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Apartment REP Blog
May 21

Written by: Apartment REP
5/21/2010 2:38 PM 

Written by David Bracken | TRIANGLE NEWS & OBSERVER

As an apartment complex manager in the Triangle for the past 10 years, Maureen McDivitt feared the worst when the economy went south and houses suddenly became much more affordable.

In addition to losing tenants who could no longer afford their rent, McDivitt feared that renters with cash would use the downturn as an opportunity to become homeowners.

"With the housing market, they were giving this $8,000 tax credit, I was expecting all of us to just die," she said. "And we did not."

McDivitt said the industry's improving fortunes are evident at The Tribute, a new 359-unit complex she manages off Glenwood Avenue in Raleigh. The Tribute opened in March and has already raised rents on two of its floor plans and reduced its free-rent offer from two months to six weeks on a year lease.

"There certainly are people still moving here," McDivitt said.

The apartment vacancy rate in the Triangle was 8.6 percent in March, down from 10.3 percent a year ago, according to data from the Triangle Apartment Association and Karnes Research.

The improvement was a surprise given that demand for apartments is historically much higher during the spring and summer.

"We were expecting [occupancy] to just jump up slightly," said Brian Reece, a partner with Karnes.

Average apartment rents, which recorded their first year-over-year decline in five years in September, were flat in March when compared to the average reported a year earlier.

The data reflect both the improving demand for apartments and the lack of new supply coming on the market. A total of 1,297 units were under construction in March. That's well below the 3,054 units under construction that the Triangle has averaged in March over the past 10 years.

The Tribute's reduction of its free-rent offer is noteworthy because it is competing with two other apartment buildings that recently opened nearby: Park & Market apartments at North Hills and Manor Six Forks at Six Forks Road and Atlantic Avenue.

A month's free rent

Manor Six Forks, which has leased 21 of its 298 units since opening in early March, is offering tenants one month's free rent on a 12-month lease and a free iPad, said Jonathan Tucker, vice president of property management for Boylan Properties.

Park & Market offered some concessions late last year when it first opened, but is not doing much right now, said John Kane, the developer behind North Hills.

Park & Market will eventually include 409 units. The project is being done in phases, and 144 of the 217 finished units have been leased, Kane said.

The Tribute has leased 21 percent of its units, McDivitt said.

The improving occupancy trends for multifamily properties have coincided with a flurry of deals involving Triangle apartment buildings.

So far this year 11 apartments have sold for $201 million, according to Raleigh estate company Apartment REP. For all of 2009, transactions for Triangle apartments totaled $250 million.

The number of deals reflects the continuing availability of financing for apartment deals, and the activity also shows how bullish institutional investors have become on the Triangle market.

Apartments suffer less

Apartments have not suffered as much of a drop in occupancy as other types of commercial properties during the downturn. And apartments' annual performance is likely to reflect the improving economy sooner than other property types because apartment tenants sign shorter leases.

Office landlords who are now offering steep discounts to get tenants into their buildings will be stuck with those deals for five years or more, said Jim McMillan, an investment broker at Grubb & Ellis/Thomas Linderman Graham in Raleigh.

Apartment owners, on the other hand, usually require 12-month leases.

"On an annual basis they can keep up with the economy as it improves," McMillan said.

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