Rental Housing Journal Arizona
May 2017 - Vol. 9 Issue 5
2. Phoenix Rents Resume Climb After Short-Lived Pause; Vacancies Fall to Record Low
4. Bedbugs Still a Risk
3. U.S. Homeowners Give Record High Satisfaction Scores to their Insurers
10. Dear Maintenance Men:
5. Spring Cleaning Tips & Tricks for Homeowners 11. Ask Landlord Hank
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5 Qualities & Habits of Great Property Managers
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By Marc Courtenay
ometimes life is what happens while we’re making other plans. Other times life feels like it’s in the palm of our hands waiting for our decisions about what we want to make happen next. Maybe that’s the way our lives are supposed to feel. One of the things I know for sure is that you can learn a great deal about successful property management by watching those who are adroit at it. One of my “pet projects” is studying the habits, qualities and characteristics of highly successful property managers. Through the years I’ve discovered some consistencies they all seem to share. The first is what I call “brilliance”. I don’t mean they’re extra smart nor have an unusually high Intelligence Quota (IQ). Their “brilliance” shines in their daily approach to their work. Like this article implies, they’ve learned from other brilliant managers and they’ve applied what they’ve learned. They’re willing to take the time to study the characteristics and successes of others. The second quality, one that becomes continued on page 3
Elevated Home Prices Invigorate Seniors Housing Demand While Prospects of Healthcare Reform Raise New Questions
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he aging U.S. population is a major driver in today’s seniors housing segment. A weakened housing market as a result of the Great Recession encouraged many older Americans to extend stays in residences, and the homeownership rate of those older than age 75 peaked in the years that followed. A strengthened housing market, however, is prompting many seniors to sell homes and move into seniors housing communities, where broader access to care is available. While this has increased demand for seniors housing properties today, the segment is also preparing to receive an influx of residents over the next several years as baby boomers head into retirement and require the services of seniors housing communities, prompting a rise of new units. Majority assisted and independent living facilities are set to receive the bulk of deliveries for the foreseeable future, though the construction of memory care units is continued on page 6
on the rise to meet increased demand that supports the care of seniors with dementia. Senior-care providers must balance industry changes. In an effort to reduce resident turnover, seniors-care operators are striving to attract and service
a wider range of residents. Advances in medical technology and the integration of third-party ancillary service providers are aiding in the convergence of independent living, assisted living, and memory care units. Meanwhile, healthcare reform, specifically related to reductions in Medicare and Medicaid re-
Manufactured Housing National Report
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Investors Moving Inland From Coasts
mid Occupancy Gains in the Midwest Growing demand for manufactured housing is lifting occupancies and rents for a 10th consecutive year. The run-up in pricing of homes, condos and apartment rents is generating renter interest in relatively affordable options in manufactured housing communities. In particular, aging baby boomers seek communities located in warm climates with amenities and recreational options. While newer, highly amenitized age-restricted communities in the Sunbelt remain a top choice for older renters, many of these spaces are
occupied to capacity. Full occupancy at the newest properties pushes demand to smaller, older parks where lower rents attract tenants. Some of these parks are now also starting to fi ll vacant spaces, some of which include lot and new home rentals. A 15 percent increase in manufactured house shipments last year shows the demand generated by all age groups. The majority of new homes are delivered to the Southern region in markets from Texas to Florida. A recent rise in renter demand in the Midwest region elevated shipments by more than 20 percent last year. Vacancies in the Midwest have tumbled more than
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300 basis points since peaking in 2012, while rents have grown nearly 10 percent during the same time period. The need for spaces in this region continues to grow at a fast pace. As home prices and apartment rents escalate, another year of vacancy improvement in manufactured home communities will boost rents in 2017 while maintaining lower rates than other housing options. Opportunities abound for buyers willing to look at smaller markets and older parks. Past years’ acquisitions by institutional players and REITs have limited the number of active listings for fi continued on page 8
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Rental Housing Journal Arizona
Phoenix Rents Resume Climb After ShortLived Pause; Vacancies Fall to Record Low Pete TeKampe First Vice President Investments Marcus & Millichap
Phoenix The Phoenix area apartment market in first quarter 2017 recorded its highest-ever weighted average asking rents. Vacancies dropped below a threshold never before observed. Concessions saw a slight increase for the period while new units were added. Understanding these elements and how they work together, especially at the sub-market level, is important for owners, appraisers, investors, managers, and lenders because it is this understanding that adds certainty and predictability to any given asset’s ability to generate revenue and to its investment value in the present and in the future. RENT In first quarter 2017, the Phoenix area recorded average asking rents of $936. This is the highest-ever average rent observed in the Phoenix area. In the April 2017 issue of Rental Housing Journal, it was reported that average rents remained the same from third quarter 2016 to fourth quarter 2016. The lack of rent growth from third quarter 2016 to fourth quarter 2016 sparked concern in the marketplace that rents had achieved their peak. The lack of quarter-quarter rent increases was shortlived as first quarter 2017’s rents were $46 higher than those recorded in first quarter 2016 and $16 higher than rents observed in fourth quarter 2016. There were ten sub-markets with average rents above $1,000 for the period of
which seven added new units since first quarter 2016. First quarter 2017 marked the 19th consecutive quarter that YOY average rents increased. The highest rents in the Phoenix area during the period were in the South Scottsdale sub-market with an average rent of $1,248, up from the $1,184 recorded for the sub-market in first quarter 2016. The lowest rent in the Phoenix area during first quarter 2017 was in the West Central Phoenix sub-market. Rents in West Central Phoenix stood at $619 for the period, up from the $601 average recorded for the sub-market in first quarter 2016. The April 2017 issue of Rental Housing Journal reported area rents were expected to increase this year. Area rents will increase in 2017 due to the sub-market being bereft of new supply and the presence of low vacancies in the sub-market. VACANCY For the first time ever recorded, vacancies fell below 7 percent in first quarter 2017. During the period Phoenix apartment vacancies stood at 6.9 percent. In first quarter 2016, area vacancies were 7 percent. The Phoenix area’s highest vacancy rate in first quarter 2017 was East Central Phoenix, recording a vacancy of 17.1 percent. One year earlier, this sub-market's vacancy was 13.8 percent. The Phoenix area’s lowest vacancy was in East Mesa/Apache
