Arizona Rental Housing Journal - February 2014 by Professional Publishing, Inc

Rental Housing Journal Arizona

February 2014 - Vol. 6 Issue 2

2. Why are “Rents” so Important to You and Your Broker?

9. Getting the Lead Out: Local Efforts to Reduce Child Lead Poisoning

6. Favorable Strategies for Real Estate Investors in 2014

13. Short Sales and Foreclosure Sales Accounted for 16 Percent of All U.S. Residential Sales in 2013

7. RealPage MPF Research Division Reports Tight Occupancy and Moderate Rent Growth in the U.S. Apartment Market at the End of 2013

14. Housing Recovery Entering Middle Innings in 2014, as Local Market Performances Are Expected to Vary Widely

8. Focus on the Prospective Resident

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The Future of Single Family & Love this Small Multi-Family Rentals Job

t’s hard to predict the future. The best way is to look at trends, include expert analysis and predictions from independent, highly regarded sources and not ignore the lessons taught by history. With that as a background, let’s take an “educated” guess at the future of single family and small multi-family rentals for Arizona. Demand Population is the primary driver of housing requirements. Generally accepted household size varies by source, but for Arizona, the current US Census number is 2.63. A recent article in the Phoenix Business Journal forecasted 10.2 million people living in Arizona by 2040, about a 60% increase, or approximately 3.8 million people. While that sounds like a long way out, it is only 27 years. From a planning perspective that is not a long time. So let’s do the math assuming this projection is correct. 3.8 (new residents) divided by 2.63 (persons per household: US Census) equals 1.44 million housing units. Historically, 74.5% of housing units are single family (US Census)

leaving 1.08 million housing units. Of those 66% will be owner occupied leaving 365,985 units. Divide by 27 years equals 13,555 new single family rental units on average each year needed to meet demand. The fact remains Arizona is a growth state. We are and will continue to grow naturally, through net positive migration from other states, and new immigration. Long term demand indicates

being a housing provider is a productive investment strategy. Further evidence was cited in my article in last month’s Rental Housing Journal Phoenix, which showed increasing rental demand over a 13-year period spanning several different market cycles. Supply Over the last four to five years, supply of rental property has been Continued on page 4

Trespasser vs. Squatter

t what point does a trespasser become a squatter? There is no law that this writer knows of that directly addresses the issue. However, by looking at both terms, a landlord can determine

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what direction to take if this situation comes up. A trespasser is someone who is on the property, but has no right to be there. This could be someone who breaks into a residence, usually a

Current Resident or

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vacant residence. For instance, it could be a tenant at an apartment community that is evicted from their apartment, or they are locked out of their rental property by a Constable/ Continued on page 3

’m going to bet that you probably haven’t heard many people say that they love being a landlord. If anything, you’ve heard the cons, hatred, and horrific stories of doing such. But, in a world where there is so much emphasis on negativity, I’d like to bring our attention for a second to some of the positives of the property management industry. So, whether you’ve chosen to be a landlord as a career, or have been lucky enough to have inherited the job of managing rentals, there are many benefits that go along with being in this business. First, and probably most obvious, being a property manager creates wealth. There is no denying that owning and managing property over the long term is a great money earner. There will always be a demand for housing. However, the earning potential will fluctuate with the state of the economy and various conditions within th4 housing market. In good credit conditions, there will be a higher rate of owner occupation and increasing capital values. In more constrained times, there will be more renters with higher rents. Real estate investments are arguably the most stable and secure types of investments you can make. As property owners, you are able to use tenants’ money to pay your mortgage and build your equity, so Continued on page 3

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Why are “Rents” so Important to You and Your Broker?

During the last twelve years of apartment brokerage with the Kasten Long Commercial Group in metro Phoenix, I have brokered plenty of apartment buildings- typically between 10 - 100 units. Most of these are older, “B” and “C” class communities. I’ve also had the opportunity to own, renovate, manage and sell some apartments of my own along the way. That’s been a real help in understanding challenges owners face with management. At one time I believed amenities were the biggest factor to value. For a while I believed management was the biggest factor in determining value- or maybe the year of construction, or even the unit mix or the location. But these are all components of the bigger story- which is RENT. What an owner collects for rent will tell more about property value than anything. Why? Because the higher the rent, the higher the value. In almost every case, where tenants are willing to pay more rent, the value of the property is higher than the next property Many management companies and some owners are reluctant to ‘rock the boat’ by raising the rents at a property even though they believe

they can charge more. But with vacancies across the metro Phoenix shrinking every day, by all accounts, it’s probably time for you or your management company to raise the rent. Unlike patiently hoping and waiting for market appreciation, “Rent Growth” is something owners can control in an effort to increase the value of their property. We’ve all heard the adage “it’s not how much money comes through the door- it’s how much stays.” Clearly you have a better chance of more staying if more “comes through.” So, “Why are rents so important to you and your Broker?” Let’s do the math. Regardless of the size of your property, suppose similar properties are selling at a 6.5% capitalization (CAP) rate and you can raise the rents by $25. That increases the property value by $4,615/unit ($25 x 12 months / 0.065). If you owned a 50 unit property, the increased value would be $230,769 (50 units x $4,615/ unit). So, what happens to operating expenses if you raise the rents? Nothing. This is why rental rates are so important to you and your broker. In the past, a broker could say to a prospective buyer, “oh you can easily bump rents by another $25-$50 to

support a higher value”. And I still do that, but investors in today’s market tend not to buy into the “proforma” value. They base their offers on existing cash flow and rents. That’s why getting the rents as high as possible now is critical to maximizing value. So, HOW can I get those rents up there? After years of working with owners, managers and properties, we’ve got a few tips to pass along. Here are a few keys to commanding and getting the bigger rents. Tips For Increasing Rents Updating. This story has been successfully told by the fix-n-flippers over the years and it has merit. But it is not always necessary to do a total renovation. Often simply tiling a unit or updating the cabinetry can bring higher rents. Pedestal sinks, designer vanities, quality fixtures, even simple landscape or external queues like multi-color paint schemes, some potted plants, or attractive monument signage- all support stronger rents. Recently we brokered a property with a community ‘library’ where tenants and the owner stockpiled a large inventory of books and DVDs in a common

area- offered on a free exchange basis. This created a special sense of community that the tenants were hungry for. This was a “C” property in a rough area and tenants paid $1.25/SF to live there! Another owner offered to install those wrought-iron storm-type security doors for free whenever a tenant renewed their lease. This creates tenant retention and loyalty making modest rent bumps a simpler proposition. Some owners offer free cable or even wi-fi at their propertiesamenities worth paying extra for. After all, many of yesterday’s homeowners are today’s renters- why should they settle for less just because they aren’t paying a mortgage? Management. Cutting corners here is the quickest way to suppress rents. Whether paying for professional management or self-managing, owners can ill afford to be cheap. When good tenants move-out to follow the on-site manager to his or her ‘next’ property, it is not a coincidence. Good management includes quick response time to repair orders, good and timely communication, availability and flexibility. Continued on page 5

