Valley Rental Housing Journal July 17

July 2017

Rental Housing Journal Valley

2. Cost of Freon for Older Air Conditioner Repairs is Skyrocketing 3. RHA Oregon President’s Message 5. Q3 2017 Special Report – Amazon Steps Into Real World Retail 8. Multifamily Spotlight – Vacancy Up Due to Elevated Class A Deliveries

EUGENE · SALEM ·ALBANY · CORVALLIS WWW.RENTALHOUSINGJOURNAL.COM • PROFESSIONAL PUBLISHING, INC

Rent Control and No Cause Evictions Bill Dies in Senate

Why is the Internet in Apartment Complexes So Bad?

C

An Educational Series for Apartment Owners: Part 1 “Modem Service”

ontroversial legislation to remove the state-wide ban on rent control in Oregon and to set new rules for no-cause evictions has died in the Oregon Senate, according to reports.

The bill, HB 2004 , passed the Oregon House 31-27 in April, but lacked support in the more conservative Senate and failed after several attempts to amend it.

The Senate Human Services Committee modified the bill to make it less punitive against landlords. The committee’s amendments reduced the circumstances under which landlords would have to pay relocation fees to tenants who were forced to leave at no fault of their own. The Sen...continued on page 5

A

busy, always connected lifestyle demands the Internet. So much so the FCC, in a 2016 ruling, deemed the Internet a utility and it will be regulated as such. Regardless of government policy, the fact remains, access and experience are extremely important to consumers. Internet, as a utility, is an important distinction in today’s marketplace. Most Internet users experience a “Dirty City Water” Internet experience because it’s poorly maintained and rarely managed by monopolistic Internet Service providers (ISP’s ) – leaving a bad taste in the consumer’s mouth. Most agree the Industry needs improving; just as there are quality options for drinking water in the market, there are quality options for Internet. A “Glacier Water” Internet experience stands apart from typical Internet offerings for the residents, simultaneously generating revenue, increasing brand loyalty and maximizing retention for an apartment owner.

Comparing “Dirty City Water” to “Crystal Clean Glacier Water” is like comparing “best-effort” Cable Modem or DSL services (a.k.a. Modem Service) to a professionally managed, highly reliable, Fiber Backed Property-Wide WiFi service (a.k.a. Pure Internet). When a network is installed and managed correctly, the true essence of “Pure Internet” can be achieved; if not, the likely experience is the status-quo (or worse) that ...continued on page 7 Professional Publishing Inc., PO Box 6244 Beaverton, OR 97007

Current Economic Data Supports Multifamily Investments

T

he macro data suggests that multifamily investments and properties continue to be a strong performing asset class, says the CEO of a specialty investment bank focused on real estate, according to a release.

Multifamily is still supported by strong economic fundamentals, generally outperforming most other property sectors, David Blatt, CEO of Capstack Partners says in the release. Lenders have recently begun to express caution about financing new multifamily investments because of concerns that there is too much inventory. Many banks

share the belief that the added supply will cause vacancies to increase and rents to drop, especially those lending into primary and high growth markets, which have been seeing the most investment activity over this last market cycle.

While it is certainly valid to monitor the volume and delivery pace of apartment inventory, banks’ views can often get distorted when their primary data source is their loan portfolio allocation, Blatt says in the release.

PRSRT STD US Postage PAID Portland, OR Permit #5460

While lenders will naturally become more selective as they consider increasing their multifamily investments exposure, it’s critical that they rely on a broader dataset to ensure attractive multifamily lending opportunities are not overlooked.

The most prudent lenders also rely on historical and economic data to help guide their capital allocation decisions, according to the release.

Current economic macro data supports multifamily investments For instance, while the national vacancy rate for multifamily property is projected to increase to 5.6% in 2017 and to 5.7% in 2018, according to CoStar Group, these figures are still below the 15-year ...continued on page 3

Text REALESTATE-ROI to 44222 to receive a digital copy of this year's Real Estate Opportunities in Investing (ROI) Finding Investing Success in Today's Housing Market

Rental Housing Journal Metro 16083 SW Upper Boones Ferry Rd, Suite 105, Tigard, OR 97224 503-213-1281 | Fax 503-213-1288 | www.multifamilynw.org

Form of the Month

Upcoming Events for July 2017 Strengthening Front Line Skills for Maintenance CAM: Resident Experience HR Issues: Employee Coaching SOLD OUT - It's the Law: Smokin’ Hot: Marijuana and Your Rights Forms and Notices: Move In CAM: Industry Essentials & Financial Management Understanding Maintenance for Managers EPA Lead-Based Paint: Renovation, Repair - REFRESHER REAC/Preventative Maintenance Training Landlord Study Hall: FED’s From Filing to Lockout Landlord Tenant Law Part I NSPF® CPO® 2 day Certification Class CAMT: Interior/Exterior Fair Housing 101 HR Issues: Employee Separation It's the Law: FEDs: Mastering the Evictions Process Handling Environmental Issues (Asbestos, Lead, Mold) Landlord Tenant Law Part II

Partial Rent Payment Receipt – Form M009 OR OREGON

PARTIAL RENT PAYMENT RECEIPT IP DATE __________________________________________ PROPERTY NAME / NUMBER ___________________________________________________________________________________________________________________________________________________________________ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ __ ___ RESIDENT NAME(S) ___________________________________________________________________________

___________________________________________________________________________ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __

____________________________________________________________________________ ___ __ ___ ___ ___ ___ ___ ___ __

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___________________________________________________________________________ ___ __ __ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __

____________________________________________________________________________ __ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __

and all others.