Junction, which recorded vacancy of 4.1 percent, which is higher than the 3.9 percent observed for the area in first quarter 2016. Six sub-markets recorded vacancies above ten percent during first quarter 2017, and five of these sub-markets added a combined 21 communities comprising 4,211 units since the beginning of 2016. NEW CONSTRUCTION As of first quarter 2017, there were fifty projects comprising 12,939 units scheduled for- or under construction. North Tempe, Southeast Valley and Uptown Central Phoenix were ranked first, second and third in terms of the number of projects in the immediate development pipeline. The number of units scheduled for- or under construction in each of these sub-markets as of first quarter 2017 is 2,910, 1,888, and 1,451, respectively. The Phoenix area added nine projects comprising 1,623 units in first quarter 2017. Phoenix area concessions increased slightly over fourth quarter 2016’s level as the market absorbed new units added to existing multi housing stock. CONCESSIONS: The Phoenix area as of first quarter 2017 tied for the second-lowest ever percentage of communities offering concessions. Thirty-five percent of all buildings Valley-wide offered some form of concession. This is up one
percentage point compared to fourth quarter 2016 and down three percentage points than the concession ratio recorded in first quarter 2016. West Central Phoenix had the highest concession ratio for the period, 53 percent, while North Paradise Valley recorded the lowest concession ratio during first quarter 2017 at 14 percent. As noted above, West Central Phoenix will experience rental increases due to low area vacancies, high demand and lack of new multi housing inventory in the sub-market. Area concessions are likely to decline later this year. CONCLUSION Apartment operations are going to remain strong in 2017. Rising rents, falling vacancies and low concessions all contribute to the current auspicious conditions that exist in the Phoenix metro area apartment market. Future issues of Rental Housing Journal will inform those with an interest in the Phoenix apartment market on developing trends as they unfold. Pete TeKampe ptekampe@marcusmillichap.com 602.687.6767 Direct *Sources: RealData Inc./Phoenix, Maricopa County, City of Phoenix, Peter E. TeKampe, P.C.
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Rental Housing Journal Arizona · May 2017
Rental Housing Journal Arizona
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U.S. Homeowners Give Record High Satisfaction Scores To Their Insurers
bout one of every 15 U.S. homeowners insurance policyholders files a claim each year and these claimants are now giving insurers their highest ever satisfaction ratings, according to the Insurance Information Institute (I.I.I.). The J.D. Power 2017 U.S. Property Claims Satisfaction Study gives U.S. home insurers a record score of 859 (on a 1,000-point scale). The industry's cumulative score stood at 846 in 2016. Five factors are considered when assessing policyholder satisfaction: settlement; first notice of loss; estimation process; service interaction; and repair process. "Insurers are the nation's economic first responders and, as such, are continually working to improve how they help Americans recover their lives and businesses in the wake of tragedy and catastrophe," said Sean Kevelighan, president and chief executive officer (CEO) of the Insurance Information Institute (I.I.I.). "This year's J.D. Power and Associates survey results are a clear reflection that the industry's hard work and dedication are delivering the intended results." These all-time high claims satisfaction scores are even more remarkable
given that incurred losses and loss-adjustment expenses for U.S. property/ casualty (P/C) insurers grew by 7.6 percent year-over-year when comparing the first nine months of 2016 to the first nine months of 2015, according to an analysis developed by Dr. Steven Weisbart, the I.I.I.'s chief economist. Incurred losses reflect the dollar amount of a home insurer's claim payout whereas a loss adjustment expense is the sum an insurer pays for investigating and settling claims, including the cost of defending a lawsuit in court. Moreover, Dr. Weisbart noted, catastrophe-related claims through the first nine months of 2016 were already at
their highest level since 2012—the year of Super storm Sandy—and the fourth quarter of 2016 pushed those numbers even higher after insured claim payouts from October 2016's Hurricane Matthew. The federal government agreed that 2016 was a volatile, and costly one, estimating 15 separate weather and climate events last year caused more than $1 billion in economic losses, not all of them insured, according to the National Oceanic and Atmospheric Administration (NOAA). "Property and casualty insurers have redoubled their efforts to improve the settlement process and fine-tune their
customer interactions, efforts that have been clearly recognized and appreciated by homeowners who experienced significant losses this past year," J.D. Power said. The study also noted opportunities for improvement, most notably in water-related and other complex claims that take a long time to settle and that cause significant lifestyle disruption. J.D. Power noted, "Insurers that manage to get the settlement process and customer interaction equation right in these types of disruptive and often catastrophic scenarios are those that raise the bar for the industry." The study is based on more than 6,600 responses from homeowner's insurance customers, and was fielded between January and November 2016. The I.I.I. has a full library of educational videos on its You Tube Channel. Information about I.I.I. mobile apps can be found here. The I.i.i. Is A Nonprofit, Communications Organization Supported By The Insurance Industry. Insurance Information Institute, 110 William Street, New York, NY 10038; (212) 346-5500; www.iii.org
5 Qualities and Habits ...continued from page 1 habitual, is that great property managers have an extraordinary amount of curiosity. Since they are, either by nature or self-discipline, observant professionals, they keep their eyes and ears wide open for better ways to accomplish. They’re not afraid to ask questions, do research, and delegate to others the task of finding solutions. They’re obsessed with growing and evolving. They seem to innately know that something that they don’t know is holding them back from reaching their full potential. They’ll go to seminars, join associations, listen to self-improvement CDs and watch DVDs. As the father of Self-Actualization, Abraham Maslow, would say, “They must become all that they must be!”
