Small Apartment Assets Benefit from Outsized Millennial Representation in Regional Markets

As primary markets get increasingly expensive for housing, young adults at the beginning of their careers are moving into regional hubs. This movement is providing new growth opportunities for small asset investments.

Millennial Demand is Divided Across Metro Segments

While the largest metros also offer the widest employment prospects for young adults, ever-increasing rents and relatively stagnant wages make a case for moving to more affordable destinations.

As shown below, the segmentation of Millennial demand within the Top 50 metros shows significant differences between asset class. (See the table at the bottom of the post for the names and classification of the metro areas.)

For a baseline, the overall Millennial population in the United States is distributed almost evenly across the three market size segments. However, they account for a slightly larger share in the regional markets (Next 15 Metros).

In contrast, millennial renters make up the greatest percent of small building renters in the Top 5 metros (37%), though large buildings in those markets have a higher percentage of millennials on their rent roll (47%).

The inverse is true in the Smallest 25 metros, where small buildings see an average millennial tenant share of 28%, compared to 18% of large buildings. Because these markets are more affordable, we can assume that millennials are more easily able to afford a home. In general, these smaller metro areas typically see a larger share of homeowners than the gateway markets.

So why might these smaller markets have more millennials in small properties than large assets? One hypothesis is that most of these smaller metros lack the 24 hour live, work, play centers and public transportation associated with major cities like New York, Miami and Chicago. If millennials are going to use a car to get to work and access entertainment anyways, their might as well enjoy the cheaper rents and larger unit footprints associated with smaller apartment properties outside of the core urban corridors.

Read the original article here.

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Forbes: Atlanta No. 3 U.S. city poised to become tech mecca

Atlanta could soon become one of the world’s most elite tech cities.

According to a new report from Forbes, Atlanta is the No. 3 American city poised to become one of tomorrow’s tech meccas.

“Craving relocation to the East Coast? Opportunities for Atlanta-based tech jobs, including software developer, software programmer, and computer support roles, have grown far more quickly than the national average,” the article reads. “Atlanta’s total tech jobs have grown by 46.7 percent since 2010 — almost 20 percentage points above the national average.”

The article gives a nod to three of the city’s startup hubs — Atlanta Tech Village, Switchyards Downtown Club and Advanced Technology Development Center — and two of the city’s universities —Georgia Institute of Technology and Emory University — as a two of the main boosters of Atlanta’s tech boom.

Atlanta Business Chronicle reported March 24 Comcast NBCUniversal will invest about $200 million in a tech startup “accelerator” in Atlanta.

Comcast’s initiative — dubbed The Farm — will be directed by Boulder, Colo.-based Boomtown. It is part of Comcast’s LIFT Labs for Entrepreneurs entrepreneurial support program and Boomtown’s first accelerator outside of Colorado.

Boomtown Executive Director Toby Krout said Atlanta was selected because it has a diverse community, a strong university system and a thriving arts culture.

“They’re all coming together as a perfect storm and when you bring in a tech company that we view as a startup that won like Comcast, it’s just a spectrum,” he said. “When you combine a company like Comcast that is building an amazing world-class facility right here surrounded by a community that is about ready to pop, it was perfect for us to come in.”

Read the original article here.

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Millennials Spend About $93,000 on Rent by The Time They Hit 30

We all know Millennials. They’re the resourceful, creative youngsters who grew up with the latest technology and who are big fans of music festivals and avocado toast. Known as a generation of renters, many Millennials find renting more affordable and hassle-free than buying. But that’s not the only reason they don’t buy. At a time when they should be able to focus on their career, settling down and having a family, Millennials are still going through the stress of student loan debts while at the same time struggling to pay rent.

The cost of renting is a huge subject nowadays and a big expense as well, arguably the biggest it’s ever been. We were curious to find out exactly how much Millennials spend on rent before the age of 30 and if it’s true that they’re more rent burdened than previous generations. In our quest for more information, we turned to U.S. Census to shed some light on this topic and looked at each generation’s total income and total rent paid for an 8-year period (from 22 to and including 29 years of age). Specifically, we looked at the median income representative for the ages analyzed, rather than the median income of the overall population, because people in their 20s, with limited experience in the workforce, typically have a lower income than those over 40 who are at the peak of their careers. Our analysis refers to single people paying a median rent on their own, and all amounts were adjusted to 2017 prices.

