The Landlord Times -Colorado - June 2013 by Professional Publishing, Inc

Professional Publishing, Inc

Vol. Issue 6

www.TheLandlordTimes.com

June 2013

COLORADO

DENVER METRO • COLORADO SPRINGS • BOULDER

Monthly CirCulation to More than 7,000 apartMent owners, property Managers, on-site & MaintenanCe personnel

Energy Firms Drive Competition in Denver Commercial Real Estate

6 Questions with Joseph Chaplik

Boom Towns: Energy Industry Triggers Heated Competition for Prime Real Estate

The Landlord Times and Apartment News sat down with veteran apartment broker and investor, Joseph Chaplik to discuss Arizona, Oregon and the state of the apartment investment market.

Growth in the domestic energy industry is expected to create more than 3.5 million American jobs by 2035, including 700,000 in the next two years alone*. The same industry growth creating jobs is also driving heated competition for prime real estate - predominantly in a handful of cities where the oil and gas industry is booming. New research from Jones Lang LaSalle (JLL) indicates that the majority of commercial real estate opportunities resulting from this job growth will be concentrated in the following North American cities: Calgary, Dallas, Denver, Houston, Philadelphia and Pittsburgh. In the firm's inaugural Energy Outlook Report, these cities are characterized as benefitting from up to three quarters of the anticipated 3.5 million new energy jobs directly correlating with nearby rural areas experiencing a rise in energy activity. Notably, the remaining 875,000 jobs are anticipated in other regions, including financial centers such as New York City and Continued on page 3

THE LANDLORD TIMES: Give us a brief history of your career. How did you get into the apartment brokerage business?

List of Improving Housing Markets Rises to 263 Metros in June The number of U.S. housing markets on the mend rose by five to a total of 263 in June, according to the National Association of Home Builders/First American Improving Markets Index (IMI), released today. The list includes entrants from 49 states and the District of Columbia. The IMI identifies metropolitan areas that have shown improvement from their respective troughs in housing permits, employment and house prices for at least six consecutive months. Twenty-nine new markets were added to the list while 24 others were dropped from it this month. New entrants included such geographically diverse metros as Salinas, Calif.; Sioux City, Iowa; Chicago, Ill.; Topeka, Kan.; Baton Professional Publishing, Inc PO Box 30327 Portland, OR 97294-3327

Rouge, La.; Laredo, Texas; and Philadelphia, Pa. “This is the fifth consecutive month in which the IMI has designated more than 70 percent of U.S. metros as improving,” observed NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. “While that’s a good sign that the housing recovery is on solid footing, we know that various challenges are slowing its progress – including continuing issues with credit availability for builders and buyers, as well as appraisals that aren’t keeping up with the rising cost of construction.” “As market conditions improve across most of the country, some metros have moved onto the IMI list while marginal seasonal fluctuations

Current Resident or

have nudged others off of it,” noted NAHB Chief Economist David Crowe. “This is to be expected as the recovery expands. Meanwhile, it’s worth noting that the number of improving markets is now more than three times what it was in June 2012.” “The continued strength of the IMI is an indicator of the ongoing, positive momentum in housing markets nationwide as consumers move to take advantage of historically favorable interest rates and affordable home prices,” added Kurt Pfotenhauer, vice chairman of First American Title Insurance Company. The IMI is designed to track housing markets throughout the country Continued on page 3

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JOSEPH CHAPLIK: Previously I was a Vice President of a telecommunication company and started buying apartments when I relocated to Portland. The level of professionalism by the other brokers was not impressive, so I decided to start my own company. I wanted to provide a higher level of professionalism, integrity and service to the apartment investors, which I thought they deserved. Today we represent close to 1/3 of the transactions; more and more clients have been gravitating to our company for our quality care. TL: You now serve four markets... give a brief state-of-the union on multifamily real estate in your new market, Phoenix, AZ. JC: We just opened our newest office in the Phoenix market this year and have been making great progress. The cap rates are around 7% and higher for the B and C quality buildings and locations. The price per unit is significantly lower than other markets, and the vacancy rates are moderate around 6-8%. For the individual experienced investor, this market has tremendous upside in value with purchasing a rougher property and transforming it into a stable building. TL: How about Portland? What is your forecast for the next couple years? JC: We have been operating in Portland for 9 years and the market is strong. Investors have a high demand for rental properties and there is a low supply of buildings. This situation should remain the same well into 2015, and rents should be increasing annually. Vacancy rates are historically low in this area, around 3.5%. Get Social With The Landlord Times

COLORADO

6 Questions ...continued from front page Portland and Salem are great areas for apartment ownership due to this dynamic. What we are currently seeing is developers building new class A apartments with high rents. As the new projects complete, the market will dilute with the renting demand. In select markets, apartment investing will still be a solid choice with good returns. As new projects complete and demand higher rents, the class B and C properties will demand increases in rents as well.

