Arizona Rental Housing Journal - March 2015

Rental Housing Journal Arizona

March 2015 - Vol. 7 Issue 3 7. Beware of Discriminatory Practices 8. Commercial Markets Poised for Growth Despite Weaker Global Economy 10. Secret Shopper New Residential Water Heater Efficiency Standards

2. Rents Up Nearly $21 Billion Since 2013 3. 4 Tips to Survive the Next Stock Market Crash 5 Innovation Killers That Lurk Within Businesses 4. National Survey Reveals 2015 Moving Plans For Renters

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What Tenants Do You Want?

Targeting the Tenant when Buying the Property

9 Legal Questions With Andrew Hull Q: The landlord had given a ten (10) day letter of non-compliance notice for violations under the lease. Several months later the tenant engaged in other violations, but not the same or similar.

Management needed to know if they could serve the second 10-day notice for same or similar conduct, or if they would have to serve another regular 10 day notice to comply because the conduct is not the same or similar.

A: Management would have to send the first non-compliance notice for the different violations.

Q: The second question came from a manager who served the incorrect notice on her tenant. Can you re-serve the corrected notice?

A: Yes. You can serve an amended or corrected violation notice.

Q: The tenant in another matter signed a lease and paid the deposits, but never picked up keys or moved in. The landlord did not know how to handle this situation. The tenant has a binding contract because the lease was signed and the monies were paid. Was the tenant liable for the lease in this instance?

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andlords who manage their own properties develop longterm relationships with their tenants. Often, they will see or communicate with their tenants, more than with some of their relatives. The great thing about tenants, compared to relatives, is that you can choose your tenants. The best way to begin the “choice” process is choosing to purchase rental properties, with current or future tenants, compatible to your personality.

Are you retired military? You probably would be an ideal owner for rental property near a military base. You already understand off base housing, deployments, and other concerns specific to active military tenants. This would give you an advantage, when showing your property to prospective tenants , in addition to tenant retention.

Do you work at a large corporation that hires contract workers from out of state? What type of housing

do the contract workers rent, while working at your facility? You already have an “inside line” to these tenants and possibly a “direct” line through your corporate human resources

department. By purchasing a property in an area, where employees or contract workers at your company rent, you will have a unique and convenient source of tenants. ...continued on page 5

Single-Family Housing Creates Opportunities and Challenges for Phoenix Apartment Owners

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teady job creation and a sputtering single-family housing market will support apartment operations, though a surge in apartment completions will lift metrowide vacancy this year. Subdued singlefamily construction has limited the attrition of renters into homes due to fewer opportunities to purchase. Additionally, the constrained supply is pushing up home prices in the most desirable neighborhoods, which is maintaining a healthy renter pool in

these areas. However, a lack of housing-related job growth has deprived the market of an important source of apartment demand. Other sectors of the economy will pick up the slack as hiring accelerates in healthcare and professional and business services.

Employment gains, along with pentup tenant demand derived from restrained multifamily construction during the downturn, are encouraging builders to accelerate production.

This year, developers will deliver the

largest addition to inventory in more than a decade. South Scottsdale and North Tempe will receive a bulk of inventory, pushing up vacancy in the near term as complexes lease up.

Rising competition from new supply will prompt operators to moderately slow the pace of rent growth this year.

Source: Marcus Millichap.com

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U.S. Renters Paid $441 Billion in Rent in 2014, Up Nearly $21 Billion Since 2013 Rent paid by New York-Northern New Jersey metro renters accounted for more than 10 percent of all rent paid in America Rent paid by New York-Northern New Jersey metro renters accounted for more than 10 percent of all rent paid in America Americans shelled out $20.6 billion more in rent in 2014 compared to 2013. Cumulatively, U.S. renters paid $441 billion in rent in 2014 compared to $420 billion last year, an increase of nearly five percent (4.9 percent), as both the number of renting households and the average rent rose nationally, according to a Zillow rentals analysisi.

Locally, the Bay Area, consisting of the San Jose and San Francisco metros, saw the largest jump in cumulative rent paid in 2014, up 14.4

and 13.5 percent respectively. Rent per household in the San Jose, Calif. metro rose by $197 per month, while rent in the San Francisco metro rose by $163 per month.

Out of the top 50 largest U.S. metro areas, the largest amount of cumulative rent was paid the New York-Northern New Jersey ($50 billion) and Los Angeles ($34 billion) metros. The smallest amount of cumulative rent was paid by renters in Birmingham, Ala. ($1 billion), Louisville, Ky. ($1.2 billion) and Buffalo, N.Y. ($1.2 billion).