Our study comes to show that yes, Millennials do carry the weight of a very heavy rent burden and pay a ton of money on rent.

With a rent burden of 45%, Millennials pay $92,600 in total rent

Millennials pay a whopping $92,600 in total rent by the time they turn 30, more than what their Baby Boomer parents paid by the time they hit the same age. It seems that Millennials do put a massive amount of money into renting, but the numbers also show that their total median income is the highest among generations, earning about $206,600 in 8 years. However, they spend 45% of this income on rent between the ages of 22 and 30, which is more than the recommended 30%. In fact, none of the two previous generations managed to keep the rent burden under 30% with Gen Xers witnessing a rent burden of 41% and Baby Boomers of 36%.

Both Gen Xers and Baby Boomers made less money than Millennials but they also spent less on rent. Gen Xers spent a total of $82,200 on rent when they were in their 20s, and they earned about $202,100. The same is true for Baby Boomers as they earned $195,700 while $71,000 of that went towards rent.

Besides the heavy rent burden, there are several other reasons why Millennials witness such big financial challenges. One of them is the ever-increasing student loan debt, which many economists blame as the reason Millennials aren’t able to buy homes. Millennials do make more money than any other generation before them, but they’re also said to be spending more on things that are not necessarily essential, like Uber rides, pricey coffee or eating out. At the same time, spending habits depend very much on where they live, and as many Millennials prefer urban areas and big cities, this can only result in higher costs.

Millennials earn and spend more on rent than any previous generation

To better illustrate this, we compared Millennials’ income and rental amounts paid before turning 30 to those of the two previous generations.

With a total of $92,600 spent on rent before hitting 30, Millennials pay a striking $21,600 more than what Baby Boomers paid during the same 8-year period. At the same time, Millennials boast a total income of $206,600, almost $10,900 more than the $195,700 that Baby Boomers earned between the ages of 22 and 30. It’s worth noting that the rent difference between Millennials and Baby Boomers is twice as big as the income difference.

As for the Gen Xers, they had an income of $202,100, about $4,500 lower than that of Millennials. Some might say that compared to Gen Xers, Millennials have had it easier so far. Given the fact that Gen Xers were in their 30s and 40s when the U.S. housing market crashed in 2008, most of them witnessed the full force of the aftermath. As a result, many were no longer able to buy and were forced to turn to renting. However, if we compare the rental amounts paid by Gen Xers and Millennials between the age of 22 and 30, we’ll notice that the latter paid $10,400 more on rent. An explanation for this could be the rents that have gone up since the housing crisis.

Younger Millennials pay more rent than older Millennials

Our analysis also found that younger Millennials, now aged between 22 and 29 years old, have had to pay a larger amount of money on rent than older Millennials, now aged 30 to 40. Younger Millennials are paying a median rent of $97,400 before turning 30, while older Millennials paid about $90,500, almost $7,000 less than younger Millennials. The two demographics were impacted by both the recession and social factors in a way that pushed them to rent longer than any other previous generation.

As far as the rent burden goes, there’s a visible difference between younger Millennials and older Millennials. With a rent burden of 47% between the ages of 22 and 30, younger Millennials surpass older Millennials who spent about 44% of their income on rent during the same period of time. The high rent burden carried by younger Millennials is mostly due to the increase in the median rent paid. While it’s true that their income was $3,400 higher than that of older Millennials, they also paid $6,900 more in rent.

By the time they hit 30, Generation Z will have paid over $102,000 on rent

Baby Boomers, now in their 60s and 70s, paid the lowest rental amount of $66,900 before turning 30. Following an ascending trend, the rent amount increased by about $5,000 to $8,000 each decade. If rents continue to go up at this rate, Generation Z, now aged around 20, will be paying a staggering $102,100 on rent by the time they hit 30.