JC: My advice is to make sure that you ask the right questions of anyone that you choose to work with. Ensure that they have experience and are experts in the multifamily industry. Buyers buy on returns and sellers sell on price. However,ARIZONA if you are a VALLEY, METRO, seller, be realistic with the sale price. If you are told your property is worth an extremely high price and are offered lower commission than usual, the broker is probably desperate for deals. Beware of this tactic, and get a second opinion. Brokers often try to TL: If youJan, could give a couple buy Sep, listings by over-pricing the propMar, May,of Jul, Nov, key pieces of fundamental advice to erty, which only hurts the seller with new or prospective apartment inves- lost time and a negative marketing tors, what would they be? impact.

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TL: What advice would you give veteran investors?

TL: What advice would you give to prospective sellers to ready their properties (physically and/or financially) for sale? JC: The best advice I can give is to attend our seminars on this exact topic. You should be communicating

with your broker year-round so that when it’s time to sell, your property is already conditioned for the top of market price. Joseph Chaplik, President Joseph Bernard Investment Real Estate (866) 546-9390 jchaplik@josephbernard.net Joseph Chaplik is the President of Joseph Bernard Investment Real Estate, an award-winning brokerage firm in Oregon, Washington, and Arizona. His company was recently named the 56th Fastest Growing Private Company in Oregon, and has been named a finalist for the Oregon Ethics in Business Award. Mr. Chaplik has 18 years of executive leadership experience and has been involved with real estate for eleven years.

Want to contribute an article to TheLandlordtimes - Colorado? Contact us at 503-221-1260 or info@propubinc.com

The Landlord Times - Colorado • June 2013

COLORADO

Energy ...continued from front page Chicago not directly associated with oil and gas production. "The rapid growth in domestic oil and gas production has made a large but uneven impact on the U.S. economy," said Bruce Rutherford, JLL International Director and Energy Practice Leader. "In the top energy cities, commercial real estate markets are booming, with growth creating scarcity - and thus a landlord-favorable market. This applies not only to offices, but also to retail, hotel, multifamily, industrial and distribution facilities and sites." Beyond Production: Job Growth Resulting in Office, Retail and Industrial Demand While energy production is the direct growth driver, much of the commercial real estate demand is coming from affiliated industries, such as manufacturers serving the energy sector. Steel pipe makers, for instance, are stepping up production to meet demand. Similarly, chemical companies are prospering from low natural gas prices, with some companies shutting down plants overseas and diverting billions in capital expenditures to U.S. sites. According to the Texas Chemical Council, chemical plants in Texas have already announced roughly $15 billion in expansions as a result of natural gas growth, which is expected to net 25,000 jobs in the state. Rising employment in these regions is also spurring growth in demand for multifamily and retail space. For example, JLL estimates that the energy sector's impact on U.S. apartment demand likely contributed to nearly 25

percent of total unit absorption since 2002, an overall demand of approximately 165,000 units. On the retail sector front, employment growth in Houston, for example, totalled 4.4 percent over the last year - almost triple the growth rate of the nation. Even during the recession, retail vacancy in the market dropped 1.6 percent since its 2008 peak. The energy markets have also contributed disproportionately to the office recovery - representing 22 percent of recently-increased office space occupancy in these markets. JLL's research identified the following top energy-driven commercial real estate markets: Calgary For more than two years, the office market in Calgary, Alberta, Canada has demonstrated increasing occupancy, as energy companies are elbowing one another to find the office space they need to support Canadian oil exploration, production and transport operations. The retail sector is reflecting Calgary's 'Boom Town' status as shown in Alberta's strong monthover-month retail sales growth during February 2013, growing at 2.2 percent, more than double the 0.8 percent growth rate for Canada overall. Dallas Not only has the Dallas metropolitan area experienced a significant 1.3 percent drop in retail vacancy since 2010, it is also logging record growth in the office, industrial, multifamily and hotel sectors. Several new hotels