UNIT NUMBER ___________________________________ STREET ADDRESS ___________________________________________________________________________________________________________________________________________________________________________ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __ CITY ___________________________________________________________________________________________________________________________________________________ STATE TAT TA AT ___________________________________ ZIP _____________________________________________________________ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __ ___ __ ___ ___ ___ ___ ___ __ STA ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __

Resident understands that Owner/Agent is not required ired to accept ac late ate or partial p l payments paymen of rent. Resident has asked Owner/Agent en agreement to pay the balance to accept a partial payment along with Resident’s nce due. Owner/Agent is willing to do so as an accommodation to Resident. Resident understands partial payment and the payment agreement does not erstands that hat accepting the t waive any of Owner/Agent’s rights to terminate nate Resident’s Reside ’s tenancy if payments are not made as agreed.

SAMPLE

Rent amount due:

Partial payment received:

Form M009 OR Copyright © 2014 Multifamily NW®. NOT TO BE REPRODUCED WITHOUT WRITTEN PERMISSION. Revised 11/24/2014.

7/11/2017 7/12/2017 7/12/2017 7/14/2017 7/18/2017 7/27/2017 7/27/2017 7/31/2017 8/1/2017 8/2/2017 8/7/2017 8/8/2017 8/8/2017 8/9/2017 8/9/2017 8/11/2017 8/16/2017 8/21/2017

SAMPLE

SAMPLE $_______________________________ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ __ __ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ __ SAMPLE ($__________________________________ ___ __ ___ ___ ___ ___ ___ ___ ___ __ ___ __ ___ ___ ___ ___ ___ ___ ___ __ __ ___ ___ __)

Rent balance due:

SAMPLE $__________________________________ ___ __ ___ ___ ___ ___ ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __

Late fees:

SAMPLE $_______________________________ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __ ___ __ ___ ___ ___ ___ ___ ___ __

SAMPLE SAMPLE __________________________________________________________________________________ $_______________________________ Other:____________________________________________________ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __ SAMPLE $__________________________________ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ __

Balance due:

Residentt agrees to pay the balance due du as follows:

SAMPLE

SAMPLE

DUE DATE

AMOUNT

______________________________________

SAMPLE

SAMPLE $_______________________________

______________________________________

SAMPLE

SAMPLE $_______________________________ _ __

SAMPLE

SAMPLE $_______________________________ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __

______________________________________

All payments must st be rec received by Owner/Agent by 5:00 p.m. on each due date, e, time e being of the essence. ence All payments must be made by money order or cashier’s check.

If Owner/Agent has not yet served a 72-hour or 144-hour termination notice of the current otice for non-payment non-paym curren rent due, acceptance of the partial payment does not waive Owner/Agent's right to issue such noti n or af e date a notice on after the allowed by statute for the he ttermination mination date on ssuch notice e or the payment date agreed balance of the rent due. If payment is not made by the later of the ce an ev ion action. above, Owner/Agent may terminate the tenancy and commence eviction of the current rent due, acceptance mination notice notic for non-payment non-pay If Owner/Agent has previously issued a 72-hour or 144-hour termination of this partial payment does not waive Owner/Agent’s right ght to t terminate minate based on o that notice if Resident fails to make any payment tice need be given g n if Resident R required above by the due date. No new 72-hour or 144-hour notice fails to make any payment due hereunder.

The signature of any one Resident to this agreement binds inds all Residents of the e unit.

X

SAMPLE

_____________________________________________________________________________________

SAMPLE

_ __ _____________________________ ___ __ ___ ___ ___ ___ ___ __ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ __

RESIDENT

X

SAMPLE

_____________________________ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __

RESIDENT

SAMPLE

SAMPLE

_ __ _____________________________ ___ __ ___ ___ __

RESIDENT

X

SAMPLE

SAMPLE

_____________________________

DATE

SAMPLE

______________________________________________________________________________________________________________________

ADDRESS

DAT DATE A E AT

X _____________________________________________________________________________________ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __ ___ __ __

X

_____________________________________________________________________________________

OWNER/AGENT

DAT DATE A E AT

SAMPLE

_____________________________________________________________________________________ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __ _ __

SAMPLE ______________________________________________________________________________________________________________________

D DATE

SAMPLE

_____________________________________________________________________________________ ___ __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __

SAMPLE

_____________________________

RESIDENT

SAMPLE

______________________________________________________________________________________________________________________

TELEPHONE

DATE

SAMPLE

SAMPLE SAMPLE

SAMPLE ON SITE

RESIDENT

MAIN OFFICE (IF REQUIRED)

It seems obvious that allowing a resident to pay just a portion of the actual monthly stated rent is a practice not in the best interest of the landlord. Surprisingly, it can be an all too common occurrence for a landlord to cash that partial payment. By accepting a partial payment, the landlord gives up the right serve a 72-hour notice for non-payment to enforce the rest of the rent payment. If a landlord does accept a partial payment, it is best to utilize the Partial Rent Payment Receipt that provides the additional payment schedule and necessary verbiage that allows the landlord to pursue a non-payment of rent termination should the tenant fail to complete their full rent payment obligations.

Cost of Freon for Older Air Conditioner Repairs is Skyrocketing

A

ir conditioner repairs this summer will come with skyrocketing costs for the refrigerant R22, more commonly known as Freon™, according to a release.

Production of R22 refrigerant, which is being phased out by the Environmen-

tal Protection Agency because it contains environmentally harmful ozone-depleting substances, has already dropped by 90 percent. Production will be prohibited by 2020.

In air conditioner repairs, owners face the challenge of whether to repair or to replace a system using R22 refrigerant from both a financial and environmental perspective, according to the release.

“We are seeing the cost to repair older air conditioners needing additional R22 refrigerant increase by 300 to 400 percent, and that cost is only expected to increase as summer continues,” Dave Moody, Vice President of Marketing and Customer Engagement for Service Experts Heating & Air Conditioning, said in the release.

Air conditioner repairs or upgrade?

“The repair cost increases are helping drive many owners to upgrade to a new air conditioning system to be comfortable, as they can also save up to 50% on energy bills right away.”

