bluewater around London or Manchester’s Trafford Centre — have been among those suffering. Nationwide, the number of restaurants going insolvent rose 24 percent last year, compared with 2017.

 

 

Read more on National Real Estate Investor

 

 

 

Oakland requires landlords to retrofit ‘soft-story’ buildings

Landlords have six years to retrofit the buildings, which are prone to substantial earthquake damage.

To prevent hundreds of multi-story, wood-frame apartment buildings from collapsing as they did in the 1989 Loma Prieta earthquake, Oakland is requiring seismic upgrades of all those at risk in the next big shaker.

There are 1,479 such “soft-story” apartment buildings in the city constructed before 1991 — when the building code changed — that stand two to seven stories tall and contain five or more apartments, according to a 2008 analysis by the city and the Association of Bay Area Governments.Those buildings are supported by slim columns with either garages or storefronts underneath, and contain a total of 24,273 apartments.

With fears of the “big one” occurring any day now along the Hayward fault — which runs along northeast Oakland and south along Interstate 580 — the City Council unanimously passed an ordinance Dec. 14 making the seismic retrofitting of soft-story buildings with more than five units mandatory, giving landlords four to six years to get their buildings up to code.

“A major earthquake along the Hayward fault is not a matter of if, it is a matter of when,” Mayor Libby Schaaf said in a statement released a week before the meeting. “As a city, we have a responsibility to put measures in place that will prevent injury and loss of life, and reduce displacement and recovery time in the aftermath of a major quake. This ordinance does all of those while also ensuring that we’re not placing an undue financial burden on property owners and tenants in our community.”

San Francisco passed a similar ordinance that went into effect in 2017; Berkeley and Fremont also require soft-story buildings to be seismically retrofitted. The Hayward council is scheduled to consider a similar measure in February.

In 2009, Oakland required soft-story building owners to gauge the potential earthquake damage that could occur. In the city’s 2015-2023 General Plan, officials called for the creation of a seismic safety retrofit program that would encourage retrofits through financial and procedural incentives.

Councilmember Dan Kalb — who introduced the ordinance — said city staff had been researching the risks of soft-story buildings and working toward the legislation for about four years. Though some California cities have required the buildings be retrofitted, others have not yet addressed the issue.

Seismic retrofits fall under the Oakland rent board’s definition of capital improvements, and thus up to 70 percent of the cost of may be passed on to the tenants. This ordinance requires that pass-through costs to tenants be dispersed over 25 years to prevent substantial rent hikes.

 

Read more on East Bay Times

 

 

How low-cost chains are changing the retail game

Dollar store chains are among America’s fastest-growing retailers, but their impact on the industry is coming under increased scrutiny.

Nonprofit Institute for Local Self-Reliance reports that dollar stores are more prevalent than Walmart and McDonalds locations combined, and they feed more people than Whole Foods stores. In some urban neighborhoods, low-income and rural areas, dollar stores might be one of the only retail options for residents.

The number of dollar stores in America has grown from 20,000 in 2011 to almost 30,000, per ILSR. With many Americans living paycheck to paycheck, it’s not surprising these small-box stores selling affordable merchandise are thriving.

The ILSR report contends that dollar stores — which lack fresh produce and meat but offer a host of frozen, processed and canned food options — aren’t a symptom of economic distress in some communities, but the cause of it, as they stifle independent grocers and other local retailers.

“To the extent that dollar stores are filling, in some ways, a need in communities, I think that is true in the short term,” Marie Donahue, one of the report’s authors, told Civil Eats. “But really our research is demonstrating…those foods aren’t as good quality as full-service grocers or independent local stores, which may be able to connect to local farmers and the larger food system.”

 

 

Read more on San Francisco Business Times

 

 

Stanford sues Santa Clara County over housing law

University claims it’s been unfairly targeted by ‘inclusionary housing’ ordinance.

Stanford University on Wednesday filed two lawsuits against Santa Clara County Board of Supervisors, charging county officials of unfairly and illegally targeting the university with a recently adopted law that aims to promote more affordable housing on campus.

