SunTrust Among Banks Pulling Back Apartment Construction Lending (Atlanta, Sandy Springs: rental, condo)

[cqholt]

The long term reality of the Metro Atlanta apartment market is boom times of high demand which lead to a lot of construction, the economy slows, rent falls and construction tapers off. There are hundreds of older apartments dotting the area which got high rent "back in the day", but now ask lower rents. This reality continues to this day. Buford Highway (in Brookhaven), Roswell Rd. (in Sandy Springs) and Franklin Rd. (in Marietta) are the prime examples of this phenomena. Because of this cycle, many suburban municipalities have tried to curb new construction of apartments because they don't want a Franklin Rd. in their backyard (The City of Marietta has recently bulldozed most of the aging apartments in that corridor).

Then how do you explain Colonial Homes, all the Virginia-Highland apartments, etc?

[arjay57]

Originally Posted by David1502

Folks, Reality check. Rents will fall because demand will fall in 2017 due to a significant decline in job growth. This has been predicted by Dr. Rajeev Dhawan the director of the Economic Forecasting Center at Georgia State University. The Atlanta Metro should add about 62,800 jobs in 2016, however, in 2017, job growth will drop to 39,100 and a most critical statistic is that only 18% of those jobs will be "premium" positions paying more than $60,000 a year. Here is a link to the article where this is stated:
Economic forecast: Atlanta’s growth to slow

Some are predicting the city is going to triple in population over the next 25 years and that we'll need unprecedented amounts of new rail and TOD. If that happens it may help keep rents high.

[0nyxStation]

Originally Posted by MikeHonchoATL

I hope they keep building. A crash is coming at some point. I'd sure like to swoop in and scoop up some deals in 2-3 years.

You possibly could do JUST THAT.

[ATLJR]

Originally Posted by IntentionsRGood

Just because they're building again doesn't mean the apartments are being leased. Many units sit empty at the luxury apartment complex where I live in Buckhead.

Which apartment complex do you live at? I know this statement to be false for new Class A product. While many in lease up are giving concessions, lease up rates are good. Keep in mind, no project instantly leases up, they plan these things to last 12-15 months depending on the size of the project.

[ATLJR]

Originally Posted by IntentionsRGood

If lenders are pulling back it is because apartments aren't leasing. My complex is using empty apartments as overflow storage for package deliveries from UPS, USPS, and FedEx.

This isn't true at all. It is okay for you to have an opinion, but you are factually incorrect about lenders, their motivations, and if apartments are leasing or not.

Lenders aren't looking at the now, they're look at the future, and what they see is a lot of supply hitting the market in concentrated areas in the next 2-3 years. That, coupled with the strong investments they have already made as well as a presuming downturn in the economy (simply accounting for its cyclical nature) has them pulling back on lending for future projects.

[ATLJR]

Originally Posted by 0nyxStation

You possibly could do JUST THAT.

Not unless he has $40,000,000 lying around.

[David1502]

Originally Posted by cqholt

Then how do you explain Colonial Homes, all the Virginia-Highland apartments, etc?

Sure, you could add in the Darlington across the street on Peachtree, as well. However, if you go further north on Peachtree to Peachtree Hills and head east towards Lindberg, back in the 1990's that area became a community of lower rent apartments. Developers realized it was undervalued real estate in a prime location and redeveloped it into higher end properties. The same thing happened on a larger scale east of the Lindberg MARTA Station where all of the older, lower rent apartments along Morosgo Drive have been bulldozed down for newer, higher rent communities. The fact that these older apartments had become lower rent, even though they are in desirable locations proves my theses.


The apartments you refer to are unique properties which have the attraction of being older architecture in walking distance to the bars and restaurants in VA- Highland. For those who moving to the Atlanta area from older cities in the Northeast, or Chicago, the older apartments in that area are more what they are accustomed to and they are willing to pay a premium to live there.


Likewise, in the case of Colonial Holmes in Buckhead, being a stones throw from Piedmont Hospital (where hundreds are employed) as well as the bars and restaurants of south Buckhead give it an advantage.


However, in the big scheme of things of apartments, these apartments are more the exception than the rule. AS apartments age, it is tough to get a high rent and when the economy slows down, even tougher. For example, back in 2009, many of the new apartments in Atlantic Station had to drop their rent, because of an oversupply (Many of the condos became rentals). The same thing will happen again when the nation's economy goes through a downturn (and Atlanta's follows the country) and property managers will be desperate to get some rental income and will drop rents rather than have empty units.

[David1502]

Originally Posted by arjay57

Some are predicting the city is going to triple in population over the next 25 years and that we'll need unprecedented amounts of new rail and TOD. If that happens it may help keep rents high.

You're talking about a 25 year time frame and you're assuming that there aren't going to be any economic bumps in the road during that time period. From what I have observed around Metro Atlanta, apartments have a life cycle where they initially attract young professionals who are earning good incomes (and driving late model vehicles). However, after several years, those residents either buy a house, move to a new location because of a job change, they get married, etc. Then the property management has the challenge of attracting new residents. Sometimes, they may have to reduce the asking rent and as a result, the income of the new residents is lower and this is reflected in the vehicles they drive. Those who have been paying the higher rent see this and decided to move to new community to be around those in a similar income bracket. Once this happens, it becomes almost impossible for the older complex to attract those wiling to pay a higher rent, unless they go in and completely renovate it and remarket the complex - this means ending the leases of the existing tenants who are paying the lower rent.


A buddy living in Chattanooga described this cycle where he said when he moved in the complex when it first opened, it was all young professionals, however, after a few years, the population changed to more of a working class population. When it came time to renew his lease, he found a brand new complex (further out) where he could rent an apartment with granite counter tops for not much more than he had been paying and was back to living around other professionals.


The Wall Street Journal had an article yesterday saying that United States population is growing at the lowest rate in many years of only 0.7% a year. While the Atlanta area has been growing faster than the nation as a whole, the national trends will have an impact here, too and this will be seen in demand for all types of housing.

[tikigod311]

Originally Posted by arjay57

It's always that way, tiki.

Let's say the market remains strong and there isn't another huge collapse. In that case, five years from now you might be saying, "Gee, if only I'd bought back in 2017 before everything got so expensive."

It's hard to predict where markets are going.

Indeed. It makes this challenging and I feel like I am likely going to kick myself regardless of what I choose.

BUT, with the new administration and Brexit (it hasn't really happened yet folks), I think the outlook for instability is rather high right now. IMO, housing prices are overvalued in many areas I am looking and are ripe for a correction. But maybe I'm wrong.

I know you can't time the market, but I feel like to buy right now would be more of a gamble than to wait.

[noah]

These things go in cycles and there are signs it may slow down soon. Rents in top cities like NYC and SF are declining according to some studies (5 months in a row in SF). You can almost count on over building following by softness in demand.