As Gen Zers are starting to look for their very first apartments, they are bound to bring about some changes in the housing market. We’re talking about a highly visual cohort, which was born and grew up in the internet era. Although not very different from Millennials, Gen Zers are more tech savvy and highly reliant on technology. As a result, their future homes will have to meet their technological needs. Expected to be a more sedentary generation, industry experts say that they will no longer require amenities like swimming pools or fitness centers but computer labs and game rooms. Technological updates are likely to drive monthly rents further up, therefore Gen Zers should expect to pay more in order to get more.

Given their overwhelming student loan debt, younger Millennials may carry on renting, simply because the prospect of buying is not yet attainable. On the other hand, older Millennials are starting to slowly shift towards home ownership. As they are finally catching up with the American Dream, this will surely drive demand for homes for sale. Their lifestyle patterns so far show that Millennials need affordable homes with attractive amenities. As they’re starting to form families, they’ll soon be ready to put their hard-earned money into their own home.


  • RENTCafé is a nationwide apartment search website that enables renters to easily find apartments and houses for rent throughout the United States.
  • Using the most recent Census data, our research team analyzed the rents and incomes across the United States during certain time periods. Relevant income data was available starting with 1974 while rent data was available starting with 1940. The income amounts represent the median gross income per capita and the rental amounts represent the historical median gross rents. The data was adjusted to 2017 prices, using a cumulative rate of inflation for each year.
  • We based the total income on the following age brackets provided by Census: ages 15 to 24 and ages 25 to 34.
  • We used the following year-of-birth ranges for each generation: Baby-Boomers – born between 1946 and 1964, Gen Xers – born between 1965 and 1976, Millennials – born between 1977 and 1995 and the Gen Z generation – born starting with 1996.
  • We added up the data from an 8-year period for each generation (for the years they were aged 22 to and including 29), we calculated the median amount of money that each generation spent on rent and the median income they earned during the same period. The final data presented in this study was obtained by rounding up the numbers to the nearest hundred.
  • The study refers only to single people paying the median monthly rent on their own.

Read the original article here.

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Fed raises key rate and foresees 2 more hikes this year

WASHINGTON (AP) — The Federal Reserve raised its key interest rate Wednesday in a vote of confidence in the U.S. economy’s durability while signaling that it plans to continue a gradual approach to rate hikes for 2018 under its new chairman, Jerome Powell.

The Fed said it expects to raise rates twice more this year. And it increased its estimate for rate hikes in 2019 from two to three, reflecting more optimistic expectations for growth and low unemployment.

In a statement after its latest policy meeting, the Fed said it boosted its key short-term rate by a modest quarter-point to a still-low range of 1.5 percent to 1.75 percent. It also said it will keep shrinking its bond portfolio. The two moves mean that many consumers and businesses will face higher loan rates over time.

Taken together, the Fed’s actions and forecasts suggest a belief that the economy remains sturdy even nearly nine years after the Great Recession ended.

The Fed’s latest rate hike marks its sixth since it began tightening credit in December 2015, after having kept its benchmark rate at a record low near zero for seven years to help nurture the economy’s recovery from the recession. Wednesday’s action was approved 8-0, with the Fed avoiding any dissents at the first meeting Powell has presided over as chairman since succeeding Janet Yellen last month.

Bond yields and stocks initially rose after the Fed’s announcement. But after wobbling for much of the afternoon, both ended modestly lower.

The Dow, having initially jumped as much as 250 points, ended down 44. The 10-year Treasury yield, a benchmark for mortgages and other loans, wound up at 2.88 percent, down from 2.90 percent a day earlier. It had traded as high as 2.93 percent after the Fed’s statement came out.

Economists said the decision to raise rates despite some recent sluggish data in areas like consumer spending showed that the Powell-led Fed has faith in the economy’s resilience.

“The Fed has more confidence in the economy’s underlying momentum and appears to be more determined to normalize interest rates,” said Mark Vitner, senior economist at Wells Fargo.

Vitner predicted that the central bank will end up raising rates four times this year despite its forecast for three.