Humility is a key quality and component of their character. They’re not driven by their egos and they don’t care a hoot about becoming arrogant. They like achieving abundance and success, but they’re not compelled by an insatiable appetite for wealth and power. With their humility comes a sense of altruism and a desire to know they are making a positive contribution to society. They derive great satisfaction in serving the needs of their clients and residents. They strive for excellence without being perfectionists. Perfectionism will drive you to distraction! Wanting to be their “personal best” and to challenge themselves away from mediocrity and complacency describes these high achievers. They learn from their results.
Rental Housing Journal Arizona · May 2017
To gain more understanding about the qualities and characteristics of outstanding property managers, I encourage you to read a book (or listen to the audio version) like “Good to Great” by author Jim Collins. Property Managers are in many ways similar to companies and corporations. Why do some stay stuck, implode or wither why others “make the leap” from being good to becoming great. “How can good companies, mediocre companies, even bad companies achieve enduring greatness?” When that question is answered, it can almost always be applied to individuals and partnerships. “For years, this question preyed on the mind of Jim Collins. Are there
companies that defy gravity and convert long-term mediocrity or worse into long-term superiority? And if so, what are the universal distinguishing characteristics that cause a company to [become] great?” After an intensive 5 year study Collins and his team of researchers found some amazing similarities. Those in the property management industry can benefit from insights and ideas that articles like this one or a book like “Good to Great” offers. Knowledge and awareness will provide the power and the “fuel” to help propel you to the next level of personal growth and rewarding achievements.
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Rental Housing Journal Arizona
Bedbugs Still a Risk
Here’s how to eradicate the problem before an infestation takes hold • When moving from place to place, bedbugs will defecate and leave behind small, rust-colored ink stains that can be seen with the naked eye. Look closely for these marks when conducting an inspection.
By Hope Bowman
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edbugs are flat and round, but very tiny. Adults are about 2 millimeters to 3 millimeters in length and brown in color, but they can appear reddish if they’ve fed recently. Bedbugs are a growing issue in the United States and are showing no signs of slowing down. When you consider that the insects were practically nonexistent 20 to 30 years ago, it’s even more shocking to see where we are today. In 2015, the National Pest Management Association (NPMA) conducted a survey of pest management professionals that found that 99.6% of pest professionals had treated for bedbugs in the past year. While this staggering figure speaks for itself in terms of the prevalence of bedbugs, the survey also looked at where pest professionals are most likely to find the bugs. Not surprisingly, apartments and condominiums ranked at the top of the list. Beating out single-family homes and hotels/motels on the list, apartments and condominiums, unfortunately, make great homes for bedbugs because of the insects’ behaviors, habits, and preferences.
• Generally nocturnal in nature, bedbugs usually feed at night once they sense a host is asleep. This makes it tough to prevent bites, but if you wake up with small red bumps on your skin, it might be time to call in a professional. Why They Like Us Bedbugs are considered a “human” pest because they’re attracted to the heat that emanates from our bodies, our natural body odors, and the carbon dioxide we emit. They feed on our blood primarily, although they will feed on any warm-blooded host. That said, bedbugs can most often be found in areas where humans are present. These bloodsuckers are one of the pest world’s best hitchhikers. Even though they seek our body heat when it’s time to feed, the bugs don’t like to remain on our bodies for long periods of time. Instead, they prefer to hide out on our clothes or in our luggage, traveling from place to place before settling into a new home.
As a result, bedbugs are tough to detect. It’s almost inevitable they’ll find their way into one of your buildings over time, and once inside, they can move from unit to unit. And they can live for up to a year without a meal, so they’re not going to disappear on their own. That’s why the key to helping mitigate the chances of a bedbug infestation is to conduct regular, proactive inspections and contact a pest management professional as soon as you suspect bedbugs may be present. This can be difficult in multifamily buildings because it requires residents to conduct inspections on their own. However, most pest management companies will be more than happy to have a professional come out and conduct an educational program for residents and staff. How to Detect the Presence of Bedbugs Some easy steps can help residents detect signs of bedbugs: • Cracks and crevices around beds and other resting areas are the most likely places to find bedbugs. This means mattress seams, sheets, and furniture are all likely locations for bedbugs. Make sure to check these spots on a weekly basis. • Bedbugs are flat and round, but very tiny. Adults are about 2 millimeters to 3 millimeters in length and brown in color, but they can appear reddish if they’ve fed recently. Remove any bedbugs you find immediately.
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• If bedbugs are reproducing, you may be able to find clear skin casings lying around from developing nymphs. You might also smell a musty, sweet odor. If you discover these signs, don’t try to resolve the issue on your own, as the indicators show that bedbugs are already reproducing in your building. • Whatever you do, don’t bring in secondhand furniture. Often, there are bedbugs already living on such pieces that will be happy to have a new home—your units. Once you suspect signs of bedbugs, it’s important to take action immediately. There are a few different options for treating them, but the recommended technique differs depending on the exact needs and circumstances of your building. The upper echelon of bedbug detection, however, comes in the form of a canine inspection. Because dogs have an incredibly keen sense of smell, when trained they can accurately point their handlers to the areas where bedbugs are present. Indeed, dogs are the fastest and most accurate detectors of bedbugs. Although bedbugs can certainly be a risk to the reputation of your business, being aware of the potential signs and actively working to spot them—and resolve issues proactively—can make a world of difference. www.propertymanager.com
Rental Housing Journal Arizona · May 2017
Rental Housing Journal Arizona
Spring Cleaning Tips and Tricks for Homeowners tures a comprehensive info-graphic on how to live like a minimalist and achieve an organized, clutter-free home with tips such as borrowing instead of buying one-time use items. These suggestions can help homeowners save money and decrease clutter.
