Luxury Apartment Bust Spreads To Main Street

Tyler Durden's picture

For months we've warned about the impending collapse of the luxury real estate markets in New York and San Francisco amid tepid demand and a supply glut that is getting ready to flood the market with new capacity (see here, here and here).  Of course, one of the first signs of excess capacity comes in the form of rent concessions, which as we pointed out over the summer, have been relatively easy to find in the large metro markets.

“Listings that once rented in just two to three weeks can now take two to three months to rent,” explains Paul Hwang, principal broker at Skybox Realty, a San Francisco-based real estate agency.

 

At least four new apartment buildings have opened within a three-block radius of one another during the last 18 months in San Francisco’s thriving South of Market neighborhood, which is home to major tech companies like Airbnb, Pinterest and Yelp (YELP).

 

Those four buildings — Jasper, 340 Fremont, 399 Fremont and Solaire — frequently offer some sort of bargain for prospective renters. 340 Fremont is offering six weeks of free rent; Solaire is pitching four weeks of free rent, free on-site storage and $1,000 discounts to renters who work at tech companies like Apple (AAPL), Facebook (FB) and Yahoo (YHOO). Meanwhile, another building, 399 Fremont, even tried giving away free bikes one weekend.

But new buildings weren't the only ones offering incentives.  Craigslist was also flooded with listings like the one below offering free rent and a $500 gift card to interested renters.

Rent Concession

 

Unfortunately, as the Wall Street Journal points out, NYC and San Francisco aren't the only cities across the country that are about to get flooded with new luxury apartments.  In 2017 alone, 378,000 new apartments are expected to be completed across the country, or roughly 35% more than the 20-year average. 

Developers in New York are already offering up to three months of free rent on some projects. In Los Angeles, some landlords are offering six months of free parking, and some in Houston are waiving security deposits. Meanwhile, MPF Vice President Jay Parsons said he expects little or no rent growth in urban rental markets this year.

 

“This will be a very challenged leasing environment almost everywhere,” Mr. Parsons said.

 

The slowdown, he said, is being driven not by a pullback in demand but rather a flood of new apartments. Demand for urban properties jumped after the housing bust as young, high-earning professionals eschewed homeownership and flocked to big cities. Developers responded by focusing most of their efforts on high-end properties.

 

Now, though, the number of upscale apartments coming onto the market appear to be outpacing the number of renters able to move into them: More than 50,000 new units were rented by tenants in the fourth quarter in the U.S., six times the number in the year-earlier period. But that demand was overwhelmed by the 88,000 new units that were completed in the quarter, the most since the mid-1980s, according to MPF.

 

That gap looks set to widen in 2017. More than 378,000 new apartments are expected to be completed across the country this year, almost 35% more than the 20-year average, according to real estate tracker Axiometrics Inc.

And smaller cities like Dallas, Atlanta and Nashville are expecting some of the largest supply gluts.

The sluggishness is expected to spread across the U.S., hitting markets from Nashville, Tenn., and Dallas to Los Angeles and Atlanta.

 

Dallas is expected to see nearly 25,000 new apartments delivered, compared with the long-term average of roughly 9,000 new apartments a year, according to Axiometrics. Los Angeles is expected to get roughly 13,000 new apartments, nearly double the historical average.

 

Nashville could see some 8,500 new apartments, more than triple the typical 2,400 apartments completed annually.

 

John Tirrill, managing partner at SWH Partners, an Atlanta developer that has several projects under way in the Nashville area, is leasing a new five-story property with a fitness center, yoga and barre studio and swimming pool. He has lowered rents from $2.25 a square foot to $2.10 a square foot—a $150 discount on a 1,000-square-foot apartment—and is offering one to two months of free rent.

Rental Supply

 

Meanwhile, as Wolf Street notes, rent concessions have become fairly pervasive across the country.

Rent Concession

 

And, banks are starting to get just a little worried that they financed a few too many luxury skyscrapers.

Banks are pulling back on lending, which could help slow the pace of construction starting in late 2018.

 

“We’re just being really selective,” said John Cannon, a senior vice president at Pinnacle Financial Partners, a Nashville-based financial-services company that has increased its focus on multifamily lending in the last couple of years. “Multifamily has a large number of units on the ground that they really have to demonstrate some absorption.”