The university is contesting the new “inclusionary housing” law, which the board approved on Sept. 25 and which requires the university to designate 16 percent of all new housing units as below-market-rate housing. The two lawsuits, filed in state and federal courts, allege that the county’s law violates the Equal Protection clauses of the U.S. and California constitutions, which prohibit government entities from treating one individual differently from others in similar circumstances.

The university also indicated that it plans to sue the county over a separate law that the board had also passed on Sept. 25, one that significantly raised the “housing impact fees” that Stanford has to pay for every square foot of new development. Under the law, the fee is slated to go up from $36.22 to $68.50 per square foot.

In a lawsuit filed in U.S. District Court, Northern District of California, Stanford takes issues with both policies, though the new suit only pertains to the “inclusionary housing” law (Stanford has a later deadline for challenging the ordinance on impact fees). It argues that the county is illegally forcing Stanford to bear the burden of solving what the county itself had determined to be a regional problem: A severe shortage of affordable housing.

By targeting Stanford with its new affordable-housing requirement, the county is violating the 14th Amendment of the U.S. Constitution, which prohibits states from denying “any person within its jurisdiction the equal protection of the laws,” the university alleges in a complaint.

“The County ordinance impermissibly singles out Stanford University,” Geoffrey L. Robinson, of the firm Perkins Coie LLP, wrote on behalf of Stanford in the federal lawsuit. “Through its ordinance, the County has intentionally imposed affordable housing requirements exclusively on housing development constructed by Stanford.”

Read more on Palo Alto Online

 

Demand for apartment rentals surges unexpectedly as home sales slump

Surging demand and strong occupancy in the nation’s apartment market is “surprising” experts who say the continued strength is “unexpected.”

Just a year ago, as dozens of cranes swarmed over major U.S. cities, there was concern that the rental apartment market was overheated and overbuilt.

Apartment absorption, which is the rate at which new units are rented out, is now at the highest level in three years, according to the U.S. Census. Apartment construction took off in 2012 and reached a 20-year high in 2017. It remained elevated this year, despite warnings that demand would slow as more millennials aged into their homebuying years.

And while buyer demand did surge, sales were thwarted by tight supply that has pushed prices higher in the past few years, weakening affordability. When mortgage rates surged this year, even fewer people were left with the means to buy a home.

“People underestimate how far away from homeownership a lot of renters across the country, even in luxury apartment buildings, are,” said John Pawlowski, residential sector head at Green Street Advisors. “The demand has been better than expected. It’s been a stickier tenant base and pricing power at that tenant base, again in the face of elevated supply, has simply surprised us.”

The third quarter of this year marks the fourth consecutive quarter of positive operating “surprises” for apartments, according to a recent report from Green Street, which noted that the asset values of these apartment properties remain on firmer footing than most core property types. Apartment earnings were also better than expected.

 

 

Read more on CNBC

 

 

San Jose moves toward ordinance limiting Section 8 discrimination

Landlords in San Jose would no longer be able to advertise that they don’t take rental vouchers.

San Jose took a step toward making it harder for landlords to turn away would-be tenants who use vouchers to help pay the rent.

This week, the San Jose City Council directed the city attorney’s office to draft an ordinance aimed at giving renters with subsidies, commonly known as Section 8 vouchers, a fair chance on the private rental market. The so-called source of income ordinance would not force landlords to take the vouchers, but it would ban them from judging potential tenants who use subsidies differently from those who don’t and from explicitly advertising “No Section 8” on apartment listings.

If everything goes according to plan, the council will vote on the ordinance in the spring.

While a number of landlords blasted the proposal, saying it would force property owners to navigate convoluted regulations and paperwork, the city’s Housing Department said an ordinance is necessary to make sure families are able to find affordable housing.

Right now, there’s no law that prevents landlords from turning away voucher holders, and a city survey found most do, leaving low-income families scrambling to find homes in one of the nation’s tightest housing markets. Several national studies suggest that when cities and states have such ordinances in place, the percentage of landlords turning away voucher holders goes down and more people with vouchers are able to find places to rent.

“Voucher discrimination is happening in San Jose,” said Jacky Morales-Ferrand, the city’s housing director.

Several landlords told horror stories about Section 8 voucher holders who left rental units in bad shape. But tenants and tenant advocates countered that there’s no evidence voucher users are any better or worse than people who don’t use subsidies.