Some investors had speculated that Powell might move to impose his mark on the Fed by signaling a faster pace of rate hikes for 2018. But the Fed’s new economic forecasts, which include a median projection for the path of future increases, made no change to its December projection for three hikes this year.

If the Fed does stick with its forecast for three rate increases this year and three in 2019, its key policy rate would stand at 3.4 percent after five years of credit tightening. Wednesday’s forecast put the Fed long-term rate — the point at which its policies are neither boosting the economy nor holding it back — at 2.9 percent.

At a news conference after the meeting, Powell said the Fed hasn’t lowered its forecasts for growth because of the Trump administration’s decision to impose tariffs on steel and aluminum imports. But he said the Fed’s regional bank presidents have heard concerns from businesses about the consequences of the tariffs.

“Trade policy has become a concern going forward for that group,” the chairman said, referring to business leaders.

But among the Fed officials who met in Washington this week, Powell said, “there’s no thought that changes in trade policy should have any effect on the current outlook.”

Powell’s first news conference ended 15 minutes earlier than the roughly hour-long sessions Yellen typically held, primarily because he kept his answers shorter. Powell said he might choose to hold a news conference after each of the Fed’s eight meetings each year, up from four now, but that he hadn’t yet decided.

Wednesday’s statement showed only minor changes from the text the Fed had issued in January after Yellen’s final meeting. The statement described economic activity as rising at a “moderate rate,” a slight downgrade from January, when the Fed described the economy as rising at a “solid rate.”

The statement did not mention the extra government stimulus that has been added since the Fed’s most recent economic forecast in the form of a $1.5 trillion tax cut and a budget agreement that will add $300 billion in government spending over two years.

But the Fed’s new forecast does envision somewhat stronger economic growth compared with its previous estimate: It raises the estimate to 2.7 percent growth this year, up from 2.5 percent in the December projection, and 2.4 percent in 2019, up from 2.1 percent.

Those higher estimates may reflect the expected impact of the additional government spending. But they fall far short of the 3 percent annual growth that the Trump administration has argued will be achieved with the implementation of its economic program.

The U.S. unemployment rate, now at a 17-year low of 4.1 percent, is expected to keep falling to 3.8 percent at the end of this year and 3.6 percent at the end of 2019, which would be the lowest rate in a half-century. The Fed expects inflation, which has run below its 2 percent target for six years, to stay at 1.9 percent this year and reach 2 percent in 2019.

A healthy job market and a steady if unspectacular economy have given the Fed the confidence to think the economy can withstand further increases within a still historically low range of borrowing rates.

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Affordable Apartments Lost

Affordable Apartments Lost

Every year, thousands of apartments are demolished, often by owners who can no longer afford the repairs needed to maintain them.

These units are often among the most affordable homes in their respective markets, with the people living in them frequently having few other housing choices. The elimination of these apartments from the housing stock only exacerbates the already critical nationwide shortage of low-income housing. However, new financing tools are helping recapitalize these units, repair their problems, and keep them affordable.

“We’re not going to be able to build our way out of the affordable housing crisis … something needs to be done to preserve the existing stock, as well,” says Caitlin Sugrue Walter, senior director of research for the National Multifamily Housing Council (NMHC).

Obsolescence Hurts “Naturally Occurring” Affordable Housing

There are now roughly 5.5 million units of “naturally occurring” affordable housing (unsubsidized affordable housing) in the U.S., according to research by CoStar. These apartments are often less expensive simply because they’re a little older than other, newer units. But every year, their numbers decline, worsening the country’s affordability crisis.

Between 75,000 and 125,000 apartments vanish annually from the total inventory of apartments in the U.S., according to an analysis of U.S. Census data by the NMHC. Some are destroyed by fires or floods. Others are renovated out of existence; for example, two apartments might be merged into a single, larger unit, or get converted into condominiums.

Economic obsolescence is one of the most common reasons apartments leave the housing inventory. These units often lose their economic viability when a property needs more repairs than its owner can afford by borrowing against the development’s income stream.

