CAPITOL WATCH
NAIOP: Long-Term Gov’t Uncertainty
Clouds Development
WASHINGTON, DC—US CRE development generated $303.4 billion of
economic activity in 2012, up nearly 16% from 2011’s tally of
$261.6 billion in 2011, while adding 307.5 million square feet to
the nationwide total, up 29% from the new space built in the
prior year. Yet governmental uncertainty threatens such double-digit gains from being achieved again in the next few years, the
NAIOP Research Foundation reports.
Past the double-header cliffhanger earlier this month of a gov-
ernment shutdown and possible default, there are also policy
issues left hanging fire. “How is the treatment of carried interest
going to be handled,” for example, says Thomas Bisacquino,
NAIOP’s CEO and president. “When you do a lease, tenant
improvement is currently depreciated on the books for 39 years,
but each year we have to call tax extenders, so the depreciation
on tenant improvement has dropped to 15 years. That expires at
the end of this year; is it going to be renewed?”
A variety of public policy issues “that impact our ability to be
successful and move forward are just sitting out there, so when
does it get dealt with, how does it get dealt with?” he asks. “Then
we’re moving into the 2014 mid-term elections, so if you think the
politics are great now, wait a few months.”
NAIOP’s report makes it clear that the nation can’t have one
(construction sector recovery) without the other (economic
recovery), and vice versa. “The strength of the US economy’s
recovery is directly linked to the
pace of recovery experienced by the
construction sector,,” writes the
report’s author, Dr. Stephen S.
Fuller, director of the Center for
Regional Analysis at George Mason
University. “As construction expenditures move toward normal levels
between 2013 and 2015, the US
economy’s growth rate is projected
to increase from 2.2% in 2012 to
3.5% in 2015.”—Paul Bubny
BRICKS AND STICKS
MF Development
Will Taper in 2014
DALLAS—Notwithstanding a wave of new units coming on line by
year’s end, the pace of multifamily development is moderating
in the near term. So says locally based Axiometrics, which also
notes that rent growth nationally moderated slightly during the
third quarter.
With the year winding down, Axiometrics said in a recent
report, “concern remains about which metropolitan statistical
areas (MSAs) will become oversupplied due to new deliveries
increasing more than demand or job growth. However, by the
latter half of 2013, development of new apartment properties
is expected to spread more broadly and to encompass a more
generalized suburban sector.” For the full year, Axiometrics is
forecasting delivery of 180,723 units across 192 MSAs, up from
86,554 the year
before.
Starting next
year, the
research firm
predicts, “the
development of
new apartments
will slow until
investors and
developers see
new supply
absorbed and market
conditions recali-
brated.” Given the
increases in construction
and labor costs, and a slow-
down in class A rental growth,
“many planned projects are no longer
feasible at the current levels of rent and may not be started.”
That will mitigate the possibility of oversupply.
As it is, annual multifamily permits nationwide decreased
15.7% in August to 268,000 from July’s annual rate and were
3.9% lower year over year, according to US Census data cited by
Axiometrics. By contrast, single-family permits in August rose to
627,000 units, up 3% from the July number and more than 20%
over August 2012.
Three of the top 10 MSAs for multifamily permitting for the
trailing 12 months that ended
August 31 were in Axiometrics’
home state. They included New
York City, with 19,718 units;
Houston, 13,515 units; Austin, TX,
11,672 units; Dallas, 9,502 units;
Los Angeles, 8,599 units; Seattle,
8,264 units; Denver, 7,975 units;
Washington, DC, 7,736 units;
Atlanta, 7,556 units; and Orlando,
7,032 units.
While urban infill locations still
account for the majority of the
supply being delivered this year,
construction activity is accelerat-
ing in the suburbs and around
outer employment nodes of some
MSAs as opportunities dwindle in
the urban core, according to Axiometrics. “Developers share
the same concerns as employers, with added worries about
potential overbuilding in the most active markets, rising inter-
est rates and slower job growth dampening demand,” accord-
ing to Axiometrics.
Annual effective rent growth moderated slightly to 3.2% in Q3,
compared to 3.7% Y-O-Y. Axiometrics data showed that the effective
rent growth rate has slowed for nine consecutive quarters as many
MSAs are decelerating from very strong growth. The peak for annual
rent growth at the national level was 5.3% in July 2011. Yet the com-
pany notes that many individual markets are still producing “very
strong rent growth rates,” and 23 of the top 88 MSAs have reported
annual effective rent growth of greater than 4%.—Paul Bubny ◆
Jeff McClure has joined Greysteel as
managing principal of Greysteel Capital
Markets, The Washington, DC-based
firm’s newly launched real estate invest-
ment banking and finance affiliate. His
experience includes more than $25
billion in real estate finance transac-
tions including 144a and REIT
financings, public and private
debt and equity placements,
and debt securitizations at
the project and entity
levels.
Moves
10-YEAR TREASURY RATES:
3% by the end of 2013
3.4% by the end of 2014
4% by the end of 2015.
—Urban Land Institute and EY
