Western Real Estate Business

OCT 2018

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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www.REBusinessOnline.com Western Real Estate Business • October 2018 • 49 causes cap rates to rise and prices to subsequently drop, secondary and tertiary markets with solid economic fundamentals do not have as far to fall (or rise). The correlation between rising in- terest rates and cap rates is foggy at EHVW ZLWK PDQ\ IDFWRUV DHFWLQJ FDS rates and, therefore, property values. Looking ahead, small but regular in- creases in interest rates are expected. However, these increases are not an- ticipated to disrupt pricing across the commercial real estate spectrum. This ZRXOGQRWKROGWUXHIRUDPRUHVLJQLÀ- cant jump in interest rates, but a rise of that implication is not anticipated. INVESTORS SEE POTENTIAL IN WESTERN SENIORS HOUSING By Dague Retzlaff, Senior Vice President of Originations, Capital One Healthcare As 2018 quickly draws to a close and the looming de- mographic trends edge ever closer, in- vestor enthusiasm for seniors hous- ing — particularly in the Western U.S. — remains strong. At the same time, investors continue to keep a wary eye on occupancy lev- els underlining the importance of un- GHUVWDQGLQJVSHFLÀFPDUNHWVDQGVXE- markets when reviewing deals. 7KH ÀUVW KDOI RI VDZ D WRWDO RI 236 deals close, according to the NIC MAP Data Service, although dollar YROXPH D UHÁHFWLRQ RI WKH VPDOO SHU- centage of portfolio deals completed WKXV IDU GHFUHDVHG IURP WKH ÀUVW KDOI of 2017. Prices have also held steady. $W DQ DYHUDJH RI SHU XQLW they are up 1.7 percent year over year. At least for the moment, measured in- terest rate increases and manageable LQÁDWLRQVXSSRUWWKLVSRVLWLYHRXWORRN When it comes to occupancy on a national basis, construction as a share of seniors housing inventory remains high, ranging between 6 percent and 7 percent for the past 18 months, accord- ing to NIC. With inventory growth outpacing demand, the nationwide seniors housing occupancy rate fell to 87.9 percent at the end of the sec- ond quarter in 2018, its lowest level in seven years, while rent increases aver- aged 2.5 percent. By and large, the Western cities have tended to avoid these trends. Most inventory growth in the U.S. occurred elsewhere, with six cities — Chicago, Minneapolis, Atlanta, Hous- ton, Detroit, and Washington, D.C. — accounting for 46 percent of all new inventory in primary markets in the previous year, according to NIC. Dur- ing the same period, six Western cit- ies — Portland, San Francisco, Seattle, Los Angeles, Riverside, Calif., and Las Vegas — delivered the highest rent growth. Portland, Seattle, and San Jose and Sacramento, Calif., all turned in occupancy rates higher than 91 per- cent. Variations on the Same Theme Of course, each city has its own story to tell. However, collectively, they re- veal that market fundamentals for se- niors housing in Western states remain strong. For instance, although Port- land is seeing a steady stream of new seniors living and assisted living com- munities, development has proceeded at a restrained pace. The ratio of con- struction to existing inventory is just 4 percent, and rent growth is a solid 5 percent. Los Angeles and Seattle are following roughly the same pattern. Even a city like Phoenix, which at- tained a phenomenal construction- to-inventory ratio of 18 percent in the second quarter, is doing well. De- mand lags supply only slightly, with occupancy rates dipping just 2 per- centage points over the past six quar- ters to 87 percent, while rent growth closely tracks the national average. On the surface, Las Vegas also seems like another market where overbuild- ing could be a concern, with occupan- cy rates at 82 percent. A more nuanced examination, however, reveals that the market is split between pre-reces- sion product and communities built during the real estate recovery. Minimum Wage Maximizes Labor Costs Western markets, however, are not Heather James-Wyrick 404-832-8262 hwyrick@francemediainc.com R E G I S T R A T I O N & G E N E R A L I N F O : Ryan Nixon 404-832-8262 ryan@francemediainc.com S P O N S O R S H I P & S P E A K I N G O p p o r t u n i t i e s : Rich Kelley 914-468-0818 rkelley@francemediainc.com i n t e r f a c e c o n f e r e n c e g r o u p . c o m N I N T H A N N U A L I N T E R F A C E N OV E M B E R 2 7 T H E W H I T L E Y, AT L A N TA M U L T I F A M I L Y S O U T H E A S T P R O D U C E D B Y INTERFACE CONFERENCE GROUP A N D FRANCE MEDIA The InterFace Conference Group and Southeast Real Estate Business are pleased to host the 9th annual InterFace Multifamily Southeast information and networking conference on November 27th at The Whitley in Atlanta. The event will be focused on buying, building, operating and financing apartment properties in the Southeast. Panel sessions will cover apartment investment, development, financing, as well as trends in leasing, operations and architecture/design. T h e b i g g e s t m u lt i f a m i ly e v e n t i n t h e s o u t h e a s t i s b a c k ! G O L D S P O N S O R s S I L V E R S P O N S O R S P L A T I N U M S P O N S O R S Dague Retzlaff Capital One Healthcare continued on page 51

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