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Love ...continued from front page that you can increase the cash flow to buy greater properties and/or create a stream of retirement income. As a property manager, you can increase rents regularly to match current market rent rates, and your management fee based on gross rents will increase simultaneously with your client’s income. It really can be a win-win situation. Secondly, real estate is real. Managing rentals forces you to become more knowledgeable about property upkeep and home repairs. No matter how involved you may be in caring for the actual residence, you will have to understand something about repairs and maintenance, even if you hire out the work to be done by others. So, whether you’re lining up the contractors, or putting in your own elbow grease, you’ll notice that you are more diligent about ensuring quality work. Fixing up an older property, or turning over a rental that had been trashed or damaged by past tenants, can instill a true sense of accomplishment. The third reason why I love what I do is the people. I like my tenants. I would be lying if I said that I’ve liked every resident I’ve ever rented to, but if you can hit it off initially, working with them during their tenancy can be quite a pleasure. Some of my tenants have even become Jan, Mar, acquainMay, friends as well as business tances. Providing nice, well-kept homes at affordable rates is power-

Trespasser ...continued from front page ful. I’ve had the pleasure of supplying homes to some who otherwise wouldn’t be able to rent anywhere else based on their circumstances. Experiencing their joy of having a place to call home fueled my passion and purpose of being a landlord. I have been able to enjoy watching many families grow together through marriage, children and other life accomplishments. And let’s not forget the hundreds of encounters with some very interesting people who have either inquired about a property, or the many contractors that I employed to perform maintenance duties -- many of whom I would have never met if I were not a property manager. These are only a few reasons why I love being a landlord. I encourage you all to take the time to step back from the weight of the job, and ask yourself, “Why am I in rental housing?” We all know that being a landlord is complex, but I believe that if you’re able to outline the positives of the industry for yourself, then when the unavoidable negatives arise you will be able METRO, to make decisions based VALLEY, ARIZONA on love and not hate.

Sherriff Deputy pursuant to a court order and then they move in with another tenant without the permission of the landlord. In any event, the trespasser has no legal standing to be in the premises. It can also be someone who may be on the premises for no valid reason, not visiting a resident or anyone, but causing trouble while they are in the common areas. In those situations the local authorities (i.e. police) should be able to arrest, remove the person, or put the person on notice they can no longer come on the property. If you can, try to serve the trespasser with written notice not to come on the premises again. The problem is you may see the person on the property, but they leave before the police arrive. Unless the police can catch them on the premises there may not be much that can realistically be done. If the trespasser enters a vacant unit and stays for an extended time, for example one month, without the knowledge or permission of the owner, they should still be considered a trespasser. APT. NEWS If the owner knows someone is in their vacant home and does nothing to immediately remove the person, then there may be an argument that they are a squatter. The authorities may still remove the person, or they may take the position that it is a “civil matter” and require the owner to evict the tenant.

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If the authorities say it is a “civil matter”, then written notice must be served on the squatter to move (normally a five (5) day notice to vacate). If the person doesn’t move, an eviction can be filed. The eviction process generally takes about two (2) weeks plus to conclude. As an example, consider the following: “Tenant, Riga Mortis, rents an apartment at the Happy Trails apartments. Riga Mortis’ estranged son and girl friend, Rye Ott and Mae Lee, move in without manager, Sandford U. Wrights, knowledge or approval. Riga Mortis can’t stand the strain of living with Rye Ott and Mae Lee, and passes away. Rye Ott invites his homeless friends, Kay Oss and Fray Cuss, to move in. Sandford U. Wrights calls the police to remove the trespassers/squatters. Officer U.B. Goode says he can’t since Riga Mortis let Rye Ott and Mae Lee live there with her approval, so it’s a civil matter. Sandford U. Wrights has to serve them a five (5) day notice to vacate and evict them through the courts.”

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The Future ...continued from front page served by the distressed market of REOs and short sales. While there will always be a small, but normal segment of the market that is distressed, we have already returned to historical norms in terms of new Notices of Trustee Sale. Future additional supply of rental property will come from other sources and repurposing current owner occupied housing. A major consideration is the lack of new housing being built, whether intended for owner occupied or income purposes. Arizona has experienced several years of new homes only being built in small numbers. A conservative estimate would be about 220,000 new homes going unbuilt in Arizona based on historical averages. Over the next couple of years, this number will increase. Regardless of current demand, this will cause a certain amount of compression in housing over the long term. Abundant supply of cheap product (read recent distressed volume) is over. So, supply of “new” single family rental units will come from the traditional sources of the move-up market, some new builds and normal levels of distressed properties. Other Factors I realize long term projections are just that and the longer the term, the less accurate. Investors in rental housing are usually purchasing the

asset for the long term and need to consider the all available factors as they make decisions to expand their portfolio. There are many factors investors should consider in making long term investments including, but not limited to, interest rates, employment, return rates on other investment options, other economic factors, etc. In my opinion, most of the long term factors, including those discussed in this article, are very positive as it relates to owning rental property. Of course, each investment is different and stands on its own as the individual investor has his own business model that affects the investment and cash flow. Overall, an investment in income producing rental property in Arizona appears to be sound for an extended period to come. Alan Langston Executive Director Arizona Real Estate Investors Association 480-990-7092 www.AZREIA.org AZREIA serves its 1700+ members through chapters in Phoenix, Tucson and Prescott providing extensive market information, education, networking events and support.