We vaguely recall seeing the single-family version of this movie a few years ago...

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1980XLS's picture

Montana the only place, " Bankster Free" it seems.

evoila's picture

yeah and when you already have close to full employment in places like SF, you not only have a supply problem, you also have a demand problem.

 

and on the sale front.... http://www.socketsite.com/archives/2017/01/inventory-of-homes-for-sale-i...

 

 

WVHillbilly's picture

$3000 a month for 680 square feet? Nice. I have over 3000 square feet with a mortgage payment less than a third of that, on a 5 year old house sitting on 2 acres at the end of a dead end road (so no traffic at all).

 

People can make fun of wv all they want, but I'll just stay right here :-)

1980XLS's picture

Stop paying your property tax (even if you can't afford to) and see what happens to your "Asset"

Abbie Normal's picture

Okay, let's take that to the logical conclusion:  don't pay your property taxes; the county seizes your house and sells it at auction; they take what's owed for back taxes; you get the remainder.  Which is still worth a lot more than a stack of rent receipts.

Don't pay your rent and you're homeless in a month.  Don't pay your prop tax and you may be homeless in five years.

Kidbuck's picture

Last crash the banksters were able to turn even the most expensive condos and apts into section 8's. Let's see if this time around Trump lets the banksters and Wall Street eat their mistakes.

Delaware Dick's picture

WV is indeed a hidden gem. Don't tell anyone. Don't wanna Californicate it.

Delaware Dick's picture

WV is indeed a hidden gem. Don't tell anyone. Don't wanna Californicate it.

Déjà view's picture

I still do not recognize those breakaway original 50 western counties of Virginia...

Stars & Bars Forever!

Ramesees's picture

The original charter for Virginia was the land from Jamestown to the Pacific Ocean - so we should get KY, MO, KS, CO, UT, NV, and a big chunk of CA too.  

If you did make that one big state, would the citizens in the heartland offset the scum in NoVa and SF/NoCal and make it vote red?  It'd probably be close.  

cyberfossil's picture

Are women there in WV still generally toothless?  Or did the dental hygiene police and insurance maggots finally arrive there to fleece the population with fluoride treatments and mercury fillings?

Déjà view's picture

Bust Spreads To Mainstreet...

Are some of those 12 million illegals finally leaving...one can only hope!

Never One Roach's picture
Houston saturated with luxury apartments, report says

 

http://www.bizjournals.com/houston/print-edition/2016/06/10/houston-satu...

 

Add that to the 68,000 high paying engineering jobs lost during Obama-Saudi energy smash and there's ALOT of empty space there. Add to that also many big energy companies are moving out of downtown or cancelling their leases on commerical space and it will soon be a ghost town once again similar to times past.

 

Energy "stuff" alone counts for > 40% of Houston's GDP. Add RE and you are looking at over 55%. It's a big hickey.

firestarter_916's picture

If I had a dollar for every time a person claims to be living on 2, 5, 20 acers, I'd be able to buy a penthouse in Trump Tower all cash.

Nobody For President's picture

I'm on 43 acres (not acers - does that still count?) and have been living here since August, 1973.

Is that good enough for two dollars?

baldknobber's picture

2 acres at the end of a dead end road (so no traffic at all).

 How is the Meth business these days?

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) 1980XLS Jan 3, 2017 7:58 PM

"Montana the only place, 'Bankster Free' it seems."

Ah, but you have rain and, therefore, rain puddles. The EPA will be by to regulate, strangulate, and punish you shortly. Possibly shoot you if you don't do what they say.

Normalcy Bias's picture

Montanans are consistently at the top of national happiness surveys.

Let's see: an unbelievably beautiful state that is also very sparsely populated... Hmmmm...

PTR's picture

Yeah, but Ted Turner and his ilk are your (distante) neighbors.

MASTER OF UNIVERSE's picture

Not a lot of Joos in Montana, eh. Perhaps they don't see much of a future with few wealthy people to parasitically glam on to. Don't forget that Joos need Goyim to survive.