Data show that less-expensive apartments are more likely than apartments overall to be lost to the inventory. The number of apartments overall grew between 2005 and 2015, but the share with rents of less than $800 a month shrank. “They’re mostly at the lower end of the market,” says Sara Hoffman, manager of multifamily research and modeling for Freddie Mac Multifamily.

These apartment properties also tend to be owned and managed by small, private owners instead of large, institutional investors and professional managers. An apartment that gets demolished because the owner can’t afford to fix the roof is unlikely to be a property owned by institutional capital.

There’s also a huge need for apartments that rent for relatively low prices. In markets across the country, vacancy rates are very low but are lowest for homes that rent at the most affordable prices.

Despite the strong demand for naturally occurring affordable housing, operators may be unable to raise their rents by much, even if the units are well-maintained. Renters in many naturally occurring affordable housing properties are already paying close to the limit on what they can afford.

A total of 11.1 million renter households paid more than half their income on rent in 2015, according to the State of the Nation’s Housing 2017 report from the Joint Center for Housing Studies at Harvard University. It’s easy to see that the renters who are so burdened by the cost of housing live in properties that are not operated by professional managers.

The rest of the apartment stock, including Classes A, B, C, and even D properties, tend to be run by professional managers who screen their tenants and only offer leases to renters whose annual income is a certain ratio higher than the monthly rent. The average household in Class C apartments, for example, earns less than $30,000 a year, on average, and pays roughly 30% of that income on rent, according to data from properties managed with RealPage software.

Financing to Help Older Apartments

Providing financing for these older apartments can help keep some of them operating. “There’s an overall shortage of affordable and workforce housing. Preservation is a way to address this need,” says Corey Aber, manager of community mission and impact finance for Freddie Mac Multifamily.

Fannie Mae and Freddie Mac are trying to help by offering loan programs designed to help property owners continue to operate these properties efficiently. The loans often come with lower, relatively affordable interest rates.

Freddie Mac has created two rehab loan products, each specifically designed to help owners maintain and fix aging, inexpensive apartments. The loans offer low interest rates to owners who commit to making complete, modest renovations sometimes costing as little as $5,000 per unit.

Freddie also offers lower interest rates to apartments whose owners commit to making the properties at least 15% more energy efficient. Because tenants often pay for their own utilities, much of these savings flow to them. “It works out to much lower utility costs for the tenants,” says David Leopold, vice president for Freddie Mac Multifamily.

Freddie Mac will also pay for a “green assessment” to identify the most-effective energy-saving renovations to make for a particular property.

Read the original article here.

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New Research Confirms Apartments Outperform Across Time, Geography and Market Conditions

WASHINGTON, D.C. — Apartments outperform other commercial real estate property types, on both a risk-adjusted and unadjusted basis, regardless of holding period, geographic region, metro size, and growth rate according to new research from the National Multifamily Housing Council Research Foundation.

In the first work of research funded by NMHC’s Research Foundation since it was launched in late 2016, Professors Dr. Mark J. Eppli (Marquette University) and Dr. Charles C. Tu (University of San Diego) examine a wide range of property and financial market characteristics to try to determine if apartment market overperformance stands up to the test of time.

“Over the last three decades, apartments have become a desired asset class among both domestic and foreign real estate investors because of their strong returns coupled with relatively low risk,” said Mark Obrinsky, NMHC’s Chief Economist. “Despite the different characteristics of apartment, office, retail, and industrial properties, one might expect competitive markets to reduce, even eliminate, the higher risk-adjusted returns on apartments. This research finds that not to be the case, however.”

According to the authors, part of the reason that apartment returns outperform other asset classes is because investors tend to underestimate capital expenditures for both office and industrial properties.

Drs. Eppli and Tu examined a wide range of property and financial market characteristics to try to find insights into expected investment returns. One result they documented is that acquiring properties immediately after a downturn boosts returns.

“We are delighted to publish this first research report from the NMHC Research Foundation,” said NMHC President and CEO Doug Bibby. “As the multifamily industry grows in sophistication, so must the quality and breadth of our analysis. Filling that need was our goal in creating the Foundation and this paper is one of many forthcoming works that will provide leading, actionable information for the apartment market.”