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“Rents” ...continued from page 2 Accountability and incentivizing positive results are two very powerful tools when working with on-site managers and property managers. Maintaining a daily regimen of picking up trash, cleaning the laundry room, or towing stray cars shows diligence at the ownership level. Tenants come to rely on this. Good property managers cost more because they are worth it. This is always the wrong place to shave expenses. Work with your managers to develop marketing and advertising plans that acheive results. Reward success and it will reward you. Tenant Screening. So you have a few good tenants. Great. They will likely renew their leases and even pay a little more rent- if they can count on you to select decent neighbors for them. Otherwise you can plan on another unit turn expense before replacing them when they move out. Of course we all comply with HUD and the Fair Housing Actit is the law. But there are ways to be selective. Watch out for the anxious tenant- they are probably getting evicted from somewhere else. Pay for tenant screening services and use them. Advise all prospects of strict tenant rules- and enforce those rules. Your good tenants are counting on you to do this- and you’re charging them more rent because of this. Rent

trends show that tenants in today’s market are willing to pay a few more dollars to live at well maintained properties with quality amenities that offer solid management. Those willing to pay a little more are generally better tenants. Since 2010, when the implementation of SB1070 coincided with the economic and real estate collapse, our apartment market has had to evolve. Today’s tenants are keen on location, but also in regards to the place they call home. With so many folks preferring (or needing) to rent than attempting to buy a home, it makes perfect sense to offer a refined product. With nearly 2,500 newly constructed apartment units hitting the market in the 4th quarter of 2013* alone, it is no secret the apartment market is scrambling to fill demand. But all of this new product is “A” property in many of the high-rent districts. And there is no shortage of tenants seeking comfortable accommodations in infill locations. Many tenants actually prefer smaller and older buildings with a little character that have been dressed up and are well-maintained. Back to value. With capitalization rates having moved down into the 6%-7% range in our market, there is little or no room for values to rise, due simply to falling CAP rates. With mortgage rates on the rise, owners should expect some adverse

effect on values. The best way to increase and support value is, and always has been, to increase revenues. While collecting late fees and laundry revenues helps, nothing like bumping the rents achieves this better. I talk to owners all the time who want to know if their property is worth $40k, $50k or maybe $60k a door? I simply ask them, “What are you getting for rent?” Well, what ARE you getting for rent?

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Favorable Strategies for Real Estate Investors in 2014 ASK THE EXPERT is a Q&A with TRANSWESTERN experts and leaders. In this edition, George Garfield, Transwestern’s West president, talks to Steven Orchard and Michelle Lee, leaders of the firm’s structured finance group in the West, about strategies for non-institutional investors in light of aggressive asset pricing, as well as current capital markets, economic and monetary conditions. 1st Quarter 2014 George Garfield: Many investors are frustrated by today’s frothy pricing of commercial real estate. Non-institutional investors, in particular, are finding themselves outbid on acquisition targets. What is your advice to these investors? Steven Orchard and Michelle Lee: Asset values are generally high relative to underlying fundamentals due to the ample supply of investment capital in the soft economy, making distressed assets with attractive prices difficult to find. Noninstitutional buyers can best compete for mid-cap, value-add investments, and are most likely to find those deals outside of primary markets. Fortunately for non-institutional buyers, more capital is coming online for mid-cap deals. Equity funds and lenders are increasingly willing to transact below their stated minimum deal size. Many are forming subventures to pursue small and midcap opportunities. Some are working

in secondary and tertiary markets in order to find yield. These bigger platforms, however, want to accept less risk on smaller deals. As such, those looking for capital should proactively adapt to the demands of capital sources. For example, they might need to strengthen their sponsorship profile and financial capacity by securing a co-general partner relationship. They should prepare to accept meaningful risk to their position to reassure the institutional capital provider, via such measures as personal recourse, larger equity contributions or subordinating their fees and returns. Our most successful clients today adjust to these shifting dynamics and make it easy for institutional money to say “yes.” Garfield: Where should investors look for investment opportunities in 2014? Orchard and Lee: We advise our clients to look at what they already own as their best investment opportunity instead of

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overpaying for new assets. Investing capital to upgrade or reposition current assets can create value and maintains a lower comparative cost basis than developing or acquiring new assets. Investors are advised to evaluate each property in their portfolio and reposition them for a longterm hold. An owner seeking to redevelop an older property might need to use third-party, joint venture equity in concert with a bridge loan to fund their project. For example, one of our clients owns an industrial building in downtown Los Angeles that might garner $17 million if it was sold. But then the client would be hard pressed to find another suitable asset to purchase; a dilemma it has already encountered. We are formulating a restructure plan in which it will contribute the building into a new joint venture; secure a bridge loan and venture equity; and redevelop the asset into a creative office building. Our client is thereby positioned to deliver an office building for less than could a competitor that had to purchase a redevelopment property, which allows it to drive leasing with competitive rents. A less extensive reposition may be funded with equity from the property itself, using higher leverage fixed-rate term debt. If no additional capital investment is needed, the best strategy may simply be recapitalizing the financing for a longer term hold. In any case, we encourage clients to plan for at least a five to seven year horizon with respect to their financing. Regardless of the strategy that is ultimately selected, investors should evaluate individual assets and their portfolios as a whole to unlock capital, value and potential profit in 2014.

Garfield: Should owners consider refinancing assets in light of today’s capital markets? Orchard and Lee: Investors should be thinking about debt as an asset in 2014. One has to use leverage advisedly, obviously. But with debt this cheap and strong inflationary pressure looming in the long term, procuring longterm fixed-rate debt is a smart investing strategy. We helped a number of clients implement this in 2013 while rates rose approximately 100 basis points. Rates are fairly stable again today, but in light of the Fed’s tapering and economic growth, many experts agree rates will increase further in 2014. It’s also important to consider the relationship between net operating income and interest rates at the time of refinancing. If rates rise and NOI doesn’t, then loan proceeds are reduced. Does the owner expect interest rates to rise next year? Will the NOI on the property increase commensurately? How will this dynamic affect their ability to refinance when the existing loan comes due? Refinancing early may be a good choice, both from an economic and risk management standpoint. Steven Orchard 213.430.2528 steven.orchard@transwestern.net www.transwestern.net Michelle Lee 213.430.2533 michelle.lee@transwestern.net www.transwestern.net George Garfield 213.430.2521 george.garfield@transwestern.net www.transwestern.net

Rental Housing Journal Arizona • February 2014

RENTAL HOUSING JOURNAL ARIZONA

RealPage MPF Research Division Reports Tight Occupancy and Moderate Rent Growth in the U.S. Apartment Market at the End of 2013 ®