MASTER OF UNIVERSE's picture

That's a great story, thanks, Mena Arkansas. Given the obvious humour displayed by the writer I sincerely think I could live in Montana.

 

I have to look on a map to find where Montana is.

Abbie Normal's picture

Just go to Alberta and turn south, real sudden like.

Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) Jan 3, 2017 7:32 PM

Nothing to do with the disappearing middle class. Let's keep that Free Trade going!

silverer's picture

Well, think of all the new porn studios they will have available now.

Bunga Bunga's picture

Sell now and buy a bitcoin, they are making only 21 million.

knukles's picture

OK here's the deal.
You rent a whole building of these dirt cheap.  "Dirt" becomes an operative word, here.
You encourage the Federalies to dump a Bazillion of them Imagrants in yer town.
You then sell the units to them Imagrants really cheap and Wham-o Bam-o, you're paid handsomely as a helper for the Social System.
And you can feel good about yourself.
A new Porsche can do that to you.

Buenas Nochas
Nah, he don lib here no more, mang

silverer's picture

What?! You mean the falling down 70 year old garage on a 30x40' lot I paid 1.2 million for might lose value? That's insane!

buzzsaw99's picture

free shit army will move right in. when they say upscale on the permit application what they really mean is section 8 bitchez. coming to a (previously nice) neighborHOOD near you.

Jeeves's picture

Hopefully most of the HUD Sections will be de-funded and removed from the social freebie buffet. Same with EBT and food prices. Let the market give those who actually pay, the real pricing minus the government-funded cargo cult inflating demand and costs for the rest of us.

MASTER OF UNIVERSE's picture

I was just talking to Blackrock and they said they wanted all the new unsold units for fractions of a penny on the dollar.

 

SOLD!

bookofenoch's picture

Drove into Buckhead, Atlanta in December. The old houses are disappearing and there's a lot of empty new high rise apartments where once the elegant did dwell.

The spectacle embarrassed me.

Bay Area Guy's picture

If and when the tech bubble bursts, the San Francisco luxury rental market and the San Francisco luxury condo for purchase market are both going to be devastated.  I haven't been downtown in a while (although I do have to go down that way in a week for a memorial service for my best friend), but the last time I was there about three months ago, it seemed there was luxury condo for sale construction on virtually every vacant lot in the Western Addition as well as the SOMA area.  Of course, there are exceptions, I guess.  A top floor condo in the Millenium Towers just sold for something like $14 million.  For those unaware of the Millenium Towers, it was built near the site of the new Transbay Terminal Project (so near the Bay Bridge) and on old landfill.  The developer, for whatever reason, didn't drill the foundation pilings all the way to bedrock (and the building inspectors approved the design) and now that dewatering has taken place for the terminal building next door, the Millenium Towers is sinking and has a slight tilt to it.  I believe it's 54 stories tall, so the chap that paid $14 million for a 54th story condo may soon find he paid $14 million for a 53rd stor....52nd.....51.....condo, at least until the tilt goes full retard and the building collapses.

San Francisco.....The City That Know How.....to be as corrupt as you can find on the West Coast.

Hongcha's picture

Bay Area Guy; she's rolling over now as I type from One Front St.  I can almost see the new construction starting to lean.  And look at all the space going in...!

Speaking of the Leaning Tower at 201 Mission ... do you ever wonder how many OTHER condos were built the same way, to save $$...?  Anyone talking about THAT yet?  Who oversees Plans anyway; paging Mayor Lee...

The building is most frenetic right at the top as developers scramble to complete work and get paid...

I was here in 2007 and to my amazement, the correction is going to be at least as bad.  They somehow got people to climb in again ...

Prices held in the City 2007-2010, but there were not 30,000 new units at that time and and pile of Permits on the City Planning desk ... and no NAS @ 35 P/E waiting to pop as well ...

Watch Oakland (Uber is not coming, I would bet $1000 on that), Seattle and Portland.  When those start to go T.U. it's game over and grab the jiffy pop...

 

 

onewayticket2's picture

We walked away from an upgrade purchase on the east coast....just feel (and have for a while) that we're at a top...again....and refused to pull the trigger on the purchase.  wife is not happy/deep down disappointed....but i sold a place at a top before and this feels about the same way....but the trump effect might delay it for a few years if he can take a weed whacker to the DC bloat and cut a hundred billion out of the run rate.

