In recent years, apartment construction peaked at 6,885 units in Seattle, where the Chroma, shown here, is located. According to Commercial Analytics, contractors in the first six months of 2021 began building only a handful of projects, totaling 523 units.
By Marc Stiles – Senior Reporter, Puget Sound Business Journal
The Downtown Seattle Association on Wednesday said over 6,400 new apartment units are expected to open in and around downtown Seattle by year's end, so it's shocking that during the first half of 2021 construction began on only 523 units citywide.
It was not just Seattle that saw a steep decline. Contractors across the four-county metro began building only nine for-rent multifamily projects totaling around 880 units, with zero starts in Kitsap County and only one eight-unit project in Snohomish County.
This is according to Seattle-based market tracking company Commercial Analytics, which said that in 2020, building in the region began on 71 projects totaling 10,964 homes. Roughly 63% of both the projects and the units were in the city of Seattle.
As with everything, the pandemic jumbled the multifamily market starting in the spring of 2020, but by then developers were mostly all-in on development, with their debt and equity financing lined up.
Now, "you can't get anything to work hardly at all," said Commercial Analytics co-founder Brian O'Connor. His other company, O'Connor Consulting Group, advises developers on the feasibility of projects.
Under Washington state's previous moratorium on evictions, landlords were not allowed to raise rents until the moratorium was lifted on July 1, but it was extended through Sept. 30. Meanwhile, the cost of operating and maintaining rental properties continues to rise.
In doing project feasibility studies, O'Connor said the projects would merely break even.
"There was no profit. Everybody had to put them on ice until the rents rebound," he said.
There will be some more starts before Dec. 31, but they won't reach 2020 levels and the result will be the lowest number of starts since 2015, when there were only three starts with a total of 557 units — all in King County.
Production rose in subsequent years, hitting 9,470 units in 91 projects in 2019. Last year, there were 71 projects totaling 10,964. More units in fewer projects was the result of the commencement of several high-rise projects in Seattle's University District.
The market is tight with the vacancy rate in Seattle at 3.2% in June, according to Commercial Analytics. Other markets are tighter, ranging from 2.6% in South King County down to 0.7% in Kitsap.
Another company, RentCafé, reports rents have declined 4% in Seattle over the last 12 months, but rose 2% in Tacoma and 4% in Bremerton. In Everett, rents increased 8%.
In most areas, rents haven't gone up enough to justify new construction, said O'Connor. who compares the situation to a bottle of carbonated pop.
"We've shaken the pop and when they pull that cap off ... boom, rents are really going to pop," he said.
O'Connor said landlords he has talked to said rental rates are behind 10% to 20%, but they're loath to institute big increases because "they don't want to be the bad guy in the paper."
Construction of Kinect@Burien, a 230-apartment project in downtown Burien is set to begin in August 2021. Under the city's multifamily tax exemption program, a fifth of the units will be priced to be affordable for households whose incomes are 80% of area median income.
AMERICAN PROPERTY DEVELOPMENT
By Marc Stiles – Senior Reporter, Puget Sound Business Journal
Jul 20, 2021 Updated Jul 20, 2021, 4:47pm PDT
American Property Development Inc. has begun demolishing an old strip center in downtown Burien to make way for a 230-unit mixed use apartment project.
Kinect@Burien will rise just down the street from the completed $193 million Burien Town Square redevelopment, which totals 10 acres and has around 480 multifamily units, a library and City Hall.
"We want to draft off of (Town Square)," said BJ Kuula, president of American Capital Group (ACG), parent company of American Property Development Inc.
The developer acquired mid-block parcels totaling around 1.6 acres for $3.54 million, according to public records. In addition, the developer paid $485,000 to buy out the leases of businesses that operated on the property.
In downtown Bellevue, a similar-sized property sold in late 2019 for $65 million to a development company that is under construction on an office tower that's leased to Amazon.com Inc.
"Relative to the rest of the Puget Sound (region) Burien definitely has more affordable land, if you can find it," said Kuula. The problem for would-be buyers is is much of the property is leased long term, he said.