Nationally, the total number of renters is estimated to have grown ...continued on page 9

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Total Rent Paid By The Largest 25 Metros Covered by Zillow* Metro Cumulative Cumulative Percent Change 2013 Rent 2014 Rent 2013-2014 per billion per billion United States $420.4 $441 4.9% $48.2 $50 3.6% New York-Northern New Jersey Los Angeles $32.5 $34.2 5.3% Chicago $13.4 $14.3 7.4% Dallas-Fort Worth $9.4 $10 6.2% Philadelphia $7.8 $8.1 4.4% Houston $8.2 $8.8 7.2% Washington, DC $13.1 $13.4 2.1% Miami-Fort Lauderdale $9.7 $10.5 7.7% Atlanta $6.8 $7.2 5.7% Boston $9.2 $9.8 6.9% San Francisco $12.8 $14.6 13.5% Detroit $4.3 $4.5 4.6% Riverside, Calif. $5.9 $6.2 4.4% Phoenix $5.9 $6.2 6.0% Seattle $7.1 $7.8 8.6% Minneapolis-St Paul $4.3 $4.5 4.8% San Diego $7.9 $8.3 6.1% St. Louis $2.7 $2.8 3.3% Tampa, Fla. $4.1 $4.3 4.9% Baltimore $4.2 $4.3 3.0% Denver $4.4 $4.9 10.8% Pittsburgh $2.2 $2.4 10.6% Portland, Ore. $3.9 $4.1 7.1% Sacramento, Calif. $3.8 $4.0 5.2% San Antonio $2.6 $2.8 5.5%

Monthly Payment Change 2013-2014iii $26 $20 $42 $50 $35 $23 $43 $2 $59 $30 $58 $163 $20 $26 $34 $71 $25 $55 $10 $24 $9 $86 $56 $46 $33 $25

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RENTAL HOUSING JOURNAL ARIZONA

4 Tips to Survive the Next Stock Market Crash

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il prices are plummeting, taking energy stocks down with them. Meanwhile, financial experts such as Harry Dent and Robert Shiller say the U.S. stock market is overdue for a correction.

Shiller recently noted in Forbes that the market is 65 percent overvalued, mainly fueled by “irrational exuberance.”

“Many investors today are yieldstarved savers who are losing their earnings power to inflation, increased taxes, and persistent low interest rates,” says Salvatore M. Buscemi, managing director of Dandrew Partners LLC in New York City and author of “Making the Yield: Real Estate Hard Money Lending Uncovered,” (www.MakingTheYield. com).

“As a result, they are being forced to take risks by investing against their better judgment into markets where they have little to no control, and for the majority, can’t afford to lose their money in another stock

Q&A

market crash as they did in 2001 and 2008.”

A growing trend among those seeking to beat the bear is to channel investments into real estate, he says.

Not the kind of venture that turned many into reluctant landlords during the housing bust, but another type called hard money lending.

“Here’s how it works,” Buscemi says. “Investors act like a bank and make short-term loans to small businesses that buy and repair distressed properties, refinance them with conventional bank loans and repay the short-term loans at higher interest rates, generating more profitable returns for the original lenders.”

Buscemi reviews ways to get the most out of this lucrative venture.

• Shop local. All things being equal, private investors are often served by small, perhaps localized real estate private partnerships that throw off real cash flow than by global, publicly listed full-service investment brands where an alignment of

interest between investors and these corporations may be deficient or missing.

• Explore crowd funding. With the advent of crowd funding and federal rule changes since the last

real estate cycle, more people with less money can participate in deals that they may have never been able to get into before.

• Have a pre-flight checklist. continued on page 6

broke and management entered as an emergency to inspect the premises. Once inside, they found that the tenant was a hoarder. [What recourses does the landlord have regarding what was found?]

A. Depending on how severe the problem is, the landlord can either give an immediate notice if there is extreme damage being cause by the hoarder or a five (5) day health and safety non-compliance to correct the problem.

Q: The tenant was locked out by the constable. The tenant did move all of their property to the outside of the rental property and then left. What, if any obligations did the owner have to the tenant’s property?

A: The landlord’s only obligation is to reasonable secure the interior of the premises if the tenant’s property is left inside. If the tenant moves the property outside, they are doing it at their own risk. Should there be theft

or damage; the landlord should not be held liable for this.

Q: The landlord served a non-renewal on the tenant and the tenant demanded a written explanation of why the landlord chose not to renew. [Is the landlord obligated to provide an explanation for non-renewal?]

A: Generally, the landlord does not have to provide a reason for the non-renewal. This applies to the tenant; they would not have to provide a reason for moving out of the rental premises. The only exception would be if the tenant is claiming retaliation by the landlord, such as failure to make repairs, joining a tenant’s union or complaining to a governmental entity about the premises.

Q: A tenant was cleaning his handgun and accidently shot his washing machine. [What kind of notice should be served on the tenant?]

A: This should be an immediate

eviction notice because even though it was negligence on the tenant, it endangered the surrounding tenants had the bullet gone through the wall and into the next apartment.

Q: The tenant was served an immediate eviction notice but had prepaid his rent several months in advance. Does the landlord need to refund any of the tenant’s money?

A: No, unless the landlord is able to re-rent the premises prior to the timeframe that the money covered.