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t is springtime: the time to open the windows, let in some fresh air and clean the house from top to bottom. This month's The Best, NoSweat Ways to Spring Clean Your Home spotlight from Houselogic.com, the comprehensive website for homeowners from the National Association of Realtors®, features six articles helping homeowners get and keep their homes clean. Here are a few tips from House Logic on how to freshen up a home this spring as quickly, simply and cheaply as possible.
homeowners miss. House Logic asked a cleaning expert to share the top seven spots that often go uncleaned, such as the refrigerator ice maker to keep it from absorbing food odors. How to Achieve am Minimalist Home. This month's spotlight also fea-
For more information on making a home spick and span, visit HouseLogic.com. HouseLogic is a free source of information that helps consumers make smart, confident decisions about all aspects of home ownership. Made possible by Realtors®, the site helps owners get the most value and enjoyment from their existing home and helps buyers and sellers make the best deal possible.
The National Association of Realtors®, "The Voice for Real Estate," is America's largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries. Information about NAR is available at www.nar.realtor. This and other news releases are posted in the "News, Blogs and Videos" tab on the website. Media Communications For further information contact: Jane Dollinger, 202/383-1042 jdollinger@realtors.org SOURCE National Association of Realtors
Minimalist Home Counter Tops You Can't Detect These 4 Odors, But Your Guests Can. When a smell is a constant presence in a home, it is easy to become 'nose-blind' to it, but that doesn't mean visitors won't have their olfactory senses offended by any unpleasant scents to which the homeowner has become accustomed. Look at HouseLogic's suggestions for eliminating some of the most common smelly offenders, including using an onion to deodorize a musty room. 8 Storage Tips to Help You Clean Better, Clean Faster. For many homeowners, cleaning the house – the WHOLE house – is a bit of a drag and usually takes much longer than expected. However, with the proper organization, the job can be done quickly and with minimal headaches. Check out House Logic's tips for organizing cleaning supplies, including using a shoe caddy as a cheap, convenient way to store products out of sight behind a door. 10 Clever Uses for Hydrogen Peroxide. Hydrogen peroxide is cheap, non-toxic and the Swiss Army knife of cleaning supplies. House Logic lays out just 10 of the many cleaning uses for H2O2, including spraying a hydrogen peroxide-water mixture on plants to ward off fungus. 8 Tips and Tricks to Keep Your Home Cleaner Longer. How can homeowners make their spring-cleaning efforts last into summer and fall? By following House Logic's list of tips to keep a home clean with less effort and with less frequency, such as using rain repellent designed for cars to eliminate soap scum buildup in the shower. The Dirty Places in Your Home Your Guests See – But You Don't. Sometimes a home's harshest critics are not the ones who live there. Guests look at a home with fresh eyes and often notice the dust bunnies and cobwebs that
Rental Housing Journal Arizona · May 2017
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Rental Housing Journal Arizona
Elevated Housing Prices Invigorate ...continued from page 1 imbursements, are causing a shift in the skilled nursing segment. Some facilities are choosing to focus on short-term, post-acute care patients instead of serving long-stay, custodial- care residents in an effort to improve profit margins. Investment Highlights • REITs are focused on assisted and independent living properties, while restructuring portfolios by selling off skilled nursing centers. Rising inter-est rates, however, could put up-ward pressure on cap rates, which average in the 7 percent to mid-8 percent range. • Memory care facilities are generating significant interest from private buyers, and initial yields for these assets range from 7 percent to 8 percent. • Private capital accounts for the largest share of skilled nursing transaction velocity. Unleveraged returns for skilled nursing p 2017 Seniors Housing Market Highlights Independent Living (IL): Occupancy up 10 basis points Occupancy at IL centers will rise 10 basis points this year to 91.8 percent as healthy demand for units persists in the wake of elevated construction. In addition, rent growth remains steady, rising 3.0 percent annually to $3,109 per month. Assisted Living (AL):
Occupancy down 40 basis points Mounting completions put additional downward pressure on stabilized occupancy this year despite healthy demand, and the occupancy rate falls 40 basis points to 89.3 percent by year-end. The average monthly rent will climb at a healthy clip, rising 3.1 percent to $4,601 per month. Skilled Nursing (SN): Occupancy down 40 basis points Occupancy at skilled nursing facilities will continue to dip despite units coming out of service, reaching 86.4 percent by year-end, a decline of 40 basis points. This dip will have little effect on rent growth and the average daily rate will rise 2.0 percent to $308 per bed per day. Continuing Care Retirement Communities (CCRCs): Occupancy up 30 basis points The national stabilized occupancy rate at CCRC centers continues to rise this year, reaching 91.1 percent by year-end on a 20-basis-point annual increase. The average monthly rent will also advance, climbing 2.7 percent year over year to $3,189 per month in 2017. Independent Living Facilities • After rising consistently for five straight years, stabilized occupancy held fi rm in 2016, resting at 91.7 percent in the fourth quarter and remaining near its previous peak of 92 percent set in early 2008. Demand for IL units is strong with ab-
sorption rising from 2015 as more than 7,500 units were filled. • Majority IL inventory growth reached a seven-year peak during 2016 as developers brought nearly 9,400 units online. Completions during the year were well above the average annual deliveries during the span but remained below pre-recession levels. More than 19,000 IL units were under construction at the end of last year, suggesting that deliveries will remain elevated. • Rent growth at IL units strengthened last year as occupancy continued to remain near peak levels. A 3.4 percent advance pushed up the average to $3,017 per month. Strong demand for units in spite of rising deliveries over the past few years has facilitated a healthy pace of rent growth across the IL segment, a trend that will persist through the remainder of this year. • IL property sales declined by nearly half during the last year, largely due to a reduction in the number of portfolio deals occurring compared with the prior year. The average price per unit held relatively fi rm, however, at $188,900, and first-year returns normalized in the low-7 percent area. Outlook: Strong demand persists, though construction remains elevated in the IL sector this year, and the stabilized occupancy rate will end the year at 91.8 percent, up 10 basis points from 2016. This will encourage a healthy pace of rent growth in the months to come, and the average will rise 3.0 percent year over year to $3,109 per month. Assisted Living Facilities • Supply additions outweighed demand over the past year as 11,050 AL units were filled, and occupancy fell below 90 percent for the first time since 2011. In 2016, occupancy declined 70 basis points year over year to 89.7 percent. With construction remaining elevated, occupancy is likely to retreat further this year. • The completion of nearly 17,700 majority AL units during 2016 reached the highest level of deliveries in seven years. Approximately 30,300 units were underway at the beginning of 2017, down slightly from the previous year. AL development makes up the bulk of seniors housing construction.