Almost Solvent's picture

"for whatever reason" :) 

 

StreetObserver's picture

As a native of San Francisco--remember black cartickets?, I can't wait for the whole corrupt steaming pile of homeless drug addled shit and devants' paradise that San Francisco to collapse. 

We and a lot of our friends moved to Marin which is what San Francisco used to be, family friendly, the best public and private schools in the state overall, the wealthiest, healthiest, safest, most educated, most recreation laden county, and yes, there is diversity, Irish-Americans, German-Americans, Italian-Americans, Yiddo-Americans, French-Americans, a few honorably employed black Americans, Asian Americans and just plain Americans, with effective police departments and sheriffs.

When San Rafael loses its sanctuary city money under President Trump and the voters finally wake up and flush the city council, this place is going to blossom. Lots of warehouse and industrial space for artists, large numbers of apartments occupied by illegals who are already leaving, plenty of old Victorians and much better weather than any part of San Francisco, except my old stomping grounds, the Mission.

If you are a white family and feel alienated in San Francisco, or elsewhere in the Bay Area, if you feel like you are a foreigner in your own country, know the local danger when the EBT stops,  then check out Marin.

Expensive? You bet, but when you figure out the cost savings of not having to send your kids to private school in San Francisco and you figure your mortgage or rent in S.F. or the East Bay, Marin is not that expensive.

If you love multiculturalism, then please stay put, you won't like it over here, unless you are one of the town criers for diversity that chooses to live in a mostly white place ;-)

-----

"The building is most frenetic right at the top as developers scramble to complete work and get paid."

Hongcha, you don't know half of the panic that's happening in the city. Financing is falling through with stranded millions invested in properties that are not going to pan out. Let's not even talk about office space, that's the huge next bubble and in a way it's far worse because of the shorter term financing and refinancing.

Twitter for example, got a special exemption from the city payroll tax and now they are shrinking in spite of that. They are quietly looking to move to another Northern California city. Wading through puddles of human feces and getting your car broken into or being acosted getting off BART  is a turnoff for their employees.

Tee hee! Couln't happen to a nicer bunch of politicans and their whores, with a few exceptions like Marina Mark.

Archibald Buttle's picture

sorry about your friend. not so much for the chap on 54, and even less so for those stupid enough to be inside/in the path of destruction when this place falls over due to neglect/cost to dimantle or repair. pretty sure joe montana has a place in the building, if not then there are more of these buildings. or should i say, moar.

gatorengineer's picture

a 2k a month apartment, lets say 400 all in utilities (including cell phone), let say 300 a month after taxes health insurance, lets say $600 a month eats, and $500 a month transportation, and lets say $400 entertainment (young single 100 a week dont go far).  Approximately 50% taxes, all in state and local etc. You could do it on a 100k with no savings.  Question is what do you do in Nashville to earn 100K a year?  

Nobodys Home's picture

Hardened military Bomb Bunker! Black Hills of S. Dakota

$25,000 down - $1,000 a year 99 year lease. 26.5'x60' or 26.5'x80' x 13' high.
Build it out any way you want. Get a 2nd for your hydroponic garden and farm animals.

http://www.terravivos.com/secure/vivosxpoint.htm

Angelo Misterioso's picture

New development just "opened" last month just down the road - every night I've driven by all the lights are out - I guess not even one rental yet -

hope "zero leasing income" was in their pro forma for at least a year....

Vinividivinci's picture

Here in shithole downtown Montreal, unreal amount of
new condo highrises...all rentals and most empty.
Looking forward to squatting in luxury.

christiangustafson's picture

This could never happen in the Seattle, WA.

We are special.

canisdirus's picture

The Seattle market is completely disconnected with any semblance of reality right now. It has been keeping this up since at least 2014, so who knows how long it'll go.

PTR's picture

Seattle invented special.

bigrooster's picture

The Phoenix rental house market is still on fire...yes you know where I live ABC's so go fuck yourself.   Come January 23rd hopefully many of you worthless federal govenment fucks lose your job.