The landlord would then need to return a pro-rated amount.

...continued from front page

A: Yes, the landlord can hold the tenant to the balance of the lease or until it is re-rented or whichever occurs first. Because rent was paid, the landlord cannot do anything until the end of the first month that was paid, and then when monies are not paid the subsequent months either serve a five day notice of nonpayment of rent eviction or an abandonment notice.

Q: In another matter, the landlord had an employee that was living at the property in exchange for rent. The employee did not show up for work or give notice that they were quitting. The question was, are the landlords under obligation to give a notice?

A: No, but the courts prefer one be given. It simply says their employment is terminated and if they don’t vacate at once, an eviction action can be filed.

Q: The property had a waterline that

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RENTAL HOUSING JOURNAL ARIZONA

National Survey Reveals 2015 Moving Plans For Renters Affordability, Relationship Changes and More Space Top Reasons Why Renters are Moving; Despite Increasing Rents and Apartment Demand, Three Quarters of Renters Said They are Not Spending More on Rent

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hile rents continue to rise around the country, the rate of growth is slowly decreasing. According to CoStar, the real estate industry's leading provider of information, analytics and online marketplaces, the average cost of rent nationwide increased by 0.64 percent to $1,194 a month in the fourth quarter of 2014—down from a .89 percent increase the previous quarter. At the same time, demand for apartments remains strong despite a slight uptick in the vacancy rate to 4.7 percent in the fourth quarter of 2014 from 4.3 percent the previous quarter. CoStar predicts new apartment supply will also peak this year at more than 300,000 units.

Apartments.com conducted its annual survey of more than 5,200 renters nationwide to determine how the healthy rental market would affect their moving plans this year. The survey reveals why renters are choosing to move or stay in their apartments, why more homeowners are turn-

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ing to renting and the most popular apartment amenities.

Affordability, changes in marital and relationship status and wanting more space topped the list of reasons why respondents said they are moving this year. Three quarters of renters surveyed also indicated they are planning to spend either the same or less on rent despite current demand and increasing rents. When asked how much renters are currently spending on rent, more than 60 percent said less than $1,000 a month— just under the national average— and 35 percent are spending between $1,000 and $2,000.

"With new supply slated to hit this year, it is yet to be seen whether or not this will result in decreasing rents," said Brad Long, president of Apartments.com. "While construction is ramping up, demand is still strong, partly in response to many would-be homeowners turning to renting as a more viable financial option. In fact, the most popular rea-

sons homeowners gave for why they are renting this year are because they lost their home to a foreclosure or divorce (up 4.3 percent from 2014), they can no longer afford their home, or they are downsizing."

Why are people moving in 2015?

And, why aren't they?

Affordability, relationship changes, more space and family played a big role in renters' decisions to move this year. Other reasons renters gave for moving include being closer to school, needing accommodations for senior living or retirement, and selling property.

According to the survey, the top five reasons renters are moving in 2015 are: 1. More affordable apartment: 24.7 percent 2.

Change in marital/relationship status (getting married/breaking up): 9.4 percent

3. Moving into a bigger apartment: 9.3 percent 4.

Moving closer or farther away from family: 8.3 percent

5. Need a smaller apartment or want to live alone: 7.7 percent Location played a strong role in keeping renters in place, as seven out of 10 renters said they are not moving this year because they like their apartment building and neighborhood.

When asked to check all that apply, the top five reasons renters said they are not moving in 2015: 1. I like my neighborhood: 36.9 percent 2. I can't afford to move: 34.9 percent 3. I like my apartment building: 34 percent 4. I already moved: 25.8 percent 5. I'm secure in my job: 13.5 percent ...continued from 9

RENTAL HOUSING JOURNAL ARIZONA • March 2015

RENTAL HOUSING JOURNAL ARIZONA

5 Innovation Killers That Lurk Within Businesses

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he work of innovative thinkers is why the world has smartphones, laptop computers, toaster ovens and numerous other gadgets and creative approaches to problem solving.

Yet groundbreaking ideas aren’t always welcome in the corporate world or within other institutions.

Instead, those who suggest a different approach often find their ideas shot down by co-workers or blocked by an organizational system that is unwelcoming to change, says international speaker and innovation consultant Dr. Neal Thornberry.

That doesn’t mean innovation can’t happen, though.

“The innovator needs to know

how to operate in these less than friendly cultures without waiting for some miraculous transformation in corporate policy,” says Thornberry, author of the book “Innovation Judo: Disarming Roadblocks and Blockheads on the Way to Creativity.” (www.NealThornberry.com) He says there are five innovation “killers” within organizations that a person with ideas can expect to confront.

People. Sometime it’s an individual, sometimes it’s a group.

Regardless, people often resist innovation, and many times for illogical reasons. “The more rigid people reject innovation simply because they are uncomfortable with the new

or don’t want to spend the energy to try something different,” Thornberry says. They may be quick to point out flaws in your ideas.