• Rent growth for AL units continued to strengthen last year, advancing 3.5 percent annually to $4,464 per month. The gain in the average was the healthiest in the last eight years. • AL properties built since 1990 remain in the highest demand, accounting for approximately 65 percent of trades during 2016. While investors continue to heavily target Southern and coastal markets, Midwestern states such as Kansas and Wisconsin are capturing a larger share of buyers. Last year, AL properties changed hands for an average $158,600 per unit, with initial yields in the low-8 percent area. Outlook: Occupancy will stay relatively in line with levels over the previous 10 years, though supply-side pressure remains a concern for AL operators. This year, the rate will fall 40 basis points to 89.3 percent, and strong absorption trends will encourage rent growth to remain healthy, pushing up the average 3.1 percent to $4,601 per
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Rental Housing Journal Arizona · May 2017
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Elevated Housing Prices Invigorate ...continued from page 6 Skilled Nursing Facilities • Stabilized occupancy at majority SN centers fell 60 basis points during the last year to 86.8 percent, reaching an eight-year low. Occupancy is trending downward due to many factors, including changes in the care delivery model and reimbursements, though beds continue to be removed from inventory. • Majority SN inventory declined again in 2016 as approximately 600 beds were removed from inventory. In the previous year, SN stock fell by more than 1,000 beds, continuing a trend that has persisted for the past few years. The construction pipeline thinned significantly over 2016, with 4,900 SN beds underway at the end of the fourth quarter, compared with 8,300 beds one year ago. • The average daily rate at SN facilities continued to rise last year, largely due to the increasing cost of medical care. During 2016, the average topped $300 per bed per day for the first time after climbing 2.4 percent. This was a slowdown from 2014 and 2015 when the average advanced 2.9 percent and 3.1 percent, respectively.
• Price appreciation for SN facilities in many Southern, Northeastern and Midwestern states contributed to a healthy gain in the average price per bed last year, which reached $91,600, the highest level in five years. The average cap rate for SN assets hovered in the mid-9 percent area during 2016, remaining compressed when compared with prior years. Outlook: In 2017, occupancy will fall 40 basis points to 86.4 percent despite the removal of additional units from service. Rent growth remains healthy, with the average rising 2.0 percent to $308 per bed per day this year. Continuing Care Retirement Communities • CCRC occupancy has hovered between 90 percent and 91 percent for the past two years, ticking down 10 basis points in the last 12 months to 90.9 percent. As the number of units underway continues to diminish, occupancy should remain elevated through 2017. • Inventory of CCRC units grew by nearly 3,900 during 2016, the highest level of completions since 2009. The construction pipeline
has thinned over the last two years, with the number of units underway peaking at the end of 2015. Currently 5,800 units are underway, suggesting that deliveries will temper this year. • After rising steadily for the past few years, rent growth for CCRC units strengthened. The average rent advanced 3.3 percent to $3,104 per month. Approximately half of all CCRCs require entrance fees, which averaged near $314,000 during 2016. • Nearly 50 percent of all CCRC properties trading during the last 12 months were built before 1990, and the sale of older facilities is reflected in the average price per unit. In 2016, the price averaged $107,800 per unit, down 25 percent from the peak achieved in 2014 when the bulk of trades were newer construction properties. Cap rates averaged in the low- to mid-7 percent area last year. Outlook: Occupancy at CCRCs will rise 20 basis points this year to 91.1 percent as demand remains strong and completions taper slightly. This encourages rent to grow at 2.7 percent to $3,189 per month by year-end.
Seniors Housing Units Under Construction in 2017 Number of Units (Number of States)
Accelerating Home Prices Unlock Demand for Seniors Housing Homeownership among the 75 and older age segment nears decade low. Following the Great Recession, single-family home prices fell nearly 30 percent, keeping many seniors from cashing out home equity and funding their transition into seniors housing. For those older than age 75, homeownership peaked at more than 80 percent in early 2013 as households extended stays and waited for the market to rebound. As single-family home prices have surpassed their prior peak over the last few years, the homeownership rate for this age segment has fallen closer to the long-term average of 75 percent, suggesting that many seniors are taking advantage of appreciated home values by selling and moving into seniors housing communities. Sales of homes help seniors
cover long-term-care costs. IL communities, in particular, are heavily reliant on private-pay residents, meaning seniors and their families must foot the bill to reside in the facility. Private pay is also the most common form of payment among long-termcare patients in all segments of seniors housing, and in many cases, it may be the only option available. The return of home prices to previous levels has allowed seniors to take advantage of untapped equity to help fund stays in senior care facilities, helping to mitigate the housing-related costs not covered by Medicare and Medicaid. The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Sources: Marcus & Millichap Research Services; American Health
Rental Housing Journal Arizona · May 2017
Care Association; American Legislative Exchange Council; American Retirement Corp.; American Seniors Housing Association; Assisted Living Federation of America; BLS; Capital Senior Living Corp.; CoStar Group, Inc.; Council for Affordable Health Insurance; Eli Research; Economy. com; Irving Levin Associates, Inc.; NIC Map Data and Analysis Service (www. nicmap.org); Real Capital Analytics; TWR; Ziegler Capital Markets Group. National Seniors Housing Group Al Pontius Senior Vice President, National Director Specialty Divisions Tel: (203) 672-3300 | al.pontius@ marcusmillichap.com 750 Battery Street, Fifth Floor San Francisco, California 94111 Prepared and edited by Jessica Hill Market Analyst | Research Services For information on national seniors housing trends, contact: John Chang
First Vice President | Research Services Tel: (602) 687-6700 | john.chang@ marcusmillichap.com © Marcus & Millichap 2017| www. MarcusMillichap.com
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Rental Housing Journal Arizona
Manufacture Housing ...continued from page 1 ve-star, age-restricted Manufactured Housing Communities, boosting interest in other sites. Fierce competition for communities with 100 spaces or more heats up due to limited supply on the market. Meanwhile, a number of investors are developing solutions to continue purchasing properties with fewer than 100 spaces. Upgrading existing park infrastructure in older properties and adding popular amenities can produce dramatic upside. Additional measures, such as more efficient property management, allow cap rates for traded communities to compress further, particularly in key coastal markets. Yet, a new trend is emerging in inland markets, where dramatic improvement in vacancies and rents provide a stronger potential for NOI growth. Investors seeking higher initial yields increasingly target the Midwest, where returns are generally 100 to 500 basis points above coastal communities depending on quality and location. After years of overlooking these markets, some inves-
tors target the larger pool of listings in this part of the country amid improving fundamentals. Overall, yields will remain tight with value-add locations in a variety of markets showing potential for cap rate compression nationwide but at a more moderate pace than in prior years.