Occupancy is at 95 percent, with rent growth registering at an annual pace of 2.8 percent. CARROLLTON, Texas – The U.S. apartment sector’s performance remained healthy at the end of 2013, though the late-in-the-year seasonal slowdown that is routine for the market did occur once again. Yearend occupancy came in at 95 percent, off slightly from 95.4 percent as of third quarter. Late 2013’s annual rent growth pace of 2.8 percent was down mildly from the 3.2 percent figure posted a quarter earlier. Those findings reflect the performances seen across more than 7 million apartment units tracked by MPF Research, an industry-leading market intelligence division of RealPage, Inc. (NASDAQ: RP). MPF Research analysts highlight the nation’s latest apartment occupancy and rent growth statistics as well as other key performance indicators for rental housing in a discussion found at www.realpage.com/MPFQ4-2013Report. “Late 2013 performance results

were encouraging, viewed in light of the fact that completions ramped up during the time period that there’s a seasonal lull in demand,” said MPF Research vice president Greg Willett. “This definitely was a point of vulnerability for the apartment sector because of the timing of new supply reaching the finish line, and we got past this period without significant damage.” The number of units in properties that were finished during the final three months of the year jumped to 53,327 across the nation’s largest 100 metros, up from quarterly completions that had averaged roughly 36,000 units during the initial three quarters of the year. Calendar 2013 new supply totaled 163,155 units. While apartment demand fell short of deliveries specifically during the fourth quarter, calendar year absorption of 155,491 units proved about in line with the total additions. “With an increase in the number

of units moving through initial leaseup, overall product availability has grown of late,” according to Willett. “However, new supply hasn’t resulted in net move-outs at existing properties, where the occupied unit count actually is up a little on an annual basis.” The impact of new supply coming on stream is more apparent in rent growth statistics than in occupancy rates, MPF Research analysis shows. Annual rent growth in the newer, top tier of existing product cooled to 1.8 percent at the end of 2013, compared to increases of 3.1 percent in 1990sera projects and 3.8 percent in the stock built in the 1980s and 1970s. “Middle-market properties are in the sweet spot for overall performance right now,” according to Willett. “Only a handful of units are available in that product niche across most metros, and the residents living in that stock generally can’t afford to buy housing or to rent the high-end

new apartment supply that’s being delivered.” Among large individual metros, Denver-Boulder and San Jose tied for the #1 position on the list of the country’s annual rent growth leaders during 2013. Pricing for new leases grew 7 percent in both locales. Pricing increases were nearly as big in Oakland and Portland, both posting 6.6 percent jumps, and San Francisco, where rents rose 6 percent. Additional large markets on the annual rent growth leader board were Seattle-Tacoma (5.5 percent), Miami (5.2 percent), West Palm Beach (4.9 percent), Austin (4.8 percent), and Houston (4.4 percent). Metros that just missed the cut-off point for the best-performers list included Atlanta, Fort Worth, Nashville, Orange County, and San Diego. With the run-up in apartment con...continued from page 11

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RENTAL HOUSING JOURNAL ARIZONA

Focus on the Prospective Resident Life is full of interruptions. Yet we must find a way to strike a balance so that all the URGENT things coming at us do not pull us away from the most important tasks at hand. In the property management industry, there are urgent owner requests, resident complaints, maintenance emergencies and employee disputes; just to name a few. While all of these issues must be handled in a prompt, professional manner, the business of renting apartments must still remain a priority of the leasing office. Since interruptions are so common in this industry, I am often asked for advice on how to handle these situations. I would like to respond by sharing the story of two entirely different shopping experiences: When I placed my first call, I was just getting ready to hang up when the phone was answered on the seventh ring. The consultant spoke so quickly, that I could only make out the name of the community before

she said, “Please hold.” When she came back on the line she said, “Sorry about that. I’m working alone and the phone is ringing off the hook!” She asked how she could help me, and I inquired about apartment availability. She said there were a couple of 2 bedrooms open, and then said, “Hang on and I’ll grab my book.” She set the phone down, without putting me on hold, and I overheard how she raised her voice to someone in the background. When she came back on the line she apologized for the delay, and immediately began to quote pricing. She asked if I would like to come by, and I agreed to meet with her in an hour. The consultant offered directions and then asked for my name and telephone number; “in case something comes up.” At the second place I called, the phone was picked up on the second ring. The consultant clearly identified the community by name, and

introduced herself. She asked for my name early in the conversation and used it to establish a rapport with me. I could hear a telephone ringing in the background and said, “I don’t mind holding if you need to get that.” She replied, “Thanks, but that’s what I have voice mail for.” I felt like I was the reason she got out of bed that morning, as she made me feel like I was her most important business for the day! She took the time to inquire about my needs and then described an apartment that would best meet my specific requirements. The consultant invited me to come by to see the apartment, and let me pick a time that was most convenient for me. I arrived on time, within an hour, at the first community that I called. There was a sign on the door stating that someone would be back in approximately 10 minutes. I tried the door and it was unlocked, so I went inside and began to tour the cabana

while I was waiting. The leasing consultant returned shortly and seemed surprised to see someone waiting. She did not remember our appointment, until after I reminded her of our recent phone contact. She apologized and offered me a seat, stating that there had been several maintenance emergencies earlier that day. In fact, she was waiting for a water heater to be delivered at any moment. The consultant did not obtain any further information from me, but recalled we had discussed a 2 bedroom. She pulled out a couple of floor plans to go over with me, but during this process the phone kept ringing, and she repeatedly answered it. She did not excuse herself when picking up the phone, and each time, I was left sitting there to wait until she finished each call. Just as we were heading out to view the apartment, the contractor with the water heater ...continued on page 10

Rental Housing Journal Arizona • February 2014

RENTAL HOUSING JOURNAL ARIZONA

Getting the Lead Out: Local Efforts to Reduce Child Lead Poisoning By Jo Becker, Education/Outreach Specialist, Fair Housing Council Serving Oregon and SW Washington A 2013 study trumpets the efforts by over a dozen local municipalities across the country that have enacted local lead laws. While other lead hazards exist (occupational, recreational, etc.), most often lead poisoning is a result of ingesting lead tainted dust, paint, or soil in or around homes built before 1978. According to the National Center for Healthy Housing’s website: Since lead hazards are more prevalent in older and substandard housing, lead poisoning is a concrete expression of the affordable housing crisis; it is more common among poor children, children of color, and those living in older housing. Responsible property management, enforceable housing quality standards that are both practical and cost-effective, and increased resources are needed to protect high-risk

communities and preserve the nation’s affordable housing stock. According to said Katrina Korfmacher, Ph.D, co-author of the study, the extent of the medical and behavior damage caused by lead poisoning coupled with “…the realization that the economic cost of lead