One way to counteract that, Thornberry says, is to be your own worst critic. Discover those flaws first and highlight them yourself.

Then you can address how you plan to mitigate them, thus stealing the critics’ thunder, he says.

Politics. You can usually get around one or two individuals who try to block your idea, but it’s more challenging when the organization is rife with politics. “I hate working in highly politicized organizations,” Thornberry says. “They make work a lot harder and make you spend

considerable time on non-value-adding activities.” In fact, Thornberry devotes an entire chapter in his book to “Right Mindedness” so that innovators practicing his seven secret judo skills are not seen as innovating for personal gain or exploitation, but as enablers of company success.

Organizational design. An out-of-whack organizational design usually is not generated on purpose or with malice, Thornberry says.

Instead it develops over time, with one well-intentioned move after another leading to unintended consequences. Often the result is a proliferation of controls, along with structures and processes that create ...continued on page 8

proximity to government or downtown office buildings, or with easy convenient public transportation to them, attract white collar office workers. Decide the type of tenant, that you can best relate to, and focus your rental property purchase on property or properties, that your target group tenant would rent.

Jade Bossert is a licensed Real Estate Broker with Tierra Antigua Realty in Tucson.

She specializes in the sale of apartment complexes and can be contacted at 520-797-6900 or tucsonrealestate@ mindspring.com.

What Tenants?...continued from front page Graduate students often enjoy living within a couple of miles of campus, but not in the midst of the party scene. They are generally quiet and many times married or live with a significant other. If you think they would be a “compatible” tenant for you, find out exactly what neighborhoods attract graduate students, and scope out purchasing rental properties in those areas. Chances are the

prices will be lower and the tenants tamer, then rentals walking distance to campus.

All cities have sub market neighborhoods. Properties near a regional trauma hospital will attract medical personal, that are often on call, and need to live nearby. Rentals that are walking distance to a popular senior center, will have a built-in source of older tenants. Properties in close

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RENTAL HOUSING JOURNAL ARIZONA

Killers That Lurk

...continued from page 5

barriers to innovation.

When an idea is blocked by layers of decision-making, one solution is to use leverage, Thornberry says.

Enlist the aid of a customer who would benefit from the innovation, he says, because paying customers have huge leverage.

Company values. Here the innovator has both a challenge and an opportunity. Many companies articulate their values, but don’t always live by them. “The upside for innovators is that values can be used as leverage for innovation even if they aren’t true,” Thornberry says.

For example, if the company declares, “The customer is No. 1,” then it

Market Crash

becomes difficult to ignore an innovation that is positioned as being for the customer.

Corporate culture. The corporate culture essentially is how the people, politics, organizational design and values interact. “The greatest challenge to any innovator, and to embedding and sustaining innovation over the long term, is culture,” Thornberry says. To make it even more challenging, often organizations have micro-cultures within the culture. That means, he says, you will need to adapt the use of innovation judo principles depending on which micro-culture you are dealing with at any given moment.

“Innovators throughout history have faced both roadblocks and blockheads on their path to creativity,” Thornberry says. “And so will you.”

But with a little courage and some counterbalancing skills, he says, these challenges can be overcome.

About Neal Thornberry, Ph.D. Neal Thornberry, Ph.D., is the founder and CEO of IMSTRAT, LLC a consulting firm that specializes in helping private and public sector organizations develop innovation strategies that create economic value by increasing an organization’s effectiveness and efficiency. A respected thought leader in inno-

vation, Thornberry is a highly soughtafter international speaker and consultant. He also serves as the faculty director for innovation initiatives at the Center for Executive Education at the Naval Postgraduate School in Monterey, Calif. Thornberry, author of “Innovation Judo: Disarming Roadblocks & Blockheads on the Path to Creativity” (www.NealThornberry. com), holds a doctorate in organizational psychology and specializes in innovation, corporate entrepreneurship, leadership and organizational transformation.

...continued from page 3

The best time to worry about a real estate loan is before you make it. Always have a list of items to review before committing capital. These include job history, experience in rehab property, education, and most important, credit quality. Always read the entire credit report as the devil is in the details. Also make sure to accept reports from a third party, not the borrower as they can be faked.

• Always ask how your interests are aligned with your borrowers. If

they are not going to make any money, neither will you. The loan will default, and you’ll both be discouraged.

“Individual investors are looking for a more intimate method of managing their own money, insulated from geopolitical shocks,” Mr. Buscemi says. “They don’t want to wake up in the morning blindsided that they’ve lost a good chunk of their portfolio because of something that happened overseas. Real estate keeps climbing

higher and higher in some markets.

And people implicitly trust real estate; it’s a very bankable asset class.”