Full Document

Explaining High Apartment Returns

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Seniors Housing Occupancy Stagnates, as Absorption Lags

Occupancy in the seniors housing sector remained unchanged in the fourth quarter of 2017 compared to the quarter prior—though it dropped year-over-year—as completions continued to outpace absorption. Rent growth also slowed.

The sector’s national occupancy rate, based on aggregate statistics from 31 markets, held at 88.8 percent last quarter, according to data from the National Investment Center for Seniors Housing & Care (NIC). The figure is 180 basis points above the cyclical occupancy low of 87.0 percent during the first quarter of 2010 and 140 basis points below the 90.2 percent high reached in the fourth quarter of 2014.

Occupancy also varied greatly among markets. For example, the market with the lowest rate is San Antonio, which posted occupancy of 78.0 percent in the fourth quarter. San Jose, Calif. had the highest occupancy rate at 95.3 percent. “That’s a pretty wide difference between the better and worst performers,” says Beth Burnham Mace, chief economist at the NIC.

Completions continued to surpass absorption, according to NIC data, failing to abate long-held supply concerns. There were 18,500 units added to the inventory in 2017, though 12,200 units were absorbed on a net basis. This triggered a 70-basis-point drop in occupancy year-over-year. A bulk of the inventory growth—nearly one-third—over the past three years has occurred in the Dallas, Minneapolis, Chicago, Atlanta, Houston, Boston, Phoenix and New York metro markets.

The sector’s occupancy level is unlikely to change anytime soon, and the sector has yet to absorb the effects of a particularly strong flu season, says Andrew Carle, an adjunct professor of seniors housing at George Mason University in Fairfax, Va.

 The oversupply issue is also not expected to go away this year, Carle adds. Many investors and developers are building in a small number of metros, waiting for the demographics to catch up—the baby boomer generation has not yet reached the peak age for seniors housing, he notes.The occupancy concerns facing the sector are there, particularly within the assisted living, memory care and nursing sub-sectors, says Charles Bissell, managing director at real estate services firm JLL. In the independent living sector, however, occupancy is stronger, at 91.0 percent, he notes.

As baby boomers age, it will create excess demand to absorb supply, Bissell adds. A recent JLL survey on the sector found that independent and assisted living facilities are considered the most promising sub-types. “We’re really in the first game of the seven-game series for the seniors housing cycle,” Bissell says. “Demand is going to double between now and 2035, and prudent investors know that.”

And while construction peaked in early 2016, there has been a decline in units under construction every quarter since, he notes. According to NIC, starts for independent living properties totaled 8,187 units in the fourth quarter, which was down from 9,051 units a year ago. For assisted living, starts totaled 12,499 units—a drop from 15,224 year-over-year. “We have definitely seen construction start to abate, and occupancy—while it might continue to trend down slightly for assisted and memory care—we feel like it will begin to stabilize,” Bissell says.

Some factors contributing to the lag in starts could be weather-related hold-ups and delays in acquiring state licenses, says Burnham Mace, who also cautions that starts data tend to get revised. However, there has also been some pushback from funding sources concerned about too much new product hitting the market. “I think lenders are looking more carefully at the sponsors and who’s requesting the funding for debt,” Burnham Mace adds.

Rent growth also decelerated in the fourth quarter: same-property asking rent showed year-over-year growth of 2.6 percent, which is on par with average rent growth the sector has experienced since late 2006, according to NIC.

Weighing on rent growth are the sector’s long-standing labor issues. National unemployment is at 4.1 percent, but in some metros, it is lower. “It’s increasingly difficult to find labor and as a result, you’re starting to see some upward pressure on wage rates,” Burnham Mace says. Assisted living workers saw wage growth of 5.3 percent in the third quarter of 2017, and 5.0 percent in the fourth quarter, according to the Bureau of Labor Statistics. Wages and labor comprise about two-thirds of seniors housing operators’ expenses, Burnham Mace notes.

Read the original article here.

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