New air conditioning systems use the more environmentally friendly R410A

refrigerant, a different refrigerant that cannot be mixed or used in an existing air conditioner or heat pump designed for R22. Currently, reclamation and recycling of R22 is expected to be sufficient for existing systems, albeit at a much higher cost, providing time to upgrade systems before the phase-out period, according to the release.

“Owners don’t have to replace their entire system now, but it’s helpful for them to know their options in this situation,” Moody said. “It’s important to know you can’t mix R22 and R410A. When a new R410A system is installed, the outdoor equipment and outdoor coil both need replacing, and the interconnecting refrigerant tubing needs inspecting. These newer systems are often far more energy efficient and can significantly save on energy costs, sound pollution, or even utilize alternative energy sources like solar energy.”

The average life-span of many air conditioners is 8 to 10 years, which will help determine the cost benefit of either paying the premium price for R22 to repair

older systems, versus upgrading.

Additional benefits to upgrading include the opportunity to take advantage of energy rebates being offered and improving a resident’s efficient use of energy.

New equipment will also have longer warranty periods, quieter operation, and the peace of mind of a more ozone-friendly refrigerant, not to mention greater home comfort through more advanced technology.

Service Experts Heating & Air Conditioning locations have been serving their communities with air conditioning and heating repair, maintenance plans and new system installation for decades, and the average age of their service centers is over 50 years. Headquartered in Plano, TX, Service Experts is one of North America’s largest heating and air conditioning service companies with 90 locations across 29 U.S. states and three Canadian provinces.

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Rental Housing Journal Metro is a monthly publication published by Professional Publishing Inc., publishers of Real Estate Opportunities in Investing & Real Estate Investor Quarterly

www.rentalhousingjournal.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. To request a reprint or reprint rights contact Professional Publishing Inc. PO Box 6244 Beaverton, OR 97007. (503) 221-1260 - (800) 398-6751 © 2015 All rights reserved.

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OR MAIL A CHECK TO: Rental Housing Journal PO Box 6244 Beaverton, OR 97007 Rental Housing Journal Valley · July 2017

President: Ron Garcia Vice President: Phil Owen President Elect: Mark Passannante Secretary: Lynne Whitney Treasurer: Sandra Landis

RHA Oregon President’s Message

Ron Garcia, RHA Oregon President

I

love the 4th of July. It is a day that really makes me proud to be an American.

When I watch the fireworks it always makes me feel proud, yet humbled. It’s a great day to celebrate – but it’s also a lot more than just hot dogs, sparklers, and parades. It is about patriotism and sacrifice.

As I reflect on what it means to live in a free society, I’m reminded of a suggestion that has been made by some, that our country should build a “Statue of Responsibility” in the San Francisco Bay to compliment the Statue of Liberty in the New

Past President: John Sage Office Manager: Cari Pierce

York Harbor.

Personal freedoms ought to be exercised with respect and consideration. Just because we “can” do something, does not mean we “should” do it. It’s fair to be entitled – but it should be encouraged to be generous. I wish we all might take more stock of our duties, even if it means relaxing a bit on our rights.

In other words: Sure - I get annoyed when I go through TSA checkpoints at the airport – but I appreciate the need to contribute to the safety of our airways...

I may hope that I’m not called for Jury Duty, but I still feel privileged and honored to fulfill the role of being on a panel of my peers.

As a landlord, I want to make sure I get a good return on my investment properties – yet I appreciate the concerns of tenants who worry about their ability to maintain an affordable, safe and stable living environment. I understand that being a rental housing provider carries a responsibility beyond profits – and I am prepared and eager to adequately maintain the condition and habitability of my rentals and work to keep my good tenants for the long run, even if I am not always at “market rent.”

Now, in the spirit of reflecting on our values and being of service, while having a good time in July, I am excited to remind you of the annual RHA Oregon “Starry Night Event.”

10520 NE Weidler, Portland, OR 97220 (503) 254-4723 • Fax (503) 254-4821 info@rhaoregon.com • www.rhaoregon.org

the standard for community involvement for 90 years!

Please join us for this fun event to “let off a little steam.” It comes at a perfect time of the year – since the State Legislators have finally sounded the gavel and closed their session. Now we can assess the impact they have had on our industry, and the influence we may have had in protecting the rights of property owners statewide.

Starry Night is the time when we can casually network with one another at the same time we can unite as a group to make a difference for those less fortunate.

I hope to see you there and, in the meantime, enjoy the fireworks!

On Wednesday July 19th RHA Oregon will host our 4th annual Starry Night gala at our annex at 10530 NE Weidler Portland, OR 97220. It is our association’s way of saying “thank you” to all of its members and vendors who make our organization great. And it is our way to raise money for charitable activities throughout our community. RHA Oregon has set

Multifamily Investments ...continued from page 1 average vacancy rate of 6.1%.

•

Meanwhile housing starts are at a historic low. Fewer homes are available for sale than in any previous cycle and the cost to build is climbing, especially with the recently implemented tariffs against Canadian softwood lumber imports.

• Additionally, the recent and continued rise in interest rates make it more challenging for people to purchase homes.

• All these factors will redirect prospective buyers back into the rental population, helping multifamily maintain its status as a safe and stable asset class.

“In high growth markets, we check the apartment inventory data against fundamental economic drivers like growing industries and labor force,” Blatt said in the release.

David Blatt, CEO of Capstack Partners “We look to structure our clients’ debt and equity financing to be stable enough to handle momentary ebbs and flows in the cycle. This allows developers and operators to zoom out and focus on executing a fundamentally sound investment strategy based on drivers like jobs and population growth,” he said.

Multifamily is largest asset class

in real estate investing Multifamily is the largest asset class within real estate investing.

When high profile institutions actively build then sell in the short-term, and lenders begin to murmur about too many apartments, it is important for private investors to remember that buying and building rental properties isn’t a market timing game.