Salvatore M. Buscemi, author of “Making the Yield: Real Estate Hard Money Lending Uncovered,” is managing director of Dandrew Partners LLC in New York City (www.dandrewmedia.com). The company specializes in placing capital from prominent institutional investors into middle-market distressed commercial real estate invest-

ments. He began his career at Goldman Sachs, where he worked four years as an investment banker. A frequent speaker on hard money lending, Mr. Buscemi also co-founded Dandrew Strategies LLC, a $30 million real estate solutions provider in the secondary mortgage market specializing in non-performing residential mortgage portfolios.

visit us at www.rentalhousingjournal.com

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RENTAL HOUSING JOURNAL ARIZONA • March 2015

RENTAL HOUSING JOURNAL ARIZONA

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Beware of Discriminatory Practices

ll landlords are subject to penalties imposed under fair housing laws. It is very important that management and on-site employees do not engage in discriminatory practices against renters.

Landlords are liable if their actions are discriminatory, even if they did not purposely intend them to be so.

This article will cover some of the general practices that communities should be aware of and try to avoid.

The U.S. initiated laws protecting individual civil rights in the late

1860’s. The practice of discrimination, however, continues. The passage of the Civil Rights Act in 1968 established and defined five protected groups. They included race, color, religion, national origin and sex.

In 1989, Congress expanded this list by two additional categories: physically and mentally disabled; and familial status (families with children). Arizona has its own fair housing law. Promulgated in 1991, the Arizona Fair Housing Act covers the same protected classes as the

Federal law.

Courts can impose civil penalties as high as $10,000 for first-time offenses, so it is important that landlords know the laws and tailor their rental practices to comply with them.

Management should keep in mind one very simple golden rule: Treat everyone the same.

The following are some examples of discriminatory practices: • Failure to accept a bona fide offer to rent. In other words, informing a prospective renter that there currently are no units available to rent, when in fact there are.

• Refusal to rent to an individual qualifies under all rental criteria.

For example, a prospective resident meets all of the landlord’s criteria but management tells him or her that there are now no units available.

• Application of different prices or contract terms. For instance, charging families a higher rent than other residents. Another example is offering families a lease term that is shorter than those you offer other residents.

• Application of different rental qualification procedures. In this situation, you might require families with children to have four

times the net disposable income and families without children to have three times the net disposable income.

• Not permitting a prospective resident to inspect an apartment, exaggerating drawbacks or failing to inform the person of the desirable features of the community.

For example, management tells a prospective resident that he or she would not be happy at the property because of certain amenities or the lack thereof.

• Steering. This involves a landlord or staff member telling a prospective renter that he or she would not be compatible or comfortable with the existing residents. The landlord then provides the person with a list of other local properties that may suit him or her. For example, management tells an individual with two children that the property has two swimming pools. The landlord says that since the children are young, the family might be happier at a community which does not have swimming pools. The landlord then gives the individual a list of properties that do not have swimming pools. ...continued on page 11

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RENTAL HOUSING JOURNAL ARIZONA

Commercial Markets Poised for Growth Despite Weaker Global Economy

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stronger labor market and stable U.S. economy should keep commercial real estate demand on the rise, but the pace of growth will likely be hindered by overseas weakness, according to the National Association of Realtors® quarterly commercial real estate forecast.

Lawrence Yun is chief economist and senior vice president of research at the National Association of Realtors(r). Yun oversees and is responsible for...

National office vacancy rates are forecast to slightly decrease 0.1 percent over the coming year as improved hiring increases the demand for office space. The vacancy rate for industrial space is expected to decline 0.4 percent and retail space 0.3 percent as manufacturers boost production for goods and services and consumers slightly accelerate their spending. A swath of new apartment construction coming onto the market is forecast to lead to an uptick (0.1 percent) in the multifamily vacancy rate.

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Lawrence Yun, NAR chief economist, expects commercial real estate activity to hold steady heading into the spring. "The demand for leases and new construction projects is expected to slowly climb as businesses add to their payrolls and consumers reap the benefits of cheaper gas and any accompanying wage growth from a tighter labor market," he said. "Furthermore, multifamily housing continues to be the top-performing sector with current rental demand exceeding supply – leading to rent growth that is easily outpacing inflation in many metro areas throughout the country."

Although economic conditions are improving at home, Yun says weaknesses in the global economy will likely impact exports.

"Sluggishness overseas alongside a strengthening U.S. dollar will widen the trade deficit and slow economic growth potential," he said. "However, GDP is forecasted to come in around 3 percent in 2015 – the highest since the recession. Improvements in housing and commercial real estate market activity will measurably help economic growth."

NAR's latest Commercial Real

Estate Outlook1 offers overall projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data for metro areas is provided by REIS Inc., a source of commercial real estate performance information.

In partnership with Deloitte and RERC Situs, NAR released an annual joint report earlier this month – Expectations & Market Realities in Real Estate 2015 – which forecasts for an expected increase in commercial real estate value and pricing in 2015.

Office Markets Office vacancy rates are forecast to slightly decline from 15.8 percent in the first quarter to 15.7 percent in the first quarter of 2016.