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Rental Housing Journal Arizona • February 2014

poisoning in the form of medical care, special education, and criminal justice are frequently borne by local communities and taxpayers – [has] given rise to several communitybased efforts to make homes lead safe.” The study, published in the Journal

of Health Politics, Policy, and Law, found that local laws can be highly effective tools to address lead hazards. By way of example, the City of Rochester saw a 68% decline in the number of children with elevated blood lead levels since the city’s law went into effect in 2006. “Lead safety is largely a function of maintenance – intact leaded paint is typically not hazardous unless it is disturbed and released into the environment;” according to Korfmacher. “…lead hazards are related to how owners maintain houses that contain lead paint… The Rochester model accepts as its premise the critical need to gain entry to the highest risk housing. This was the rationale for targeting rental housing over owner occupied and for establishing a higher standard for inspection within geographically designated high risk areas.” Visit www.urmc.rochester.edu/news/ story/index.cfm?id=3823 to read the University of Rochester Medical Center article on the study. ...continued on page 10

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RENTAL HOUSING JOURNAL ARIZONA

Focus ...continued from page 8 showed up. For a moment, the consultant seemed unsure as to what she should do. She asked the contractor to “wait a second,” and then turned to me and explained that she was going to have to let this man into an apartment to replace a leaky water heater. She said, “It’ll only take a minute.” She offered me a seat in the cabana while I waited and told me there were soft drinks in the refrigerator. She said I should “help myself.” I waited for over 10 minutes, and then figured that I had come at a bad time. I decided to leave, and showed myself out.

At my next stop, the consultant greeted me warmly and invited me to have a seat at her desk. She pulled out a guest card she had started and handed me a packet of literature. This packet included everything from floor plans to area information. She said she had also enclosed the address and phone number of the elementary school since I had mentioned my son was in kindergarten. As she began to ask more specific questions about my needs, the telephone rang several times. The consultant let voice mail pick up the calls, but then she finally reached

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over and turned the ringer off. She said, “I don’t know about you, but that’s really distracting for me.” After we completed the guest card, she asked if I would like to see the clubhouse area before we headed out to take a look at the model. As we stood, a mail carrier came in with several packages and stated that they were missing apartment numbers. The leasing consultant was very kind as she explained that she was just going out to show an apartment. She invited him to come back in about 20 minutes or said he was welcome to leave the parcels and she would look up the apartment numbers when we were done. As we were walking the grounds on the way to the model apartment, the consultant was approached by two maintenance workers who had questions about a problem. She was very professional as she graciously asked them to wait, and prevented them from discussing the problem in front of me. Once we reached the model apartment, the consultant gave a flawless presentation of its many unique features and advantages. She was able to relate specific features as personal benefits because she had stayed focused during the qualifying portion of our visit. She remembered AND noted things that were most important to me. The consultant was able to make strong, confident closing attempts, since she

had sought to satisfy my needs by giving me her undivided attention. How do you make a prospective resident feel important, when you have a multitude of urgent interruptions crying out for your attention? Are you able to focus on the prospective resident and make their needs a priority? If not, you have probably lost the sale. It would be better to phone your appointments prior to their arrival and reschedule, rather than have them come out when you know you can’t give them your undivided attention. Of course this will probably cause some “inconvenience.” However, in the long run, they will appreciate your consideration and long remember your thoughtfulness. If you were looking for a new home, how would you want to be treated? ASK THE SECRET SHOPPER Provided by: SHOPTALK SERVICE EVALUATIONS Phone: 425-424-8870 E-mail: joyce@shoptalkservice.com Web site: www.shoptalkservice.com Copyright ® Shoptalk Service Evaluations

Lead ...continued from page 9 In an informal study of our own, FHCO found that 37% of landlords still don’t know it has been illegal under the federal Fair Housing Act to deny housing to an applicant simply because there are children in the household since 1988, even in pre-1978 properties. You can also find additional information on fair housing law and familial status protection at www. FHCO.org and www.FHCO.org/families.htm, respectively. We also offer lead-related information, including required pamphlets and disclosure forms as well as additional lead articles at www.FHCO.org/lead.htm.

This article brought to you by the Fair Housing Council; a nonprofit serving the state of Oregon and SW Washington. All rights reserved © 2014. Write jbecker@FHCO.org to reprint articles or inquire about ongoing content for your own publication. To learn more… Learn more about fair housing and / or sign up for our free, periodic newsletter at www.FHCO.org. Qs about this article? ‘Interested in articles for your company or trade association? Contact Jo Becker at jbecker@FHCO.

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Rental Housing Journal Arizona • February 2014

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Tight Occupancy ...continued from page 2 Annual Rent Growth Leaders Calendar 2013 Rank

Metro

Annual Rent Growth

1 (Tie)

Denver-Boulder

7.0%

1 (Tie)

San Jose

7.0%

3 (Tie)

Oakland

6.6%

3 (Tie)