East Region Mid-Atlantic Trends Vacancy: Home price growth is maintained as employers expanded staffing levels in this subregion of the East Coast. This dynamic supported a 270-basis- point drop in vacancy in 2016 to an average of 7.3 percent. This is the third-lowest rate among subregions. Rents: Tenant demand boosted rent in Baltimore to $607 per month, elevating the Mid-Atlantic average to $367
per month. Raleigh rents averaged $393. Northeast Trends Vacancy: A 100-basis-point compression left vacancy at 8.3 percent in 2016. This is 250 basis points below the 2010 level. The rate is particularly low in Long Island at 2.6 percent. New Hampshire posted the second-lowest vacancy for the Northeast subregion at 4.4 percent. Rents: The average monthly rent remains at $457 per month. Long Island
2017 Manufactured Housing Outlook by Region East: Tight supply and rising demand in the market will tighten vacancy in many areas. Growing demand and a 150-basis-point drop in vacancy last year foreshadows further improvement this year. Strengthening will be led by sub-8 percent vacancy in the Mid-Atlantic subregion, where rents will be maintained or grow slowly due to small, older properties being filled. Midwest: Higher initial returns and a greater number of listings draw buyers from other regions. A market need for quality communities supported a large
compression in vacancy, while rents increased at a fast pace. Initial yields are also above coastal metros, providing opportunities for investors seeking higher returns and value-add options, further elevating buyers’ interest. South: Buyers will bid aggressively for quality properties, while value-add options will be sought. Tied with the East for the second-lowest vacancy rate among regions, Southern markets also had the strongest rent growth. Average rents are above $550 per month in coastal Florida markets, while some Texas markets such as Austin inch closer to the $500 per month mark. West: Tight cap rates will make some buyers shift to smaller assets where amenities can be added. Rising demand for manufactured housing communities pushed vacancy to the lowest rate among the four regions at 6.5 percent. Strong fundamentals attract investors. Cap rates will remain tight along the coast, which already offers some of the
posted monthly rents above $500 on average. East Sales Trends Cap Rates: Demand for assets in the Mid-Atlantic rose rapidly and cap rates compressed in step. Urban assets trade in the 5 to 6 percent range, while rural properties exchange in the 10 to 15 percent area. Northeast cap rate spreads compressed as more smaller properties changed hands. Prices: Sales shifted from the Northeast to the Mid-Atlantic in 2016 to parks with fewer lots. As some of these smaller properties sold, the average price per unit ticked slightly lower in the shortterm to $27,300. Midwest Region East North Central Trends Vacancy: The need for manufactured housing communities spaces expanded in 2016, pushing vacancy 150 basis points lower to 21 percent, below the five-year trend. Rents: Rent advanced 2.2 percent, the largest increase in the past seven years, to an average of $378 per month. Monthly rents rest above $400 in the Michigan markets of Ann Arbor, Detroit and Grand Rapids.
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West North Central Trends Vacancy: The subregion’s vacancy rate plummeted 200 basis points to 14.6 percent, the lowest rate since 2009 for the area. Vacancy was tightest in Minneapolis at 8.8 percent. Rents: Average rent grew 2.6 percent annually to $395 per month. This follows a 2.9 percent gain in the prior year. Midwest Sales Trends Cap Rates: Cap rates rose, ranging from 6 to 15 percent, as investors targeted a wider array of properties, boosting transactions 50 percent. Prices: Strong yields drew buyers into a variety of locations across the quality spectrum, pushing pricing up 11.4 percent annually to $25,500 per unit.