Rather, it is about managing and locking down your property operating and financing costs, increasing your rental revenue, and enjoying the appreciation of your investment over time.

CapStack Partners is a specialty investment bank focusing on the real estate, hospitality, infrastructure and energy industries. Founded and led by capital markets expert David Blatt, CapStack provides a full range of investment banking services including project financing, private placements, mergers and acquisitions, loan syndications, workouts and dispositions, and strategic advisory.

CapStack’s diverse range of clients include private and publicly traded companies as well as universities, not-for-profit institutions and municipalities.

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Rental Housing Journal Valley

DEAR MAINTENANCE MEN: Counter Tops, Pinhole Leaks and Smoke Detector Batterys

By Jerry L’Ecuyer & Frank Alvarez Dear Maintenance Men: The kitchen counter tops in my rental units are old and tired looking. I want to upgrade but I am confused about which counter top material will be best. Can you go over the pros and cons of some of the more popular counter top surfaces available?

John Dear John, We are lucky today to have so many choices of countertop materials available.

The four most popular materials are plastic laminate, granite, engineered stone & ceramic tile.

Plastic laminate or better known as Formica Brand is still the most popular choice for apartment counter tops. This is because the choice in colors is almost unlimited and the ease of installation keeps the costs down. With proper care, plastic laminate will last for years; however, it can be easily scratched by knives or scorched by hot pots. Laminate counter tops can be easily installed by the average handyman, DYI person or contractor.

Granite counter tops in the apartment industry are very popular and with good reason. The cost of granite has come down to reasonable levels and the upgraded look of a granite countertop is substantial. They are very tough and are resistant to staining, scratching and scorching. Granite countertops will need to be professionally installed and sealed periodically.

Engineered stone countertops are almost as popular as granite, and are slightly more expensive than granite. Popular brands are DuPont & Silestone. Engineered stone countertops are composed of quartz particles and resins and the surface is smooth, non-porous, and scratch resistant. They require less maintenance than granite. Engineered stone countertops are not DIY friendly and will need professionally trained installers.

Ceramic tile countertops have been around almost as long as plastic laminate. They can be installed by the average handyman, DYI person or contractor.

They are heat & stain resistant. Ceramic tiles do need to have periodic maintenance to keep the grout lines clean and

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From a management and maintenance prospective, we are finding granite countertops to be the top choice. The price difference between laminate and granite are close enough to warrant upgrading to granite. If you intend to hold onto your investment for a long time, granite will more than pay for its self.

Dear Maintenance Men: My plumber just informed me that my 10 unit building has “Type M” copper piping. He says Type M has thinner walls than the more robust “Type L” copper pipe.

Could this be the reason I am having more water line pinholes leaks?

Dave Dear Dave: A number of things can cause copper water line pinhole leaks. Having the thinner Type M copper pipes may result in your property having pin hole leaks sooner than with the thicker Type L pipe. However, thin Type M pipe is often only a contributing factor when it comes to pinhole leaks.

Typically, water chemistry, incoming water pressure, recirculation pumps and poor construction methods are part of the contributing factors in pipe leaks.

Check with your city or water distributor in your area to get information on the water chemistry and hardness. Adding a water softener to the incoming water supply will help protect both the pipes and water heater. Reducing the water pressure with a pressure regulator will reduce stress on the pipes. If you have a recirculation pump for the water heater, it will help to install a timer to control the amount of time the pump is active. Moving water produces a lot of friction in the pipes.

Set the timer to operate the pump only during high demand hours. Doing these easy fixes, may add life to your existing pipes. If poor construction methods are involved, re-piping may be your only solution in addition to the above solutions.

Dear Maintenance Men: I install a new battery powered smoke & CO detector into each unit before a new tenant moves in. The tenants moving into the apartment unit must sign a smoke detector agreement along with the rental agreement. The smoke detector agreement requires the tenant to check the detector for operation and replace the battery once a year. Should I be doing anything else or am I covered?

Bill Dear Bill: We are not lawyers and cannot answer as to your possible liability in the matter of smoke & CO detectors. However, our guess is the brand new battery you installed at the beginning of your resident’s occupancy is currently operat-

ing a remote control toy. Our thoughts on smoke detectors are simple: They are cheap, install more than one and check them yourself regularly. From the property management view, most insurance companies require that you keep a smoke detector log on each unit and that they are checked every six months or at least once a year. The log does not need to be elaborate. Our Smoke Detector Log has the property address at the top, with eight columns. We recommend you keep a similar log for each CO detector you install.

1: Unit#: 2: Number of Detectors: 3: Check Detector: split column with Good/Bad 4: Battery Replaced: yes/no 5: Detector Replaced: yes/no 6: Initials: the person who did the checking should initials or sign 7: The Date of Inspection: 8: Comments: such as whether the battery was missing or the detector was damaged, etc.

As an added precaution, we check the smoke & CO detectors every time we enter a rental unit regardless of the reason we are there. We make a note of the impromptu inspection on the Smoke Detector Log. Be sure to include the date and the person who checked the units. It helps us sleep at night.

If you would like to see your maintenance question in the “Dear Maintenance Men:” column, please send in your questions to: BuffaloQuestions@gmail.com If you need maintenance work or consultation for your building or project, please feel free to contact us. We are available throughout Southern 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 as well as being Chairman of the Product Service Counsel.

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.

Rental Housing Journal Valley · July 2017

Rental Housing Journal Valley

Q3 2017 Special Report Amazon Steps Into Real World Retail

Marcus & Millichap Growth of e-commerce highlightsnecessity of omnichannelstrategies. E-commerce sales haveincreased by 148 percent over thepast 10 years and now comprise13.2 percent of core retail sales. Thistrend is shaking up traditional retail,causing stores that fail to offer uniqueservices and an integrated onlinechannel to falter.