Portland

6.6%

San Francisco

6.0%

Seattle-Tacoma

5.5%

Miami

5.2%

West Palm Beach

4.9%

Austin

4.8%

Houston

4.4%

struction starts seen in late 2012 and early 2013, scheduled deliveries in the nation’s 100 biggest metros climb to 234,700 units in 2014. Demand is anticipated to rise too, thanks to an improving outlook for the economy generally, and for job production specifically. But apartment absorption probably won’t quite keep pace with product additions in 2014, according to MPF Research analysts, who think occupancy will cool mildly to 94.6 percent by the end of the year. The firm forecasts rent growth of 2.6 percent over the coming year, with middle-market product continuing to achieve price increases well above the upturns in the newer, luxury property segment. While completions will accelerate in 2014, MPF Research anticipates that construction starts will move in the opposite direction. “We’re already seeing the number of units at the starting gate hit a plateau or actually decline in most markets,” Willett said. “It looks like the future new supply beginning construction in 2014 will dip at least 10 percent from 2013’s total, and the decline could be

nel managed marketing that enables owners to originate, syndicate, manage and capture leads more effectively and at less overall cost; YieldStar® asset optimization systems that enable owners and managers to optimize rents to achieve the overall highest yield, or combination of rent and occupancy, at each property; Velocity™ billing and utility management services that increase collections and reduce energy costs; LeasingDesk® risk mitigation systems that are designed to reduce a community’s exposure to risk and liability; OpsTechnology® spend management systems that help owners manage and control purchasing expenses; and Compliance Depot™ vendor management and qualification services to assist

a community in managing its vendor program. Supporting this family of SaaS products is a suite of shared cloud services including electronic payments, document management, decision support and learning. RealPage’s MyNewPlace® subsidiary is one of the largest lead generation apartment and home rental websites, offering apartment owners and managers qualified, prospective residents. Through its Propertyware subsidiary, RealPage also provides software and services to singlefamily rentals and low density, centrally-managed multifamily housing. For more information, call 1-87-REALPAGE or visit www.realpage.com.

as much as 20 percent.” Fewer completions in 2015 likely mean that 2014’s overall revenue growth performance will mark the low point for the current cycle. “The big-picture story for the apartment market is that we’re in a cycle where performances will remain solid for a long time, though they won’t be at the spectacular levels that were recorded in the early part of the recovery process,” according to Willett. “Overall expectations for investment returns remain attractive with only limited downside risk.” About RealPage Located in Carrollton, Texas, a suburb of Dallas, RealPage provides on demand (also referred to as “Software-as-a-Service” or “SaaS”) products and services to apartment communities and single family rentals across the United States. Its on demand product lines include OneSite® property management systems that automate the leasing, renting, management, and accounting of conventional, affordable, tax credit, student living, senior living and military housing properties; LeaseStar™ multichan-

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Rental Housing Journal Arizona • February 2014

RENTAL HOUSING JOURNAL ARIZONA

Happy New Year for 2014!

e have been waiting for a new beginning for some time. 2013 was good, and much better than previous years. Let’s focus on this year as being even better. So what does “being even better” mean? In all probability, this will mean different things to each one of us. However, I would venture to say that there will be a few items that we would nearly all appreciate. For example, what about more considerate tenants? How about 10% or more rent increases? How about no maintenance or repair surprises? There are undoubtedly more examples I could present. But are these really realistic? Could we raise all our rents by 10%? Really? Would you expect tenants to be more considerate of landlords? Think about how many of them are in survival mode, only one paycheck away from being unable to pay their rents. Our properties will always need maintenance or repairs. A new home might have a poor roof installation and experience a slow leak that after months of soaking the attic insulation finally shows a wet spot on the ceiling.

The bottom line is that running our rental business could always be better. Being a landlord means being prepared for surprises. Managing rentals means knowing the laws and diligently following them. Having tenants means being sensitive to them and treating them fairly. 2014 gives us another opportunity to be better landlords, improve the quality of our tenants, our units, and our bottom lines. I’ve said this before, and I say it again, be as knowledgeable as possible, treat people with respect, and follow the law and Fair Housing laws diligently. Focus on 2014 as being the best year you have ever experienced, whatever that means to each of us

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9/12/2012 8:41:34 AM Rental Housing Journal Arizona • February 2014

RENTAL HOUSING JOURNAL ARIZONA

Short Sales and Foreclosure Sales Accounted for 16 Percent of All U.S. Residential Sales in 2013 Up From 14.5 Percent of All Sales in 2012 Despite Declining Short Sales Late in Year; Share of Sales to ThirdParty Buyers at Foreclosure Auction Doubles in 2013; Cash Sales and Institutional Investor Purchases Also Up Substantially for Year IRVINE, CA – RealtyTrac® today released its December and Year-End 2013 U.S. Residential & Foreclosure Sales Report, which shows that U.S. residential properties, including single family homes, condominiums and townhomes, sold at an estimated annual pace of 5,167,255 in December, a less than 1 percent increase from the previous month and a 10 percent increase from December 2012. Counter to the national trend, annualized sales volume declined from a year ago in 18 of the nation’s 50 largest metropolitan statistical areas and was down in five states: California, Arizona, Nevada, Rhode Island and Oregon. The national median sales price of U.S. residential properties -- including both distressed and non-dis-

Rental Housing Journal Arizona • February 2014

tressed sales -- was $168,391 in December, virtually unchanged from November and up 2 percent from December 2012. The median price of a distressed residential property -- in foreclosure or bank-owned -- was $108,494 in December, 38 percent below the median price of $174,401 for a nondistressed residential property. The report also shows that short sales and foreclosure-related sales -including both sales to third party buyers at the public foreclosure auction and sales of bank-owned properties -- accounted for a combined 16.2 percent of all U.S. residential sales in 2013, up from 14.5 percent of all sales in 2012 and up from 15.2 percent of all sales in 2011. “It may surprise some to see distressed sales rising in 2013 given that foreclosure starts dropped to a seven-year low for the year,” said Daren Blomquist, vice president at RealtyTrac. “And while short sales did trend lower in the second half of the year, there are still more than 1.2 million properties in the foreclosure process or bank-owned, providing a sizable pool of inventory that the housing market is in the process of

absorbing. Meanwhile, non-distressed sellers have not listed their homes for sale in droves, helping to keep the distressed share of sales at a stubbornly high level.” Other high-level findings from the report:

• Sales of bank-owned properties

(REO) accounted for 9.3 percent of all U.S. residential sales in December, up from 8.7 percent in the previous month and 9.2 percent in December 2012.

• States with the highest percent-

age of REO sales in December were Nevada (18.9 percent), Michigan (18.4 percent), Ohio (17.8 percent), Arizona (15.7 percent), and Illinois (14.7 percent).

• More than 436,000 REO proper-

ties sold in 2013, accounting for 9.3 percent of all U.S. residential sales, up from 9.1 percent in 2012 and up from 8.7 percent in 2011.

• Short sales (where the sale price is below the total amount of outstanding loans secured by the property) accounted for 5.7 percent of all U.S. residential sales in December, up from 5.1 percent in

November but down from 6.7 percent in December 2012.