The markets with the lowest office vacancy rates in the first quarter are Washington, D.C., at 8.7 percent; New York City, 9.0 percent; Little Rock, Ark., and Seattle at 11.5 percent; and San Francisco, at 12.0 percent.

Office rents are projected to increase 3.3 percent in 2015 and 3.6 percent next year. Net absorption of office space, which includes the leas-

ing of new space coming on the market as well as space in existing properties, is likely to total 47.7 million square feet this year and 58.3 million in 2016.

Industrial Markets Industrial vacancy rates are expected to fall from 8.7 percent in the first quarter to 8.3 percent in the first quarter of 2016.

The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 3.4 percent; Los Angeles, 3.7 percent; Miami and Palm Beach, Fla., both at 5.4 percent; and Seattle, at 5.6 percent.

Annual industrial rents should rise 3.0 percent this year and 3.1 percent in 2016. Net absorption of industrial space nationally is expected to total 102.2 million square feet in 2015 and 104.8 million square feet next year.

Retail Markets Vacancy rates in the retail market are expected to decline from 9.7 percent currently to 9.5 percent in the first quarter of 2016.

Currently, the markets with the continued on page 9

RENTAL HOUSING JOURNAL ARIZONA • March 2015

RENTAL HOUSING JOURNAL ARIZONA

Rent in 2014 Up

...continued from page 2

1.9 percent in 2014ii. Over the same time period, the median rent paid increased 2.9 percent.

"Over the past fourteen years, rents have grown at twice the pace of income due to weak income growth, burgeoning rental demand, and insufficient growth in the supply of rental housing. This has created real opportunities for rental housing owners and investors, but has also been a bitter pill to swallow for tenants, particularly those on an entrylevel salary and those would-be buyers struggling to save for a down payment on a home of their own," said Zillow Chief Economist Stan Humphries. "Next year, we expect rents to rise even faster than home values, meaning that another increase in total rent paid similar to that seen this year isn't out of the question. In fact, it's probable." * Data for the 50 largest metros covered in this Zillow rentals report is available.

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 Mortgages, Zillow Rentals, Zillow Digs®, Postlets®, Diverse Solutions®, Mortech®, HotPads™, StreetEasy® and Retsly™. The company is headquartered in Seattle.

Poised for Growth

...continued from page 8

lowest retail vacancy rates include San Francisco, at 3.0 percent; Fairfield County, Conn., and San Jose, Calif., at 4.5 percent; Long Island, N.Y., 4.9 percent; and Orange County, Calif., at 5.0 percent.

Average retail rents are forecast to rise 2.5 percent in 2015 and 3.1 percent next year. Net absorption of retail space is likely to total 15.7 million square feet this year and jump to 20.6 million in 2016.

Multifamily Markets The apartment rental market should see vacancy rates slightly increase from 4.1 percent currently to 4.3 percent in the first quarter of 2016. Vacancy rates below 5 percent are generally considered a landlord's market, with demand justifying

higher rent.

Areas with the lowest multifamily vacancy rates currently are Sacramento, Calif., 2.5 percent; Orange County, Calif., 2.6 percent; Hartford, Conn., and Oakland-East Bay at 2.7 percent; and Rochester, N.Y., at 2.8 percent.

Average apartment rents are projected to rise 3.7 percent this year and 3.6 percent in 2016. Multifamily net absorption is expected to total 171,978 units in 2015 and 157,168 next year.

SOURCE National Association of Realtors

Zillow, Inc. (NASDAQ: Z) operates the largest home-related marketplaces

Survey Reveals

...continued from page 4

It should not come as too much of a surprise that bargains are biggest motivators when renters were asked to choose all that apply for getting them to leave their current apartment "immediately," regardless of their original moving plans.

1. Big discount (20 percent or more) on monthly rent for the full term of lease: 68.4 percent 2. Free rent for a month: 48.7 percent 3. More space for the same amount of money: 42.3 percent Why are previous homeowners choosing to rent in 2015?

Underscoring a growing trend, previous homeowners are turning toward renting. Slightly more than 40 percent of total survey respondents say they have owned in the past. Interestingly, homeownership preferences are split right down the middle in 2015.

• 49 percent of former homeowners still wish they owned a home • 51 percent of former homeowners prefer renting • 56 percent of renters (who have never owned a home) prefer renting

responsible for a leaky toilet, clogged sink, etc.: 69.7 percent 2.

No/low maintenance – I don't have a driveway to shovel, grass to cut, etc.: 54.5 percent

3. Flexibility to move – I don't want to feel tied down, worry about selling home, etc.: 39.3 percent 4. Renting is more affordable for me than buying: 38.4 percent 5. No unexpected tax increases for the duration of the lease: 30.7 percent 6. I don't want the responsibility of a mortgage (or, I cannot get one): 29.9 percent Urban areas are currently the main focus of developers targeting young renters willing to pay a premium to live in apartment communities decked out with lavish amenities. When asked which amenities renters are seeking during their apartment search, air conditioning and appliances topped the list.