Stores offeringunique positioning that blends onlinecapabilities such as Domino’s, HomeDepot and Ulta have outperformedin this climate. Amazon’s move intothe brick-and-mortar space throughpop-up stores in malls, physicalbookstores and now through the acquisitionof Whole Foods reinforcesthe importance of having both anonline and real world presence.

Grocery sector has resistede-commerce integration. Whileonline sales have integrated successfullyinto a wide range of retailsegments, Internet sales of grocerieshave notably lagged. Amazon, byway of its Whole Foods acquisition,is seeking an opportunity to establisha more meaningful brick-and-mortarpresence in order to synergize its onlinepresence with its ambitions forthe broader retail landscape.

Grocery sector convergencewith e-commerce likely to boosteffi ciency. As e-commerce becomesmore intertwined with thegrocery sector, greater effi ciencieswill emerge through the use of existingstore space to fulfi ll online orders.

Amazon Reinforces Importance of Brickand-Mortar Presence, Leaps Into Grocery Business With Acquisition of Whole Foods

A

mazon enters grocery businesswith $13.7 billion purchaseof Whole Foods. After testing avariety of concepts to enter thegrocery store segment, Amazonrecently announced an agreementto acquire Whole Foods Marketfor $13.7 billion.

The purchasegives the e-commerce giant instantaccess to the grocery storebusiness, which accounts for consumerspending of more than $636billion per annum.

More importantly,the purchase highlights the importanceof omnichannel platforms,which incorporate a blend of brickand-mortar establishments with anonline footprint to drive traffi c andsales.

In addition, grocery storesare typically retail center anchors,underscoring the importance ofstrip and neighborhood centers inthe retail landscape.

Creating a hybrid model anda level of mutual dependency willopen a new dimension of grocerystore effi ciency unknown to the sectorto date. In addition, combiningonline convenience with brick-andmortarexperiences will provide alevel of customer service that theInternet alone cannot create. As aresult, retail changes moving forwardwill reinforce convergence, nota winner-take-all environment in thesector.

Amazon likely to drive innovationin brick-and-mortar segment. Asa leader of e-commerce retail salesand distribution, Amazon will steerthe sector toward innovation and amore integrated customer engagementmodel. As a result, the lines willblur on what constitutes traditional retail,further reinforcing the importanceof brick-and-mortar spaces.

Key Observations • Omnichannel Retail Model Validated. The Amazonpurchase of Whole Foods reinforces the ideathat retailers need both an online and real worldpresence. Amazon’s entry into the grocery businesswill likely spark innovation and further convergencebetween online and traditional retail.

• Retail Construction Remains Muted.

The measuredapproach to retail development, focusing onsingle-tenant and mixed-use multi-tenant spaces,has prompted signifi cant vacancy declines in thesector. While headlines have focused on troubledmall tenants, retail center vacancy has reached a16-year low.

• Sales Activity Slows as Uncertainty Digested.Rising uncertainty as numerous policy changesremain in fl ux has caused investors to assume amore cautious stance, even as operations remainrobust. This has caused the pace of transactionsto slow this year.

• Pricing Edges Higher, While Cap Rates RemainStable. Despite a slowdown in transactions, pricinghas moved higher over the course of the year. Additionally,cap rates have remained stable, providing afertile

...continued on page 6

Rent Control ...continued from page 1 ate also removed a provision to lift a ban on local rent control, according to koin. com.

However, the proposal lacked support from the Senate’s 13 Republicans.

The bill, called a tenant protections bill by advocates, was a chief priority for House Speaker Tina Kotek and several other Portland-area lawmakers.

Sen. Tim Knopp, has said restrictions on landlords are counterproductive to solving Oregon’s shortage of affordable rental units and has advocated for measures that make it easier for investors to develop new housing units.

Originally as passed by the House, the measure would have allowed cities and counties to enact local ordinances that would control how much landlords could raise rents each year, removing the statewide ban.

Rep. Bill Kennemer, R-Oregon City, who is a landlord, also told Oregonlive. com when the bill passed the house that HB 2004 is “a well-intentioned effort,” but

isn’t the right approach. “This bill does not build a single apartment unit,” he said.

The bill originally stated:

“Prohibits landlord from terminating month-to-month tenancy without cause except under certain circumstances with 90 days’ written notice and payment of relocation expenses. Provides exception for certain tenancies for occupancy of dwelling unit in building or on property occupied by landlord as primary residence.

Makes violation defense against action for possession by landlord. Requires fixed term tenancy to become month-tomonth tenancy upon reaching specific ending date, unless tenant elects to renew or terminate tenancy. Requires landlord to make tenant offer to renew fixed term tenancy. Repeals statewide prohibition on city and county ordinances controlling rents.”

Text REALESTATE-ROI to 44222 And receive a digital copy of this year's

ROI – Real Estate Opportunities in Investing Finding Investing Success in Today's Housing Market Rental Housing Journal Valley · July 2017

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Rental Housing Journal Valley

Amazon ...continued from page 5 Whole Foods Purchase Provides Amazon Excellent Real Estate, Tech Testing Ground

Online Grocery Industry Gathering Traction

Consumers’ preference for personally selecting fresh items has insulated thegrocery business from intrusions by e-commerce, but the increasing consumeradoption of online shopping has started to shift the trend. Early entrants intothis sector included pure-play e-commerce companies like WebVan. Althoughit generated modest success in dense urban markets such as San Francisco,adoption was limited. Traditional grocers including Safeway tried to leverageexisting retail locations by adding online sales and delivery capabilities, but theyhave generated little traction. Peapod is trying to engage this sector and anotherentrant, Instacart, offers two-hour grocery delivery services. Walmart hasalso joined the fray, leveraging existing associates who will deliver items to onlinecustomers, while Midwestern grocery chain Meijer is also moving online.Amazon’s move into the grocery business holds subtle differences from thecompetition. Amazon brings an e-commerce savvy customer base, a powerfulWeb portal, a penchant for innovation, a signifi cant capital war chest, anda seasoned fulfi llment and delivery system. It will blend these strengths withWhole Foods’ 467 locations, existing supplier network and brand that is knownfor quality. Together, the unifi ed offering has the potential to offer more than thesum of the parts, possibly reinventing the grocery business in the process.