“We can’t judge the actions of a few and put it on the majority of the people,” said Robert Aguirre, who has used vouchers. “Not all Section 8 holders destroy property or disrespect the people around them.”

“We see clients all the time who are not able to rent housing, have to move away from San Jose, have to live in cars. … it’s absolutely heartbreaking to see that and this ordinance would help,” said Nadia Aziz, an attorney with the Law Foundation of Silicon Valley.

 

 

Read more on East Bay Times

 

 

City passes plan for new SoMa homes

The San Francisco Board of Supervisors passed a sweeping, years-in-the-making plan to transform Central SoMa, potentially bringing thousands of new homes and tens of thousands of jobs to the area, and ending nearly a decade of wrangling over the ambitious package of zoning changes.

The city defines Central SoMa as the area south of Market Street, north of Townsend, and squeezed between Second and Sixth.

It’s a space that includes the San Francisco Museum of Modern Art (SFMOMA), swaths of low-income housing, nearly 30 landmark buildings, the Flower Mart, and, soon, a stretch of the Central Subway along Fourth Street.

The Central SoMa Plan changes zoning and height limits throughout the neighborhood to encourage more growth, more density, and more diversity of use in future development and redevelopment.

The final passage came as no surprise, after lawmakers unanimously voted in favor of the Central SoMa Plan the first time it came before the board in November.

But the ramifications of the proposal—which took eight years and ran over 1,600 pages in its final form—are so potentially profound as to generate an air of drama about the final vote all on their own.

 

 

Read more on Curbed SF

 

 

Billion-dollar deal: Google pays $1 billion for huge Mountain View business park

In a head-spinning mega-deal, Google has paid $1 billion for a huge Mountain View business park, the Bay Area’s largest real estate purchase this year.

It is also the second-largest property purchase in the United States this year, eclipsed only by another Google acquisition, the $2.4 billion the company paid for Chelsea Market in Manhattan.

The newly acquired site in Mountain View, where Google has been the primary tenant, is larger than the property that accommodates the company’s Googleplex headquarters a few blocks to the west, and also exceeds the size of the parcel across the street where Google is building an iconic “dome” campus that features canopies and tents.

“Wow. What a deal,” said Chad Leiker, a first vice president with Kidder Mathews, a commercial real estate firm. “This is an opportunity for Google to own more office space very close to their headquarters. That office space is becoming very rare in Mountain View.”

Google’s Mountain View purchase means that in the two years since the search giant began to collect properties in downtown San Jose for a proposed transit village, the company has spent at least $2.83 billion in property acquisitions in Mountain View, Sunnyvale, downtown San Jose and north San Jose alone.

 

 

Read more on The Mercury News

 

 

New 155K SF Affordable Housing Project Planned Near S.F.’s Balboa Park BART Station

A new development that will bring more affordable housing to San Francisco is underway next to the Balboa Park BART station.

The 155K SF transit-oriented development, Balboa Park Upper Yard, will deliver up to 120 units of low- and very-low-income housing in a mixed-use project that will have community-serving space. There will be open space on a connected piece of property owned by BART.

The project from neighborhood nonprofit Mission Housing Development Corp. and developer Related California is in the design phase, and construction could start in late 2019 or early 2020. Mithun is the project architect.

Projects such as this one help Mission Housing better serve residents, particularly low-income Latino residents who have been displaced from one district of San Francisco into another, according to the organization. As it has watched residents pushed out of the city’s District 9 in the Mission District, Mission Housing has been looking at expanding into the Excelsior area in District 11 where those residents are moving, and eventually the entire west side of San Francisco.

“We are thrilled to have been given the opportunity to deliver more high quality, affordable housing to District 11,” Mission Housing Executive Director Sam Moss said in a statement. Mission Housing owns or manages 38 housing properties and is one of the area’s largest nonprofit housing organizations. “The community outreach, planning, design, financing, and construction will lead to delivering the excellent affordable housing and community services hub which the people of San Francisco deserve.”

The creation of 100% affordable housing is the biggest tool available to combat gentrification, Mission Housing officials said. They said the new site is expected to benefit from a piece of legislation now in progress for a citywide neighborhood preference that would make 45% of units specifically designated for families that currently live near the project.

 

Read more on Bisnow San Francisco