Top five amenities renters are looking for during their apartment search: 1. Air conditioning

• 44 percent of renters (who have never owned a home) would like to own a home right now

2. In-unit washer and dryer

When survey respondents were asked to select all the reasons they prefer renting to owning, the most popular responses are ranked below:

5. Pet-friendly community

3. Parking 4. Dishwasher

SOURCE Apartments.com

1. No unexpected repairs – I'm not

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Secret Shopper

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any apartment communities have staff changes on the weekends. Some property management companies use part-time leasing consultants or “floaters” to fill in on the weekends or to work back and forth between two or more communities. This can be a great partnership and help keep payroll expenses down OR it can cost rentals at your community. It all depends on quality communication, as the following question will attest: Q: I was hired to be a “floater” at several different properties. While I love the variety, I really don’t feel like I am an important part of the staff at any of the places where I work. I am not always kept current on apartment availability or the status of different problems that come up. When I ask questions to try to keep myself informed, many times I am told: “Don’t worry about it. You’re only

here on the weekends.” I feel frustrated, but don’t know what I can do.

A: It sounds to me like you are on a team that has not filled you in on the game plan! This is very unfortunate, especially in a business where there can be moment by moment changes, due to rentals, resident problems and maintenance emergencies. I would advise you to put your concerns in writing; in a positive manner; and share them with the manager and/or property supervisor. For those of you who actively employ “floaters” or who share employees between properties, I would recommend leaving detailed notes on a weekly basis to recap what has happened in their absence.

Of course whenever possible, these employees should be included in staff meetings and receive copies of correspondence which will keep

them up to date on the happenings at each of the communities where they work.

How do you make sure that the same quality of service being provided Monday through Friday carries over on the weekend? What happens when a manager or leasing consultant goes on vacation or gets sick, and someone from another community fills in? Do you have an established way to communicate what is rent ready, as well as any pending resident issues? It’s hard to function as a team if all the players are not “well-equipped.” Ultimately, the ability to communicate effectively with part-time or weekend staff could make or break your leasing ratio for the week.

After all, the weekends are typically the busiest days for apartment hunting. Are your part-timers and weekend floaters fixing

to “fumble the ball” or have they been set up to “score rentals?”

If you are interested in leasing training or have a question or concern that you would like to see addressed, please reach out to me via e-mail. Otherwise, please contact Jancyn for your employee evaluation needs: www.jancyn.com ASK THE SECRET SHOPPER Provided by: Joyce (Kirby) Bica Former owner of Shoptalk Service Evaluations Consultant to Jancyn Evaluation Shops Phone: 425-424-8870 E-mail: shptalk2@gmail.com Copyright Joyce (Kirby) Bica

New Residential Water Heater Efficiency Standards

By Heather Hill and Jason Campbell

O

n April 16, 2015, all residential water heaters manufactured for sale in the United States will be required to meet new efficiency standards as the third phase of a nationwide energy conservation effort takes effect.

The National Appliance Energy Conservation Act regulates the energy consumption of certain household appliances including furnaces, boilers, refrigerators and water heaters. According to the Appliance Standards Awareness Project, water heating represents 20% of the total annual household energy consumption in the US, and on average 57% OLD STANDARD Product Gas-fired Gas-fired Oil-fired Electric Electric Tabletop Instant Gas Instant Electric

Volume 20-55 gallon 55-100 gallon 0-50 gallon 20-55 gallon 55-120 gallon 20-100 gallon 0-2 gallon 0-2 gallon

Manufacturers can employ new technologies such as heat pumps, which help reduce energy use by 50%, to upgrade electric water heaters. Condensing technologies can reduce energy use in gas storage containers by 25%. The low-tech solution, adding more insulation, may cause more complications.

While adding 1 inch of insulation would increase EF by .05, it would 10

of this energy is lost in inefficient heaters. The US Department of Energy (DOE) released its first mandatory standards in 1990.The second phase, enacted in 2004, tightened standards the most significantly of the three phases, and was estimated to avoid 316.8 million metric tons of carbon dioxide emissions. The 2015 standards will avoid 172.5 million metric tons of emissions, equivalent to the annual greenhouse gas emissions of about 33.8 million cars, according to the DOE. The mandatory standards dictate that manufacturers meet the maximum energy efficiency levels technically feasible and economically justified. The DOE conducts product

EF .67 .67 .59 .97 .97 .93 .62 .93

reviews and updates the standards on a regular schedule. Note, that while the manufacturers cannot make any water heaters with the old standards after the April date, they will be allowed to continue to sell the old inventory until the supply is exhausted. As of the date of this post, manufacturers have not released the compliant replacement heaters for their obsolete products. Though energy efficient models do exist in the marketplace, they have been built and promoted as specialty products and priced accordingly.

Conversely, the replacement heaters will represent the new normal.

What is changing?