Rental Housing Journal Arizona ¡ May 2017
Rental Housing Journal Arizona
South Region Southeast Trends Vacancy: A need for rental space in manufactured home communities placed vacancy 50 basis points lower to 8.3 percent. Florida markets along the Southeastern coast maintain tight rates in the 4 to 6 percent range. Rents: Annual rent gains of 3.7 percent pushed average rent to $479 per month, the largest increase since 2009. Rents in Sarasota’s Manatee County rose 9 percent. Southwest Trends Vacancy: Robust job increases in the Southwest subregion supported a 220-basis-point fall in vacancy. Vacancy rested at 6.2 percent at the end of 2016, the second-lowest level among all subregions. Shifts in the energy sector have positively impacted this rate. Rents: Average rent added 5.1 percent, the biggest improvement among subregions, to $413 per month. Denton, Texas, grew the most at 6.6 percent. South Sales Trends Cap Rates: Accounting for a large Metro Performance Metro
Vacancy
Seattle Long Island Salt Lake City Denver Sarasota Miami Houston Albuquerque Phoenix Raleigh Tampa-St. Petersburg Fort Worth Orlando Minneapolis-St. Paul Ann Arbor San Antonio Cleveland Las Vegas Cincinnati Atlanta Toledo
2.0% 2.6% 2.8% 4.0% 3.8% 4.5% 4.9% 6.2% 7.0% 7.1% 7.2% 8.1% 8.6% 8.8% 9.4% 9.9% 10.3% 15.1% 17.7% 20.3% 20.3%
share of trades, investors in the Southern region sought smaller assets with a strong opportunity to renovate. Cap rates for all-age parks range from 8 to 10 percent, with smaller senior communities garnering 7 percent. Prime coastal properties in Florida can exchange at initial yields near 5 percent. Assets in Texas can range up to 15 percent yields. Prices: The number of trades grew by 38 percent and accounted for a large portion of deals nationwide. Investor demand for a variety of properties pushed the price per unit up 5.1 percent to $28,700 last year. West Region Mountain Trends Vacancy: The Mountain subregion’s vacancy rate fell 240 basis points to 7.5 percent last year. The Denver market posted a dramatic 370-basis-point decline to end vacancy at 4.0 percent last year. Rents: Monthly rent grew 2.8 percent to $509, marking a ninth consecutive year of gains. The largest subregion gain
Y-O-Y Basis Point Change -100 0 -200 -400 -100 -100 -100 -100 -200 -100 0 -300 0 -100 -300 -400 -100 -300 -200 0 100
Average Rents
Y-O-Y % Change
$619 $652 $520 $626 $529 $566 $348 $425 $502 $393 $452 $423 $456 $407 $454 $380 $339 $559 $336 $434 $365
3.1% 3.5% 4.2% -1.1% 6.2% 0.1% 4.8% 1.4% 3.1% -2.0% 3.2% 6.0% 1.8% 2.8% 1.3% 3.7% 2.1% 2.2% 0.9% 0.0% 2.8%
was in Salt Lake City at 9.5 percent. Pacific Trends^ Vacancy: The lowest vacancy among subregions was recorded in the Pacific, where the rate tightened 60 basis points to 2.9 percent. Vacancy was particularly tight in markets in Oregon and Washington, near 2 percent. Rents: Rent advanced 3.3 percent to $527 per month, with gains above 10 percent in Salem and in the Seattle market, which had the highest rent of $619. West Sales Trends Cap Rates: Most trades occurred in the West. Properties in key areas can trade at 4 percent cap rates, while smaller assets can yield between 7 and 15 percent, including park-owned homes/ notes as part of returns. Prices: Pricing inched 2.9 percent lower to $42,500 per unit as buyers moved down the quality spectrum, trending higher in coastal markets. Manufactured Home Communities Group Michael L. Glass First Vice President | National Director Tel: (216) 264-2000 | michael.glass@marcusmillichap.com Prepared and edited by Mridul Nanda Research Analyst | Research Services For information on national manufactured housing trends, contact: John Chang First Vice President | Research Services Tel: (602) 687-6700 | john.chang@marcusmillichap.com Price: $250 © Marcus & Millichap 2017 | www.MarcusMillichap.com The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Sources: Marcus & Millichap Research Services; Datacomp-JLT; CoStar Group, Inc.; Institute for Building Technology and Safety; U.S. Census Bureau.
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Rental Housing Journal Arizona
DEAR MAINTENANCE MEN: Bids, Destroying Perfect Tiles & Coffee Grounds
By Jerry L’Ecuyer & Frank Alvarez Dear Maintenance Men: We are getting bids for the driveway of an apartment house. Each contractor has his own opinion about the scope of work. It becomes confusing. Anne Dear Anne, “Apples and Oranges” bids are very common and not unique to the asphalt trade. Every contractor has different materials and suppliers which they are not only familiar with, but experienced in the application. As with any profession, a diagnosis, procedure, product and cure may vary. This is why a second opinion is always encouraged or necessary. We too often consider the” three bid” rule as a tool to compare pricing and do not delve deeper into quality, workmanship, application, or other specification which can dramatically increase or decrease the costs related to our repairs. It is best to develop a scope of work, with drawings which identify in detail the following, (this will ensure all other contractors are bidding on the same scope).
formed to ensure the contractor is adhering to the contracted specifications. (Ask that a supervisor is always on site). • 8. Scrutinize the lowest bid very carefully. • 9. Require all other industry standard practices, insurance, contract language be in the agreement. • 10. Visit the www.cslb.gov for additional tips on how to protect yourself.
• 1. Areas to be covered, replaced, repaired in square feet and outlined in site plan. • 2. Clearly identified type and quantity of asphalt mix, slurry, sealer. This is very important as most asphalt is recycled and diminishes in quality. • 3. Which equipment will be used to address repairs and distribution of
• 6. Look for proper compacted thickness according to load. (Example: 2.5 “of laid asphalt and then compacted 2” by roller.)
Dear Maintenance Men: I am having a dilemma; one of my downstairs units has a major plumbing problem. According to the plumber, the tub/shower drain beyond the trap is rotted and needs to be replaced. The plumber says the tub must be removed to complete the repairs. I’m afraid to approve the bid due to not only the cost and inconvenience to my resident, but my shower wall tile is in perfect condition. What are some of the steps to make sure this ‘rotted’ pipe is the issue before I give the plumber the OK?