are under construction in the market and the number is expected to rise as industry growth in 2013 continues and developers seek to add real estate projects that cater to business travellers in its emerging economic sectors. Denver Located near significant new opportunities for natural gas production, Denver is becoming a center of activity for energy companies, which are leasing space at a rapid pace. An analysis of energy leasing transactions revealed that energy tenants in Denver's central business district paid an average of 9.7 percent above landlords' initial asking office space rental rates. Houston Commercial real estate fundamentals in Houston are becoming more landlord-favorable every quarter. For example, retail vacancy in the Houston market has dropped 1.6 percent since its highest vacancy levels in 2008. In Houston's suburban energy corridor, 81 percent of nearly three million square feet of new construction is pre-leased. Philadelphia Proximity to new energy production sites is driving demand for both industrial/manufacturing facilities and office space in Philadelphia. The

city's office and retail sectors are becoming highly landlord-favorable as a result of the influx of employment opportunities in the energy sector and with affiliated companies. With such rising interest from the energy sector, real estate investment volumes are poised to pick up in 2013 and 2014. Pittsburgh Demand for new energy production components has driven an uptick in manufacturing activity in the Pittsburgh area. This growth has resulted in strong conditions for the industrial real estate sector in particular - but also across other commercial real estate sectors. Leasing demand from natural gas and other energy-related companies is helping to bolster the Pittsburgh office market, where rents are at their highest level in more than a decade. In fact, the Pittsburgh market is outpacing national growth in rents and occupancy, in large part due to the energy sector. For specific information on how the energy boom is impacting North American cities and energy industry commercial real estate needs, please download the JLL Energy Outlook Report. www.metrodenver.org

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Please call & consult your Account Executive for more Details 503-221-1260 The Landlord Times - Colorado • June 2013

COLORADO

PCA Remains Optimistic; Expects Strong Growth in Cement Strong Economic Momentum Expected to Spillover to Construction

Following the strongest cement consumption gains in seven years in 2012, cement consumption growth will continue in 2013 with a 6.2 percent increase. According to the latest forecast from the Portland Cement Association (PCA), the majority of market recovery will occur in the second half of 2013. "Recessions correct imbalances generated during boom periods," Ed

Sullivan , PCA chief economist said. "Few economists doubt the generation of a large pent-up demand during the past several years. The question is, when the economy will unleash its potential for strong growth?" The recession has created a pentup demand not just for consumer products but also construction. For example, PCA expects housing starts, Serving the Portland/Vancouver Multifamily Housing Industry More than 21,000 Distributed Monthly www.

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TheLandlordTimes.com The statements and representations made in advertising and news articles contained in this publication are those of the advertiser and authors and as such do not necessarily reflect the views or opinions of Professional Publishing, Inc. The inclusion of advertising in this publications does not, in any way, comport an endorsement of or support for the products or services offered. Metro Apartment Manager is produced monthly and is published by Professional Publishing Inc. An Oregon Corporation. PO Box 30327 Portland, OR 97294-3327. (503) 221-1260 • (800) 398-6751 Copyright 2013. All rights reserved.

to reach nearly 1 million in 2013. Multifamily construction also continues to grow at a strong pace and this trend should continue as favorable fundamentals fuel the sector. Multifamily starts recorded a 55 percent gain in 2011 and 36 percent growth in 2012. PCA expects an additional growth of 29 percent in 2013 to 318,000 units. "Although nonresidential and residential will be in full recovery in 2013, public construction will act as a drag on cement consumption this year," Sullivan said. "However, as the economy gains momentum in 2014, job gains will strengthen states' fiscal conditions and support stronger construction spending." The accelerated consumption predicted during the second half of 2013 should carry into the following year.

PCA projects an increase of 9.2 percent for 2014. PCA also upwardly revised its long-range projections for 2015-2017. Annual growth during that period is expected to be as high as 11.1 percent. PCA predicts cement consumption levels will reach 120 million metric tons by 2017. About PCA The Portland Cement Association represents cement companies in the United States and Canada. It conducts market development, engineering, research, education, and public affairs programs. More information on PCA programs is available at www.cement.org. For additional information, contact Patti Flesher at newsroom@cement.org. Portland Cement Association. www. cement.org.

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The Landlord Times - Colorado • June 2013

COLORA