• States with the highest percent-

age of short sales in December were Nevada (15.3 percent), Florida (14.4 percent), Illinois (9.0 percent), Maryland (8.2 percent), New Jersey (7.9 percent), and Michigan (7.2 percent).

• More than 256,000 short sales

occurred in 2013, accounting for 5.8 percent of all U.S. residential sales, up from 4.9 percent of all sales in 2012 but down from 6.0 percent of all sales in 2011.

• Sales to third-party investors at

the foreclosure auction accounted for 1.2 percent of all U.S. resi-

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Housing Recovery Entering Middle Innings in 2014, as Local Market Performances Are Expected to Vary Widely

In Q4 2013, Appreciation Slowed from Summer Peaks; Formerly Boiling Markets like Bay Area Reduced to a Simmer, According to Zillow Fourth Quarter Real Estate Market Reports  - U.S. home values ended 2013 up 6.4 percent year-over-year, to a Zillow Home Value

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Zillow Home Value Index MonthMetropolitan Areas OverYear-OverQ4 2014 Month Year Change Change United States $169,100 0.6% 6.4% New York, NY $367,500 0.4% 6.1% Los Angeles, CA $500,400 1.0% 18.9% Chicago, IL $178,000 1.1% 9.5% Dallas-Fort Worth, TX $143,600 -0.2% 4.4% Philadelphia, PA $193,200 0.1% 2.9% Houston, TX $142,500 -0.7% 3.2% Washington, DC $344,900 0.7% 9.5% Miami-Fort Lauderdale, FL $183,400 0.9% 17.5% Atlanta, GA $136,300 1.5% 15.6% Boston, MA $350,800 0.6% 8.4% San Francisco, CA $642,900 0.8% 20.4% Detroit, MI $105,300 1.5% 21.0% Riverside, CA $256,400 1.1% 27.9% Phoenix, AZ $188,200 0.3% 11.8% Seattle, WA $309,100 0.3% 10.3% Minneapolis-St Paul, MN $199,000 0.6% 10.0% San Diego, CA $439,800 0.6% 17.4% St. Louis, MO $130,300 -1.4% -3.8% Tampa, FL $134,400 1.1% 16.3% Baltimore, MD $237,000 0.5% 5.9% Denver, CO $244,200 0.5% 9.0% Pittsburgh, PA $119,300 0.1% 6.0% Portland, OR $259,800 0.5% 11.5% Sacramento, CA $305,500 0.9% 23.7% San Antonio, TX $143,000 -1.6% -0.8% Orlando, FL $153,000 1.4% 19.3% Cincinnati, OH $131,300 0.2% 4.3% Cleveland, OH $116,300 0.0% 2.2% Kansas City, MO $137,700 -0.8% 1.5% Las Vegas, NV $167,400 0.7% 28.1% San Jose, CA $741,500 0.2% 15.6% Columbus, OH $137,500 1.3% 8.2% Charlotte, NC $147,200 0.5% 6.0% Indianapolis, IN $117,600 -2.2% -2.1% Austin, TX $197,600 -0.5% 4.7%

percent in August, the pace of annual home value appreciation fell below 7 percent throughout the fourth quarter. Metro markets that were earliest to begin their recoveries and that had been showing the most robust home value appreciation throughout much of the year, including Southern California and the Bay Area, largely cooled off in the fourth quarter. Annual appreciation rates in Los Angeles, San Diego, San Francisco and San Jose slowed or were flat in each month of the fourth quarter

SEATTLE, Jan. 23, 2014 / PRNewswire/ -- National home values completed 2013 on a high note, ending the fourth quarter up 6.4 percent year-over-year, a robust bounce off the bottom that is beginning to tail off in most areas and could cause problems in a handful, according to the fourth quarter Zillow® Real Estate Market Reportsi. The U.S. Zillow Home Value Indexii stood at $169,100 as of the end of the fourth quarter, up 1.4 percent from the end of the third quarter, and 0.6 percent from November. After peaking at 7.1

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RENTAL HOUSING JOURNAL ARIZONA

Zillow Home Value Forecast Change in Bottom in ZHVI, Home Values Q4-2013-Q4 2014 2012-01 4.8% 2012-06 3.0% 2012-02 8.7% 2012-05 3.6% 2011-11 2.6% 2012-08 1.5% 2013-12 1.3% 2011-10 3.7% 2011-09 6.3% 2012-07 7.7% 2011-12 2.8% 2012-02 7.5% 2011-10 6.2% 2012-02 16.1% 2011-01 3.6% 2012-01 5.9% 2012-01 2.9% 2012-01 6.8% 2012-04 -3.1% 2011-12 7.4% 2012-04 3.3% 2011-10 2.8% 2008-03 2.3% 2012-01 4.8% 2012-02 11.6% 2011-03 1.2% 2012-02 10.1% 2012-11 1.0% 2012-03 0.8% 2011-10 0.4% 2012-02 7.9% 2011-08 5.3% 2012-02 4.0% 2012-03 2.4% 2011-10 1.2% 2013-12 1.1%

compared to the month prior, a welcome sign in markets that risk crossing over into bubble territory as rising mortgage interest rates create affordability issues for homebuyers.

Looking ahead: As the market enters 2014, national appreciation rates are expected to slow considerably. Nationwide, home values are expected to rise another 4.8 percent through December 2014, according to the Zillow Home Value Forecastiii. But local market conditions will not necessarily follow national conditions, a trend that may cause confusion and uncertainty among homebuyers and sellers. Zillow expects all but one of the nation’s 35 largest metro areas (St. Louis, -3.1 percent) to show appreciation this year, but the expected annual appreciation rates vary from 16.1 percent in Riverside, Calif., to just 0.4 percent in Kansas City. None will approach the often breakneck pace set in 2013. “The housing recovery is entering the middle innings after an incredible run in 2013. Below the surface of last year’s market, a number of

unsettling trends started to emerge as a result of rapid and ultimately unsustainable appreciation, setting up a bit of a mixed bag for 2014,” said Zillow Chief Economist Dr. Stan Humphries. “Affordability issues will help put the brakes on many markets that saw huge appreciation rates, like California and the Southwest, creating volatility that could potentially cause whiplash for homebuyers and sellers. At the same time, we expect more homes to be available this year as more sellers enter the market and more homes get built, and a decline in investor competition should make for a more hospitable market for many buyers. While a truly ‘normal’ market remains a ways off, we expect to take more steps in that direction as appreciation moderates, negative equity recedes, federal stimulus is withdrawn and foreclosures wane.” Among the largest 35 metro markets covered by Zillow, all but three • Logos are provided on the CD in all three forms: (St.allLouis, -3.8 percent; Indianapolis, black, reversed to white, or in PMS 280 Blue/P -2.1 percent; and San Antonio, -0.8 Please see below for specific use examples. percent) showed annual apprecia• Noin other colors are acceptable useof for the log tion 2013. Home values infor two ... continued on page 15