• 7. Monitor all work being per-
continued on page 11
materials (compaction and heavy rolling equipment is key). • 4. Communicate your long term or short term expectations. • 5. Ask that the application warrants against “pooling or “ponding”
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Rental Housing Journal Arizona · May 2017
Rental Housing Journal Arizona
Ask Landlord Hank
What Is Your #1 Maintenance Request From Tenants? My #1 most frequent maintenance request concerns air conditioning, since we live in the South. And while we get a lot of calls about air conditioning units, I would estimate “operator error” is responsible for 25 percent of those calls. So what do you do when you, as the landlord receive, a call from a tenant saying my AC is not working? Call your AC repair company immediately? The landlord here in the South should realize this is a high priority problem as high heat and high humidity can result in injury or even death particularly for the elderly. Can we think for a minute and save a service call? Let's think for a minute and see if we can solve this problem more efficiently than calling an AC tech to come right over. Let’s identify the problem exactly if we can, by asking the right questions. You don't have to know how to repair an air conditioner to have an understanding of how they work and what may be causing the problem once we identify the issue. So a general statement of "My AC is not working" doesn't really explain anything we need to know to get to the root of the problem. Let's ask our tenant some questions. • Is air flow coming through the ducts and is the air warm?
Let's check the main circuit breaker panel and make sure all breakers are in the "on" position. Have tenant flip all breakers off and then back on listening for the click that indicates breaker switch is in correct position. • Is the outside condensing unit running? If not, there should be a breaker associated with this unit and we need to make sure it is on and condensing unit is working. • Is there a "Humidistat" tied into the system? Is it on? • If yes, we know at least the air handler or part of the system inside the home is functioning. If not, the air handler is not moving air. Why not? • Is the thermostat working? Can you see a temperature in the "window" on the thermostat? If this is not working, it could mean the thermostat has batteries that need replacing. If the thermostat has batteries and they are replaced are we back in business? If yes, you've saved yours elf a service call. • If not, it could mean that the condensation line, which takes built up water away from the unit, is blocked up and not draining. Newer units,
to keep from leaking water outside the unit, will shut the unit off until it can drain properly. The drain pan is attached to pipes at bottom of the unit beneath the filter. If you remove the filter, you should be able to see if the water level in the pan is significant. An AC tech will need to clear the drain, normally by blowing the debris out of the condensation drain line. If you put four ounces of bleach into the drain line during periods of usage it can prevent mold and mildew build up in condensation drain line. • Ask tenant next if the issue came on slowly or was the unit working one minute and then it wasn't?
• When was the AC filter changed last? If the filter is clogged with debris air flow will be drastically reduced. So to summarize, we need to make sure all parts of the system are receiving electricity and working. This includes the thermostat, air handler and condensing unit. We need to make sure filter is clean, humidistat is turned on and that the condensation line is removing water from air handler. I usually tell the tenant that a little checking on their part could save them a hot day and get their life running smoothly again QUICKLY!
Dear Maintenance Men ...continued from page 10 Joan Dear Joan: Most likely the tub may be compromised as well as the drain pipe. Most tubs have access behind them for pipe repair. You may want to get a second opinion as this is a major job. The shower tile is most times the “ouch” factor in a tub replacement. It is hard to see perfectly good tile go to waste. As a matter of fact, removing a tub is always a big job and we don’t blame you for being hesitant. We recommend doing a rooter service first. If the pipe is rotted or broken, evidence of mud or other debris might stick to the snake. Next, using a camera snake, you might be able to see the break and confirm the plumber’s diagnosis. The snake and camera will give you a good idea of the direction, distance and location of the break. This will come in handy when it comes time to make holes in your concrete. (The less holes the better!) Some ‘telltale’ signs your line is broken, corroded or worn through form the bottom: • 1. The tip and cable of the ‘snake’ rooter line is clogged with mud,
(Black sludge is normal in older lines) • 2. The rooter cable cannot break loose the clog. (The cable tip may have found the hole in the pipe and is busy digging a tunnel in the dirt.) • 3. The clog returns time and time again. • 4. Waste water is found at the interior or exterior of the unit. With regards to your shower wall tile, simply cut the first two tile courses above the tub. You can break the tile along a natural grout line or use a ceramic tile saw to cut through the tile. After the tub is removed and reinstalled. Replace any of the drywall behind the tile with ‘HardieBacker cement board material and install the missing tile and grout to match. Dear Maintenance Men: I am updating my resident move-in letter about the proper usage of the appliances in the unit and I have a question about coffee grounds. I have always heard it is bad to put coffee grounds down the garbage disposal unit, but don’t know why? The grounds are finely ground and should pass through the dis-
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Rental Housing Journal Arizona · May 2017
posal with no problem, so why are coffee grounds bad? Robert Dear Robert: The problem with coffee grounds is most people just dump the contents of the coffee machine into the drain and don’t use enough water to wash it away. What happens with the coffee grounds, especially with back-to-back drains, is that the coffee grounds tend to pile up in the pipe as it goes through the wall. Over time it will pack the pipe completely. The garbage disposal does not have trouble with the grounds themselves; it’s what happens after they leave the disposal. Again, if the coffee grounds are fed slowly into the disposal with plenty of water running, the grounds will disperse and not compact in the drain line. Unfortunately, we find most residents are not really patient enough and just dump the grounds and go. Bio: If you need maintenance work or consultation for your building or project, please feel free to contact us. We are available throughout Southern
We can help!
California. For an appointment please call Buffalo Maintenance, Inc. at 714 956-8371 Frank Alvarez is licensed contractor and the Operations Director and co-owner of Buffalo Maintenance, Inc. He has been involved with apartment maintenance & construction for over 20 years. He is also a lecturer & educational instructor and Co-Chair of the Education Committee of the Apartment Association of Orange County. Frank can be reached at (714) 956-8371 Frankie@BuffaloMaintenance.com For more info please go to: www.BuffaloMaintenance.com Jerry L'Ecuyer is a licensed contractor & real estate broker. He is currently on the Board of Directors and Past President and past Chairman of the Education Committee of the Apartment Association of Orange County. Jerry has been involved with apartments as a professional since 1988.
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Rental Housing Journal Arizona
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Rental Housing Journal Arizona ¡ May 2017