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Multi-Family Price Increases Will Continue in 2014

by RRA on January 28, 2014
Multi-Family Price Increases Will Continue in 2014

This article was originally published in the Mid Atlantic Real Estate Journal.  

Multi-Family Price Increases Will Continue in 2014

by Mark Duszak, Director

The Tri-State region experienced strong sales velocity in 2013. The high demand for Multi-Family product in 2013 resulted in record per-unit pricing for the region.  Since opening in February 2013, Rittenhouse Realty Advisors  has closed or placed under agreement north of $120,000,000 in Multi-Family sales in the Tri-State area. Examples of our closed Multi-Family sales are Note Sales (Forest Manor – 60 units in West Chester, PA), Broken Condo Sales (Willowbrook – 121 condo’s in Boothwyn, PA at 4.5% T-12 Capitalization Rate), Student Housing (Temple University Area Portfolio – $199,000 price per unit), and REO (Whitehall Commons in Whitehall, PA). Record breaking price per unit sales were seen in the Center City, Philadelphia, North Philadelphia, Suburban Philadelphia, Lehigh County, New Jersey and Delaware markets.

Why will the Multi-Family market be stronger in 2014 vs 2013? 

The profile of the typical renter has changed significantly in the last few years.  For the generation of “Millennials” who grew up during the housing crisis, owning a home is not the priority it has historically been for other generations. According to a report released recently by the Joint Center for Housing Studies entitled “America’s Rental Housing: Evolving Markets and Needs,” the share of U.S. households turning to the rental market to meet their housing needs rose over the last decade, bringing the total number of renters to 43 million by early last year.  In addition, a staggering 50% of renters pay more than 30% of their income for housing. With more than 30% of their income going towards rent, it will be very challenging for these serial renters to save for a down payment toward home ownership.

“Baby Boomers” also have entered the rental pool as they continue to sell their large houses and downsize. This growing segment has started favoring renting due to a “zero maintenance” approach compared to home ownership. This segment is willing to pay higher rents for higher quality. There are many communities that now target the 55 plus rental pool.

One of the effects of this robust tenant pool is a significant increase in construction, especially in major metropolitan areas.  The Philadelphia skyline is full of construction cranes building to accommodate renters who are seeking a live-work-play lifestyle.  Current renters are paying a premium of close to $3/SF to live in the City of Philadelphia. A downtown location allows Millennial renters to take advantage of the city lifestyle and to spend on rent what they save by forgoing car ownership in favor of city living.

Although low interest rates have fueled Multi-Family pricing, the consensus is that low interest rates will continue in 2014. And with the 10 year Treasury hovering around the 3% mark, the aggressive Multi-Family lenders are back.

Rittenhouse Realty Advisors is a Philadelphia, Pennsylvania based real estate advisory firm with an extensive focus in the brokerage of Multi-Family communities throughout the Northeast region of the United States.

See full article in the Mid Atlantic Real Estate Journal.