In addition, rents in South King County, where Burien is located, are lower than in Bellevue and the rest of the Eastside. According to Commercial Analytics, a Seattle company that tracks the apartment market, the average rent for an Eastside one-bedroom in March was $1,932 versus $1,428 in the Southend.
In the Southend, 874 apartment units are under construction, excluding Kinect, Commercial Analytics reported. Of those, more than 500 are expected to open in July 2022.
Comparatively, Seattle and the Eastside submarkets will realize more than 10,000 and 4,800 units, respectively, by July 2022.
Kinect@Burien's development cost is $82.5 million, said the developer whose equity partner is Los Angeles-based Canyon Partners Real Estate LLC.
The project will have 8,600 square feet of retail off of 151st and 276 parking stalls with one level at grade and the other below grade.
The property deals have been in the works since at least July 2020. According to a city staff memo at the time to members of the City Council, American Capital Group approached the city about buying the municipal parking lot on the south side of Southwest 151st Street, east of Eighth Avenue Southwest.
ACG had the adjacent, privately owned property under contract, the memo said; public records list the sellers as Kenneth, Mary and Diana Greenbaum and Janet M. Meister.
According to city Economic Development Manager Chris Craig, Burien was required to get fair market value for the parking lot. An independent appraiser determined the value, he said.
As part of the city's multifamily tax exemption program, 20% of the homes at Kinect will be priced to be affordable to households with incomes that are 80% of the area median income. The Seattle area's median household income is $115,700, according to the most recent data from the U.S. Department of Housing and Urban Development.
American Property Development designed Kinect@Burien, and American Home Builders is the general contractor. Demolition began last month with construction to start next month. Completion is scheduled for summer 2023.
Editor's note: This story has been updated to correct the total development cost of Kinect@Burien.
Managers of apartment buildings like this one in the Fremont area of Seattle started offering self-guided tours in the spring of 2020, when Covid-19 was spreading.
By Marc Stiles – Senior Reporter, Puget Sound Business Journal
To most lay people, starting construction of apartment buildings last year seemed foolish. With some parts of the economy grinding to a halt and sending the unemployment rate soaring, who would move into the buildings and when?
The rental market in King and Snohomish counties ended 2020 with nearly 7,100 fewer occupied apartments than at the start.
But demand started to boom earlier this year and then accelerated, with renters filling nearly 18,000 existing units plus another 3,000 new ones, according to Commercial Analytics, a Seattle company that surveys landlords to track market trends.
Seattle saw net demand drop by more than 7,800 units in 2020 but then rebound to fill around 11,275 units from January through June.
Commercial Analytics co-founder Brian O'Connor hasn't seen anything like it in his 40 years of data collection. He said it was like capturing two years of traditional demand in six months.
Logging the sooner-than-expected rebound, Commercial Analytics asked landlords what was going on. The answer: Young renters wanted to take advantage of the good deals, such as two months of free rent, that landlords were offering to fill up their buildings.
"Concessions have fallen off," he said. "There are only a few buildings with concessions and those are (new) ones that are in lease-up, so it's not an indication of market weakness. They're just trying to lease up faster by offering normal concessions."
O'Connor expected the market to bounce back eventually as the economy recovered from Covid-19, but didn't think he'd see these kinds of numbers so soon.
In King County, Seattle's vacancy rate declined the most – down 440 basis points from December to 3.2% in June. That was followed by the Eastside's 380-basis-point drop to 1.9%. Lower-cost South King remained in demand during the pandemic and saw the vacancy rate fall just 110 points to 2.6%.
Snohomish County's vacancy rate fell from 4% to 2.3%.
This is not occurring just in and around Seattle and Everett. Pierce County saw vacancies fall from 2.8% in December to 1.3% in June, and Kitsap logged a decline from 2.8% to 0.7%.
"The market is tight, like under 3% from the Canadian border down to Olympia," O'Connor said. "We did a study of Skagit County where we surveyed around 950 units in 12 buildings. We could not find a vacant unit," O'Connor said.