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Housing Recovery...continued from page 14 the top 35 metros, Denver and Pittsburgh, ended 2013 above their pre-recession peaks. National rents rose by 0.7 percent in the fourth quarter compared with the third quarter, to a Zillow Rent Indexiv of $1,302. Year-over-year, rents nationwide rose 2.4 percent. A total of 4.84 out of every 10,000 homes nationwide were foreclosed upon as of the end of the fourth quarter, down 0.4 homes per 10,000 from the third quarter and down 1.2 homes per 10,000 year-over-year. Metropolitan Areas Zillow Home Value Index Zillow Home Value Forecast Q4 2014 Month-Over-Month Change Year-Over-Year Change Bottom in Home Values Change in ZHVI, Q4-2013-Q4 2014

About Zillow: Zillow, Inc. (NASDAQ: Z) operates the largest home-related marketplaces on mobile and the Web, with a complementary portfolio of brands and products that help people find vital information about homes, and connect with the best local professionals. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow’s Chief Economist Dr. Stan Humphries. Dr. Humphries and his team of economists

and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. The Zillow, Inc. portfolio includes Zillow.com®, Zillow Mobile, Zillow Mortgage Marketplace, Zillow Rentals, Zillow Digs™, Postlets®, Diverse Solutions®, Agentfolio®, Mortech®, HotPads™ and StreetEasy®. The company is headquartered in Seattle.

Zillow.com, Zillow, Postlets, Mortech, Diverse Solutions, StreetEasy and Agentfolio are registered trademarks of Zillow, Inc. HotPads and Digs are trademarks of Zillow, Inc. i The Zillow Real Estate Market Reports are a monthly overview of the national and local real estate markets. The reports are compiled by Zillow Real Estate Research. For more information, visit www.zillow.com/ research/. The data in Zillow’s Real Estate Market Reports is aggregated from public sources by a number of data providers for 929 metropolitan and micropolitan areas dating back to 1996. Mortgage and home loan data is typi-

cally recorded in each county and publicly available through a county recorder’s office. All current monthly data at the national, state, metro, city, ZIP code and neighborhood level can be accessed at www.zillow.com/local-info/ and www.zillow.com/research/data.  ii The Zillow Home Value Index is the median estimated home value for a given geographic area on a given day and includes the value of all singlefamily residences, condominiums and cooperatives, regardless of whether they sold within a given period. It is expressed in dollars, and seasonally adjusted. iii The Zillow Home Value Forecast uses data from past home value trends and current market conditions, including leading indicators like home sales, months of housing inventory supply and unemployment, to predict home values over the next 12 months for the nation and for more than 250 markets across the country. iv The Zillow Rent Index is the median Rent Zestimate (estimated monthly rental price) for a given geographic area on a given day, and includes the value of all single-family residences, condominiums, cooperatives and apartments in Zillow’s database, regardless of whether they are currently listed for rent. It is expressed in dollars, and is not seasonally adjusted. SOURCE Zillow, Inc.

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Short Sales ...continued from page 13 dential sales in December, up from 1.1 percent in November and up from 0.8 percent in December 2012.

• Major metros where third party

foreclosure auction sales accounted for at least 2.5 percent of all residential sales included Atlanta (4.7 percent), Orlando (3.9 percent), Miami (3.9 percent), Tampa (3.4 percent), Columbia, S.C. (2.8 percent), Las Vegas (2.8 percent), and Charleston, S.C. (2.8 percent).

• More than 48,000 U.S. properties

sold to third parties at foreclosure auction in 2013, accounting for 1.0 percent of all U.S. residential sales, up from 0.5 percent of sales in 2012 and 0.5 percent of sales in 2011.

• All-cash purchases accounted

for 42.1 percent of all U.S. residential sales in December, up from a revised 38.1 percent in November, and up from 18.0 percent in December 2012.

• States where all-cash sales accounted for more than 50 percent of all residential sales in December included Florida (62.5 percent), Wisconsin (59.8 percent), Alabama (55.7 percent), South Carolina (51.3 percent),

Rental Housing Journal Arizona • February 2014

and Georgia (51.3 percent).

• For all of 2013, 29.1 percent of

U.S. residential sales were allcash purchases, but the percentage trended substantially higher in the second half of the year. The 29.1 percent in 2013 was up from 19.4 percent in 2012 and 20.6 percent in 2011.

• Institutional investor purchases

(comprised of entities that purchased at least 10 properties in a year) accounted for 7.9 percent of all U.S. residential sales in December, up from 7.2 percent the previous month and up from 7.8 percent in December 2012.

• Metro areas with the highest per-

centages of institutional investor purchases in December included Jacksonville, Fla., (38.7 percent), Knoxville, Tenn., (31.9 percent), Atlanta (25.2 percent), Cape Coral-Fort Myers, Fla. (24.9 percent), Cincinnati (19.3 percent), and Las Vegas (18.2 percent).

• For all of 2013, institutional

investor purchases accounted for 7.3 percent of all U.S. residential property purchases, up from 5.8 percent in 2012 and 5.1 percent in 2011.

com) is the leading supplier of U.S. real estate data, with more than 1.5 million active default, foreclosure auction and bank-owned properties, and more than 1 million active for-sale listings on its website, which also provides essential housing information for more than 100 million homes nationwide. This information includes property characteristics, tax assessor records, bankruptcy status and sales history, along with 20 categories of key housing-related facts provided by RealtyTrac’s wholly-owned subsidiary, Homefacts®. RealtyTrac’s foreclosure reports and other housing data are relied on by the Federal Reserve, U.S. Treasury Department, HUD, numerous state housing and banking departments, investment funds as well as millions of real estate professionals and consumers, to help evaluate housing trends and make informed decisions about real estate.

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Rental Housing Journal Arizona • February 2014