Multi-Family 2006

Prepared by:

Larry Drinkard
Office:
(478) 746-9421
Mobile:
(478) 731-3248
e-mail
Larry Crumbley, CCIM, SIOR, CRE, CPM
Office:
(478) 746-9421
Mobile:
(478) 737-3381
e-mail

The Housing Market is on track for its fifth straight record year, as sales of both new and existing homes have set new records. Thousands have become new homeowners with the help of low interest rates and favorable mortgage options. However, the Multi-Family market continues to be very active.

In the Macon area, Mill Creek, a new 224-unit complex on Skipper Road, opened in December 2005. The 148 units at Parkwood on Mercer University are under construction and scheduled for completion in late 2006. There are plans to build 300 units off Zebulon Road, just west of I-475. Just recently, developers announced they are considering building an 80-unit apartment complex in downtown Macon.

Based on information available, overall occupancy rates in Macon/Bibb County area are in the low 90's with newer units having a higher occupancy rate. Market rates for Class A apartments vary, depending on age, size and amenities, with newer units having the higher rates. Rates generally are in the range of $600 - $650 for one bedroom, $650 - $700 for two bedroom/one bath, $700 - $775 for two bedrooms/two baths, and $850 - $900 for three bedrooms. Rates on Class B apartments are generally $75 to $150 less than the Class A apartments. Rents on Class C properties vary significantly depending on age and location of the property. Concessions, at the complexes that offer them, vary from one-half month's free rent to a $99 move-in with one month free rent.

On the sales side, prices continue to increase. The sales price per unit depends on a number of factors (age, location, size, condition, amenities, current rent, etc.) In general terms, prices for Class A units have been in the $ 60,000 range and Class B units around $50,000. Prices for Class C units vary significantly. In some markets, many of the Class C sales have been for alternative uses, such as condos, new apartments or townhomes.

For 2006, the Multi-Family Market should improve as mortgage rates continue to rise, lenders tighten loan standards, and the cost of single-family homes continue to increase. According to the National Association of Realtors, housing affordability is at its lowest level since 1991. Occupancy rates should improve as the economic recovery continues. Capitalization rates are anticipated to increase slowly as long term rates rise and the return on alternative investments such as CDs, Treasuries and Municipal Bonds increase.

Among exit strategies, certain Sellers have converted their for-rent apartments into for-sale condominiums. Also, investors that prefer a passive investment over an active investment have been able to reinvest by using a Tenants-In-Common (TIC) Section 1031 exchange. The amount of TIC deals increased significantly after the 2002 Revenue Procedure made TIC ownership interests acceptable for 1031 exchanges.

The above is based on apartments having 30+ units but excludes assisted living, retirement, elderly, public housing and complexes where all units have subsidized rent.