Rapid Grocery Expansion

Expansions Strain Retail Space Availability

Signifi cant grocery store expansion will strain retail space availability as vacancyrates now stand at 5.4 percent on a national level, the lowest in 16 years.

Retail developers have been cautious in the postrecession era, adding an averageof just 48 million square feet per year since 2010, roughly one-third theannual average from 2000-2008. Much of the construction in recent years hasbeen preleased or net-leased properties, with little speculative additions. Thenoteworthy expansion by grocery chains, which typically anchor neighborhoodand community centers, will likely outstrip available space and spark additionalretail construction.

The announced store openings by major grocers will absorban estimated 25 million square feet, which could be diffi cult to source withoutadditional development.

As new grocery stores are built, in-line space will likelyaccompany it, pushing retail construction out of its currently fl at trajectory andinto a period of more aggressive development.

Although Amazon has been testing a variety of concepts to enter the physicalstorefront sector, the purchase of Whole Foods Market puts the grocery sectordirectly in the fi rm’s sights. In addition, the high-quality demographics surroundingWhole Food’s existing footprint likely overlap heavily with Amazon Prime users,providing a built-in incentive for the combined fi rm to draw in more customers.While Amazon could have spent years opening a handful of locations, theacquisition turbocharges its efforts and provides a testing ground for frictionlessshopping using a range of advancements including big data, machine learningand sensor technologies. The fi rm will likely expand the existing delivery serviceoffered by Whole Foods by utilizing its extensive logistics operations to streamlineservice offerings and drive effi ciency.

Cross-selling opportunities across itsmany business lines are also likely within Whole Foods locations for Amazonproducts such as the Kindle, Echo, Fire and Prime-related benefi ts.

Uncertainty Weighs on Retail Transaction Activity;Sentiment Refl ects Negative Headlines

Stemming from an uncertain political climate amid proposals in taxes, healthcareand infrastructure, retail property transactions have slowed moderatelythrough 2017 as investors maintain a cautious posture. Additionally, sentimenthas been driven lower amid a continuous stream of headlines focused on theperformance of department stores and mall-related apparel retailers, as well asincreased e-commerce competition, resulting in waning confi dence in the assetclass as a whole. However, the impacts on the overall retail sector have beenminimal to date, with sector performance remaining robust, driven by continuedstrength in the neighborhood and strip center segment.

New Challenges Await Amazon and Whole Foods

While perception of the acquisition has generally been positive, aligning thesebusinesses carries a variety of risk factors.

Amazon needs to leverage the existingWhole Foods stores as distribution centers for a multitude of food productswhile retaining its existing customer base.

Additionally, Whole Foods operatesat a high-margin price point, yet Amazon has made lowering costs and marginsa key factor of its success in gaining market share and consumer spendingdollars. These strategic differences must be carefully integrated in order to realizethe clear synergies between the brands. Amid pitched competition in thegrocery sector, losing customers could be costly for both enterprises.

Prices Edge Higher; Interest Rates Remain Wild Card

While deal fl ow has eased from peak levels, prices have aligned with the robustoperations and a tight vacancy rate. The national average price per squarefoot has risen to $173 per square foot, up 6 percent from the last year. Theslower pace of development has also boosted the market as merchant buildersbring fewer assets to market than prior business cycles. The move up inprices has been accompanied by a moderate drop in cap rates to 7 percent,20 basis points lower than last year.

Interest rates have been a primary topicof discussion among investors, driven by the rapid rise in longer-term Treasuryyields following the election. While interest rates have fallen back to pre-electionlevels, the volatility in the market has prompted a more cautious stance amonginvestors.

Additionally, the continued pace of Federal Reserve rate hikes and theprospect of the Fed shrinking its balance sheet have many anticipating upwardmovement in Treasury rates.

Heightens Competition

While Amazon’s entry into the grocery business holds the prospect of an innovativemodel blending online retail with this stalwart segment, a range of grocerycompanies have committed to signifi cant expansion. Publix is set to open 20 newstores this year, with Wegmans planning a similar expansion, primarily in EastCoast suburban communities. Kroger plans to open 55 stores and Sprouts isscoping for 40 new locations nationwide. Adding to the mix, German grocer Aldi,which offers a no-frills, value experience, has announced a $3.4 billion remodelof its existing storefronts together with a U.S. expansion that will add 900 newlocations by 2022. Another German chain, Lidl has initiated an aggressive entryinto the U.S., with plans for 100 East Coast locations by the middle of next year.Lidl’s smaller 20,000-square-foot operations cater to value-minded customers.

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Rental Housing Journal Valley · July 2017

Rental Housing Journal Valley

Internet So Bad ...continued from page 1 plagues American Internet services today.

Most have always known they’re paying too much for an inconsistent, inferior service and it’s no secret “Big Box” Internet Service Providers (ISP’s) are often ranked last in customer surveys. What’s not as intuitive is why.

The 4 pillars to “Dirty City Water” (Modem Service) Pillar 1 - Bandwidth:

Calculating Internet speeds are often misunderstood by consumers. The industry has done a fabulous job of masking what’s important in achieving true speeds and a pure Internet experience.

A) Internet Speeds: Bad news! Buying more Mbps (Megabits per Second) seemed the answer to faster Internet speeds but that’s not exactly true.

Purchasing more Mbps buys capacity not speed. Speed, how we comprehend it, is perceived in distance; like with miles per hour (MPH). Contrary to most beliefs, Internet speed is more accurately expressed as latency. Lower the latency, increase webpage load times. Isn’t that what we are looking for?

