MBA Reports Multifamily Originations Down in Q4

This adds to Grubb & Ellis prediction's (previous post) showing tighter lending standards and falling demand for commercial real estate.

MBA Reports Multifamily Originations Down in Q4

Commercial and multifamily mortgage bankers' loan originations fell on a
year-over-year basis in the fourth quarter, according to the Mortgage Bankers
Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations. Fourth quarter originations were sixteen percent lower than during the same period last year.

The year-over-year decrease was seen across most property types and investor groups....The decrease in commercial/multifamily lending activity during the fourth quarter was driven by decreases in originations for most property types. When compared to the fourth quarter of 2006, the overall decrease included a 73 percent decrease in loans for office properties, a 50 percent decrease in loans for industrial properties, an 38 percent decrease in loans for retail properties, an 7 percent decrease in loans for multifamily properties, as well as a 349 percent increase in loans for hotel properties and a 3 percent increase in loans for health care properties. The increase in hotel originations was heavily influenced by large portfolio sales
during the period.

Sales Volume Down Big for Las Vegas Apartments

As posted by "The Ground Floor" the blog site for the Urban Land Institute-ULI

"In an interview with Commercial Property News, Grubb & Ellis chief economist said he expects a 40% decline in commercial real estate transaction volume in 2008 as compared to 2007. Among the factors underlying his comments was the recently released Federal Reserve Board survey of senior bank lending officers which noted that 80.3% are tightening lending requirements, the highest percentage in nearly 20 years".

And we have already begun experiencing the effects of this credit crisis in Las Vegas. Sales of apartment projects totaling +5 units or greater have fallen sharply in 2007. There has been nearly a -35 percent decline in units sold versus 2006.

Prices paid per unit has held steady in the Class-A/B sector with $/Unit increasing to $112,900, or +7 percent in the 4Q2007 vs. the same period a year ago. However, the Class-C segment has dropped nearly -13 percent to an average of $68,400/unit, according to the "Apartment Insider" newsletter.

The Las Vegas Strip Ignors the Slowing Economy

In today's business section of the Review Journal/Wall Street Journal Sunday was an article entitled "The R Word" describing the effects of a slowing economy here in Las Vegas. Of the three page article, I found the comments of Dick Rizzo, the Western Division chairman of Perini Building Co. comments best reflects the anecdotal evidence I use to time the cycle in our economy. Perini is building CityCenter and Cosmopolitan in Las Vegas and has a backlog of two more huge projects on the way, though Rizzo wouldn't identify them.

"We have a unique perspective into the future because we get invited to meetings two and three years in advance of these programs and I can tell you tha the list is significant," Rizzo said from his Las Vegas Office. "People are still able to justify and finance significant new programs in the next three to five years."

Meanwhile, Las Vegas' employment growth has slowed to 1.1 percent with a total work force of roughly 945,000. And unemployment has crept up to 5.6 percent. Roughly 15,000 jobs were lost in the construction industry, which accounts for 11 percent of total employment, twice the national average. Other posts on this blog point out that the recent construction lay-offs are resulting in Class - C apartment vacancies reaching 9 percent.

Rizzo siad it's important to distinguish that most of the job losses came from residential construction, not commercial. He tracks the union employment base monthly and said availble manpower for the mostly union crafts people used for Strip construction has increased.

The sheer size of Strip projects adds thousands of workers at each site. CityCenter has 6,000 to 7,000 workers now on site and will peak at 8,000 in mid-2009, Rizzo said.

Deutsche Bank; Las Vegas to Create 120,000 Jobs

Review-Journal Sunday, February 10th

"History has shown the Las Vegas economy rebounds from any slump when the Strip goes through a building boom. Observers believe today's extensive Strip makeover wil be no exception. Some 40,000 new hotel rooms are in phases of planning and construction along Las Vegas Boulevard that will keep a construction work force employed through 2012". says the article.

"Deutsche Bank, in a report to investors, said the building boom will create upward of 120,000 new jobs." "The Las Vegas Convention and Visitors Authority said the room inventory expansion could boost room tax collections to more than $571.8 million annually, 30 percent higher tha the current collections."

Las Vegas Job Growth Could be Around the Corner!

There's no doubts that Las Vegas and Nevada in general has been in a slump when it comes to job growth. Unemployment in Nevada has reached higher than the national average measuring 5.4%.

But not to fear...the Las Vegas Strip's "Job Engine" is about to kick in gear. The Strip's Trump International Hotel & Tower, with 1,300 suites, must hire for its March 31 opening. Palms Place, a 600-unit condo-hotel west of the Palms, will open in early March. Station Casions are ready to open Aliante Station in North Las Vegas in late 2008. Encore at Wynn Las Vegas is also set to launch later this year.

Plus, look for the mega resorts like the CityCenter Project and Echelon to begin recruiting workers by the end of 2008.

Las Vegas Apartment's Increase in Vacancy

CB Richard Ellis reported that Las Vegas apartment vacancy at 8.4 percent in December up from 8.11 percent in Novembers 2007. Vacancies for Class - A is 7.6 percent of the total 26,900 units in this segment; Class - B units were reported at 8.48 percent; and Class - C came in at 9.06 percent.

Take another look at the previous articles labeled "Charts" in the right margin. These reported vacancies substaniates my views regarding higher capitalization rates and vacancies for the Class - C market in 2008.

Las Vegas Apartments Projected to Lag National Forecast

Realtors Commercial Alliance - RCA; Washington D.C.

The fundamentals remain healthy for commercial real estate according to the latest COMMERCIAL REAL ESTATE OUTLOOK of the National Association of Realtors. NAR Cheif Economist Lawrence Yun said commercial fundamentals are essentially sound. "Although vacancy rates remain relatively low for all sectors, they are expected to rise slightly in the office and industrial markets during the coming year because much of the space being absorbed is in high-quality buildings or is built-to-suit," he said.

Reading further into the report regarding the multifamily market. The apartment rental market - multifamily housing - is experiencing increased demand from the slowdown in home sales. With a rising population and growing number of households, vacancies are tightening and rents are rising.

Multifamily vacancy rates are projected to average 5.4 percent in the current quarter, down from 5.9 percent in the fourth quarter of last year, and then continue to decline to 5.1 percent by the end of 2008. Average rent is likely to rise 3.1 percent for 2007 and 3.8 percent in 2008, following a 4.1 percent increase in 2006 according to the report.

Unfortunately, Las Vegas apartment rents are projected to be flat for 2008. With over 25,000 SFRs still on the market and nearly 50 percent are vacant looking for renters. Its difficult for new projects to push rents.

Nationwide, multifamily net absorption is expected to total 229,500 units in 59 tracked metro areas in 2007, below the 234,400 last year, but should rise to 245,800 in 2008. For Las Vegas, absorption continues to lag with only 474 units absorbed versus the 1,538 units constructed in the 4Q2007 for a construction/absorption ratio of 3.2 as reported by REIS.

The areas with the lowest apartment vacancies include Northern New Jersey, Salt Lake City, San Jose, San Diego, Nashville and Philadelphia, all with vacancy rates of 3.3 percent or less. In comparison, Las Vegas is expected to increase in vacancy from 6.1 percent in 4Q2007 to above 6.5 percent in 2008 according to the lastest REIS Report.

Multifamily transactions in the first 10 months of 2007 totaled $62.3 billion, nationally, compared with $87.4 billion for all of 2006, or nearly 29 percent drop in sales. The Las Vegas market experienced similar market conditions.