NEW STANDARD Product Gas-fired Gas-fired Oil-fired Electric Electric Tabletop Instant Gas Instant Electric

also broaden the heater by 2 inches in diameter. Knowing that water heater installations in multi-family structures are space defined, manufacturers may also reduce tank capacities to allow NAECAcompliant units to fit in predetermined spaces, as the floor plans and common plumbing designs typically found in multifamily units will prevent relocation of the water heater.

Volume 20-55 gallon 55-100 gallon 0-50 gallon 20-55 gallon 55-120 gallon 20-100 gallon 0-2 gallon 0-2 gallon

EF .675 .8012 .68 .960 2.057 .93 .82 .93

What will this cost property owners?

Since manufacturers have yet to release the new heaters, the only certainty for the owners of properties with large-volume gas or electric heaters is that those manufactured after April 16th will save money in operating costs. However, the improved technologies are likely to come with a higher price tag, as any new technology improvement usu-

The Energy Factor (EF) represents the ratio of useful energy output from the water heater to the total amount of energy used to operate it.

The higher the EF rating, the more energy efficient is the water heater.

The type of fuel, volume and mechanics of the heater all factor into its rating and coinciding standard. For example, tabletop and instantaneous electric heaters already meet the EF standards and thus no changes will take place for those heaters.

The new requirements will most significantly affect gas-fired and electric heaters over 55 gallons as well as all instant gas heaters. The chart below outlines how the standards apply to each style of heater.

DIFFERENCE EF .005 .1312 .09 -.01 1.087 0 .20 0

ally does. Following the last major efficiency upgrade in 2004, prices for the new standard equipment increased 8-12%.

The DOE estimated the following cost implications for the 2015 standards: continued on page 11

RENTAL HOUSING JOURNAL ARIZONA • March 2015

Feb, Apr, Jun, Aug, Oct, Dec RENTAL HOUSING JOURNAL ARIZONA

Water Heater ...continued from page 10 EF .62 (40 gal) .76 (56 gal) .95 (50 gal) 2.0 (56 gal) .62 (32 gal) .82 (0 gal)

The cost savings refer to the costs of owning and operating the product after considering both the increased installed price and the lifetime operating costs.

Maintenance costs may also increase due to the complex design

Average Cost $1,072 $1,261 $554 $729 $1,974 $1,779 of the new technology and the integration of electronics, blowers, fans, condensers, etc. Anyone who services water heaters may also struggle with a learning curve.

Cost Increase $92 $805 $140 $974 $67 $601

Cost Savings* Payback Period $6 2 years $77 9.8 years $10 6.9 years $626 6 years ON $295 years VALLEY, .5METRO, ARIZONA APT $6 14.8 years

Salsbury Indu

tions of the current heater, including Considerations Residential property owners need its footprint, both physical and carto review their options carefully bon, can save property owners headwhen replacing a large volume water aches and money down the road.

Jan, Mar, May, heater in the near future.

Don’t wait Jul, Sep, Nov, 1010 East 62nd until the heater fails to plan for itsStreet, Los Angeles, CA 90001-1598 Phone: 1-800-624-5269 • Fax: 1-800-624-5299 successor. Being aware of the condi-

Octoberp

Discriminatory Practices...continued from page 7 • Assignment of certain sections of a property to certain people.

Apartment communities years ago used to have both adult and family swimming pools. The properties did not allow children in the adult pools. Today, this is a discriminatory practice.

• Photographs, illustrations, symbols, words or other descriptions that convey that the apartments are not available to a particular group. A case in Washington, D.C. involved an apartment management company billboard that depicted a number of young, Caucasian models sitting around a swimming pool. A member of a minority group viewed the sign and filed suit on the basis of discrimination, even though she had no intention of renting at the property. A jury agreed and awarded her approximately $15,000.

This is in no way an exhaustive list. There are many subtle forms of discrimination. Again, management should treat everyone the same to avoid discrimination charges.

Example Consider the following example: Anna Rexick inquires about renting a unit at Heartland Apartments.

She has two small children, Bo Leemic and Hy Pol Glycemic.

Manager Dick Scriminate does not like children, and tells her there are no apartments available.

A couple of weeks pass and Anna Rexick still is searching for an apartment. She runs into her friend Jerry Tall. He informs her that he recently rented a unit at Heartland Apartments and knows for a fact there are a least ten vacant units at the property.

Anna Rexick files a complaint with a government agency.

Following an investigation, it finds that Dick Scriminate never rented to families and takes appropriate action against him.

Andrew M. Hull Hull, Holliday & Holliday, PLC www.doctorevictor.com 602.230.0088

www.re nt a l h o u s i n g j o ur nal.co m

Advertise in Rental Housing Journal Arizona Circulated to over 10,000 apartment owners, on-site, and maintenance personnel monthly.

Call 503-221-1260 for more info.

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RENTAL HOUSING JOURNAL ARIZONA • March 2015