Picture the Internet like a freeway; purchasing more Mbps buys you more lanes not a higher speed limit. Unknown by most, your lanes still move at the speed of your latency regardless of how many lanes you buy. Latency is something most ISP’s won’t discuss. They cannot control, manage or sell lower latencies effectively; instead they sell you more “slow lanes” of capacity.

“What’s important to note here, and this confuses a lot of people, is that your internet isn’t any faster from 1 Mbps to 5 Mbps, or however much bandwidth your connection has. Your data is just transferred to you at a faster rate because more data can be sent at the same time. It’s more efficient, making your internet perceptually faster, not technically faster.”

Your true Internet speed is the relationship between bandwidth (how much) and latency (how fast) – not just bandwidth alone.

B) Oversubscription: Modem Services are notorious for oversubscription ratios that routinely surpass 100 to 1. Meaning, 100 people are sharing the same allocation of bandwidth on the same “Internet pipe”. There’s nothing inherently wrong with oversubscribing bandwidth; most people aren’t fully utilizing their bandwidth. Further, it increases the cost efficiencies of a network. However, when oversubscriptions are high, it causes peak period slow-downs for end-users. One hundred (100) households with 5 devices or more, all sharing the same internet pipe, is simply too much.

C) Symmetrical Speeds: Many forms of Internet, namely modem services, have asymmetrical speeds. This means higher downloads speeds than upload speeds. It’s common to see a 10-to-1 ratio. This can be a problem for live communication applications; like video streaming (e.g. Skype), VoIP or chat. If you are “... running any real-time applications like Microsoft Office365, VPN, VoIP, video conferencing, web conferencing, and/or you have a need for large file transfers, you will benefit from high speeds in both directions…”

A growing number of businesses facilitate remote work from home. Hence, the virtual work force is rapidly growing; it’s imaginable to see a majority of the workforce working remotely in the future.

D) Privacy: Make no mistake your Internet habits are being monitored, recorded and stored.

With recent Internet laws being passed, it’s now legal for ISP’s to collect and sell “ALL”

of your browser history and other relevant data. IT professionals can dodge this; however, for the rest of us, prepare to share your online habits with your ISP.

Pillar 2 – Management:

A) Dirty Data: Modem services are a WIDE OPEN pipe from the Internet to your home. This means that hackers have the ability to penetrate your network; the only obstacle is your $60 router from Best Buy, configured and managed by you. The “average Joe” is expected to configure their router in an attempt to protect against these professional hackers.

Managing a network at this level is not for the faint at heart, yet we have been relegated to “figuring-it-out.” Millions of Americans are “on-their-own” which creates legitimate risks and concerns.

B) Customer Support: Unfortunately support from most “Big Box” companies only exists to maintain THEIR wiring and equipment. If they confirm it’s not THEIR fault, you’re on your own. In some cases, you may find they offer expensive network support to help guide you through the perils. However, most ISP’s simply confirm the signal to your modem and don’t support it further. A perfect storm of bad equipment, bad wiring, monopolistic attitudes and profit-first philosophies fuel this lackluster and inept support experience. In the end, customer support falls short of par for most ISP’s. “…Without competition, there’s no incentive for internet providers to improve infrastructure. These massive telecom companies create a bottleneck in the last mile of service by refusing to upgrade critical infrastructure. And they can charge exorbitant prices for the sub-par service while they’re at it.”

C) Best Effort Service: Unfortunately, most Americans are relegated to “Dirty City Water” because they have “best effort” modem service as their primary residential connection. Somehow the industry has thrived by offering lowest-common-dominator-services.

They even named it similarly, “Best Effort.” The ISP is saying they will try their best to provide what you paid for. Only, there are no Internet-quality-police to hold them accountable. Worst yet, there’s often a monopoly or duopoly which creates very little incentive to improve quality of service and customer support. That’s why the industry’s biggest providers are routinely voted the most hated in the U.S. Security: You are on your own in terms of security. Relying on virus protection or your operating systems firewalls can certainly help stop certain types of online threats.

However, you are still in grave danger from hackers. Without professional management the network is left with a “Mom and Pop” security environment that lamely attempts to thwart determined threats.

A study by CNET.com stated… “… all [14 top home routers] had critical security vulnerabilities that could be exploited by a “remote adversary” and could lead to unauthorized remote control of the router.”

hodge-podge design that is counter-productive to “Pure Internet”.

B) Configuration: Configuring a home router may seem intuitive if you know the basics. However, your home network is inherently disadvantaged because of the limited-feature-set found in a home router. They usually don’t include enterprise firewalls, bandwidth shaping, black lists and interference mitigation. The lack of features vastly limits proper security. Even if an enterprise router was used, the weakest link is still the novice home network engineer. A BBC article titled “How easy is it to hack a home network?” puts novice configurations and home networking blunders into perspective.

“I found out just how severely compromised my home network was in a very creepy fashion. I was on the phone when the web-connected camera sitting on the window sill next to me started moving. The lens crept round until it pointed right at me.

I knew that the attackers were on the other end watching what I was doing, and potentially, listening to the conversation.”

Pillar 4 – Equipment & Wiring:

A) Competition: It’s all about the bottom line, thus your local ISP plans on using their antiquated wiring infrastructure for as long as possible. Most ISP’s enjoy monopolistic environments. They won’t ordinarily upgrade unless there are extenuating forces. For example, in Google Fiber territories, local ISP’s magically upgraded their fiber infrastructure to compete. Googles expansion has since come to a halt. Google knows if they expand to new cities the local incumbents will simply ramp-up services in that area. Atlanta is the perfect example -- 99% of the country is not so fortunate to have a turf war driving down prices and forcing fiber upgrades. With little to no competition there’s no incentive to upgrade wiring and cannibalize profits. Unless something changes, most of America will have to wait for fiber -- hunker down and get used to antiquated wiring for decades.

