LATHAM — Local experts expect the long-running apartment construction boom in the Capital Region to start tapering off.
Residential rental company Sunrise Management & Consulting on Friday released its annual rental market report for the Capital Region and hosted a breakfast forum with a handful of experts and 200-plus attendees to discuss the trends reflected in the report.
One key statistic from the U.S. Census Bureau illustrates the apartment construction boom in the Albany-Schenectady-Troy Metropolitan Area: construction permits issued. The number of multifamily units approved for construction gradually increased after the Great Recession a decade ago and exceeded permits for single-family houses in 2015, 2016 and 2017.
Sunrise’s 2018 report found average apartment rents across the region were lower on June 1, 2018, than on June 1, 2017. It was only a 0.25 percent dip, but that followed a cumulative increase of more than 9 percent from 2013 to 2017.
The report looks at 175 large apartment complexes (22 to 952 units), rather than the collectively large but individually tiny industry of independent landlords leasing a few units each.
Albany-based Sunrise owns and/or manages more than 1,500 rental units, many of them in the Capital Region, and has consulted in the development of projects totaling several thousand more units.
To discuss the market Friday morning at the Century House in Latham, Sunrise assembled a panel consisting of economist and investment manager Hugh Johnson, SEFCU Commercial Banking Vice President Ed Jennings, Center for Economic Growth CEO Andrew Kennedy and Sunrise President Jesse Holland. Albany Business Review Publisher Cindy Applebaum moderated.
Johnson started by noting that, as of Friday, the current cycle of U.S. economic growth became the longest since World War II -- 112 months and still going strong. Incomes, interest rates and housing prices are all rising.
“All of that instinctively makes you wonder what lies ahead,” he said. Inevitably, that will be a bear market on Wall Street and a recession for the economy.
“Stay on your toes,” Johnson advised. Barring unexpected factors, the upswing has a ways to go -- perhaps to the second half of 2019, he said.
“That’s when things get extremely tricky.”
Johnson later added that he’s not expecting anything as severe as the credit/housing crisis and recession of a decade ago, which severely affected many Americans and much of the housing industry.
Kennedy said rental housing remains an important part of the Capital Region’s economy, which consistently outperforms the rest of upstate New York.
“For us as a region … we have seen the fastest growth in new housing units, both single family and multifamily, in all of New York since 2010,” he said.
Rental housing is important to the workforce at both ends of its lifespan, Kennedy said. Recent college graduates can’t afford to buy a house and may not want to be tied to one. Older adults whose children have left home may want the maintenance-free living an apartment offers.
Single-family home ownership has declined from 71 percent in the mid-1990s to 64 percent today, Kennedy said, adding that this can be seen as a positive because a more mobile workforce is better able to support a diverse regional economy.
Jennings said lenders are not financing apartment projects as freely as they once did.
“Where is the saturation point in the multifamily market?” he asked. “I think the lenders are looking at that very closely.”
Lenders will expect a greater amount of cash equity from developers and also will look more closely at the people behind a project to gauge that project's prospects for success, Jennings added.
“All that being said, I think there’s a tremendous amount of positive aspects to lending in the Capital Region,” he said. “I think the majority of the lenders in this room are still busy and still actively pursuing multifamily.”
Jennings noted that the rental occupancy rate is still above 95 percent in the Capital Region.
Holland said he is seeing more competition among rental managers as new rental units come online.
“At this point, the data suggest we may be at an inflection point -- that we have built as much as we should build because the rate of [rent] increase, compared to the past, has now significantly decreased across all four counties in the Capital Region.”
Until recently, Holland said as an illustration, Sunrise didn’t offer two-year leases because one-year leases increase the tenant turnover rate, and every turnover is a chance to raise the rent. Now, he said, Sunrise sees two-year leases as a way to retain tenants and maintain high occupancy. Other companies, he said, have gone as far as offering two or three months’ free rent to attract new tenants.
In this environment, Holland said, how the apartment complex is run becomes a critical factor in its financial performance.
“Your property management aspect, which is often thought of last, really needs to be one of the first things, because those are the guys that are going to make the difference,” he said. “A great property manager can take a poor property and make it wonderful, and a poor property manager can take a great property and put it in foreclosure.”
Noting that Friday’s discussion was academic to an all-too-large segment of the population, Holland presented an $1,804 donation from Sunrise to the Homeless And Travelers Aid Society of Albany, and Jennings made the surprise announcement that SEFCU would match it.
Sunrise Management & Consulting issued its 2018 Multifamily Rental Market Report with the following details about apartments in Capital Region's four most populous counties:
32,661 units surveyed
Average age 30 years
Average size 1,287 square feet
Average rent $1,291 in June 2013, $1,490 in June 2018
14,192 units surveyed
Average age 34 years
Average size 1,361 square feet
Average rent $1,262 in June 2013, $1,531 in June 2018
4,789 units surveyed
Average age 24 years
Average size 1,154 square feet
Average rent $1,149 in June 2013, $1,282 in June 2018
9,535 units surveyed
Average age 28 years
Average size 1,054 square feet
Average rent $1,129 in June 2013, $1,447 in June 2018
4,145 units surveyed
Average age 31 years old
Average size 1,010 square feet
Average rent $974 in June 2013, $1,238 in June 2018