B) Antiquated Delivery: Bandwidth delivered over coaxial or copper wire is outdated, and, by association, the entire delivery process has technological bottlenecks. Your delivery is only as strong as the weakest link. Even with fiberto-the-home (FTTH), your bottleneck may still be the wiring inside the home, fiber media convertor, router or modem. There are many places the delivery could be bottlenecked when dealing with old wiring.

“Most of America’s telecommunications infrastructure relies on outdated technology, and it runs over the same copper ca-

bles invented by Alexander Graham Bell over 100 years ago. This copper infrastructure—made up of “twisted pair” and coaxial cables—was originally designed to carry telephone and video services. The internet wasn’t built to handle streaming video or audio.”

C) Over-the-Counter Routers: Most people either rent a modem/router or buy one and, while over-the-counter WiFi equipment is priced to sell, it does not provide premium technology. Bigger living spaces can experience dead spots and most turn to mesh equipment, repeaters or other consumer grade “Whole-Home WiFi Solutions”. These types of solutions commonly relay the WiFi signal, which slows speeds around 50% per hop. Internet is only as fast as the weakest link. Next to bandwidth, equipment is the most common area that contributes to bad Internet experiences.

Underserved/Overpriced: The typical Internet connection “sucks” and is overpriced. The average cost of residential Internet is around $75. Additionally, most pay $10 a month to rent their modem.

The cost of Internet is not necessarily more than other utilities but definitely comes with the lowest quality and reliability. It is as essential as running water, but has all the problems of a do-it-your-self environment.

Other utilities don’t pose the same dynamics. For most, the water pressure doesn’t drop every time neighbors run a bath. We pay $75+ for an essential utility service; we want the service to work – no headaches or training involved. From an antiquated infrastructure to user-error the entire experience is often a nightmare.

Next month: Part II How to Fix Slow Internet for Residents, Generate Revenue and Ditch the “Cable Guys” With a Multifamily Internet Service Fiber Stream is a provider of futuristic high speed Internet and TV services. Fiber Stream’s target markets include Apartments, HOA’S, MDU’s, and senior living communities. Headquartered in Phoenix, Arizona, Fiber Stream is a nationwide “Full Service” Internet provider, offering Fiber to the Unit (FTTU), Fiber-Backed Property-Wide Wi-Fi, Gigabit Internet, Managed Wi-Fi solutions and IPTV. Fiber Stream developed one of the first Revenue Generating Internet Systems of its kind. For more information, visit www.FiberStreamWiFi.com or call 1-888-644-9434.

Pillar 3 – Design/Configuration:

A) WiFi Installation & Design: In a small space it may appear like WiFi design doesn’t really matter – there isn’t enough square footage to cause coverage issues, right? Not exactly, the WiFi radio frequencies (RF) from neighboring routers are all fighting for the same limited air space, with zero synergy. This is compounded in a multifamily environment; more WiFi interference means slower connections and decreased security, effectively creating a

Rental Housing Journal Valley · July 2017

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Rental Housing Journal Valley

Multifamily Spotlight

Vacancy Up Due to Elevated Class A Deliveries; Rising Rents Point to Positive Momentum Marcus & Millichap

T

he national apartment vacancy rate increased in the first quarter due to a combination of high Class A construction deliveries and historic fourth quarter absorption weakness being pushed into the first quarter. However, a 4.1 percent rise in the overall average rent and 242,000 units absorbed over the past year point to the underlying strong demand drivers for multifamily.

Sharp rise in Class A vacancy. Negative net absorption of 11,000 units and 77,000 apartment deliveries raised the national vacancy rate to 4.4 percent from 4.2 percent a year ago. The new units contributed to a 120-basis-point jump in the Class A vacancy rate to 6.6 percent. Some

of the largest increases in Class A vacancy occurred in Atlanta, Chicago, Denver and Los Angeles, metros with elevated completions. Yet, Class A rents rose in all markets, except in New York City and Houston. Owners have anticipated the rising supply of new Class A units and instead of lowering asking rents they are holding firm on pricing in preparation for the spring leasing season, which historically has the highest absorption for the year.

Slight Class B vacancy uptick caused by jump in the South region of the country.

The delta between Class A and B property rents is the smallest in the South.

With select newly delivered units offering concessions to aid lease-up, some Class B tenants have been able to make the jump

up to Class A units with only a small increase in their monthly rent. The Class C vacancy rate decreased over the past year, reflecting the strong demand for affordable rentals.

Pause in apartment investment evident in first quarter. Potentially higher borrowing costs, along with proposed changes to fiscal policy and the tax code, have raised uncertainty that influenced investor decisions. Preliminary first quarter estimates place multifamily property sales down 15 to 20 percent from the corresponding period in 2016. Although the pause in transactions is significant, it should be noted that sales last year were near record levels. Greater clarity on the range of economic, tax and fiscal policy changes could spark renewed investor ac-

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tivity.

Steady economy underpins 2017 market. Job growth in the first five months of 2017 equaled growth seen in 2016 and provides momentum for steady rental demand this year. Apartment construction will likely peak in 2017 with the delivery of 370,000 units. Nearly half of the total, however, will be delivered in 10 markets, potentially creating pockets of elevated vacancy rates in metros including Dallas/ Fort Worth, Houston and New York City.

Economic drivers support the absorption of more than 290,000 units this year and a rise in the national vacancy rate to the low-4 percent range. Following an advance in the first quarter, the average rent remains on track to rise 3.8 percent.

Jay Lybik Vice President | Research Services For information on national apartment trends, contact: John Chang First Vice President | Research Services Tel: (602) 687-6700 john.chang@marcusmillichap.com

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Rental Housing Journal Valley · July 2017