In March, average one-bedroom rents in the four-county metro area ranged from $1,330 in Pierce County to $1,848 in King, according to Commercial Analytics.
O'Connor expects rents this year could rise 6% to 7%, though he said government restrictions on rent hikes in cities like Seattle could limit that to 2% or 3%.
"Next year, though, rents will rise probably 10%, and that's when we'll have the undersupply problem because of Covid in '20 holding back starts," he said. "The money was puckered up. Rents were bad and very few deals got on the ground," O'Connor said.
Job growth is the driver of all real estate markets, and the Puget Sound region is still down 97,000 jobs from its pre-Covid level, with Puget Sound Economic Forecaster’s June 2021 report projecting 2.5% employment growth through the end of this year and a robust 5.8% next.
By Jennifer Lee
Published Friday, October 9, 2020
Eviction moratorium extended statewideQ13's Jennifer Lee reports on the statewide eviction moratorium that will be extended through December 31.
SEATTLE - During the Governor’s press briefing on Thursday, he announced the eviction moratorium will be extended until December 31. The latest moratorium was set to expire on October 15.
Sean Case lives in Seattle’s Capitol Hill neighborhood and has been advocating for housing support throughout the pandemic.
He works as a cook at Glo's on Capitol Hill and was out of a job during the early months of Covid-19 that shut down the economy.
“I’m making less money, therefore my rent is a little harder to pay than it used to be. It’s good that (the eviction moratorium) is there. I don’t think it should be lifted by any means.”
Case said he is not at risk of being evicted but wishes more help was available for housing during the pandemic.
“Rent and mortgage payments should be canceled on the local, state and federal level,” said Case.
While tenants may be protected from getting evicted, unpaid rent will continue to accumulate into debt.
The governor’s moratorium advises landlords and tenants to come up with a payment plan that is reasonable. Tenants who are unable to pay residential or commercial rent must also prove their financial hardship.
“What’s needed most desperately from a lot of households in the State of Washington is income relief so that they can make rent payments,” said housing advocate Roger Valdez. “It’s a truly bizarre situation that you have a Governor who continues to extend an eviction, ban but he has done nothing, or very little, to solve the problem of unpaid rent.”
Valdez is the Director of Seattle for Growth, and ordered a report that collected and analyzed rent roll and survey data. Based on that information, he believes the state could’ve invested millions of dollars in housing payments to help families facing financial hardship.
The president of the Washington Landlord Association said landlords are being devastated by this proclamation.
The Governor will sign the proclamation to extend the eviction moratorium on Monday.
As for Case, his workplace is giving back through a community meal program by providing meals to neighbors who don’t have homes. You can check it out on Glo’s website.
By Marc Stiles – Staff Writer, Puget Sound Business Journal
Oct 2, 1:44pm EDT
With Amazon and other tech companies expected to add tens of thousands of jobs on the Eastside in the coming years, developers of multifamily housing are swarming the area.
They may be a little early, however.
“I think there’s a lot of excitement in Bellevue, but I think people might be getting a little overly enthusiastic,” said appraiser Brian O’Connor of O’Connor Consulting Group, a Seattle company that advises multifamily developers.
Across the Puget Sound region, demand for multifamily housing has dropped significantly due to Covid-19 while supply increases, he said. The Eastside is not immune.
The Eastside apartment vacancy rate is 4.6% now, and O’Connor forecasts it could climb to 5.8% by the end of 2021. He thinks it will end up slightly higher in downtown Bellevue.
Still, this has not deterred developers.
“Demand will probably grow, but the development community — they don’t wait for it to grow, they just charge right in,” O’Connor said. “There’s already an oversupply, especially in the Totem Lake/Redmond area.”
The eagerness of developers is not misplaced. O’Connor said if they’re scouting for property now, they probably won’t be able to start building for at least 18 months to two years, with construction taking another 24 months.
“That gives time for the market to heal and the tech industry to ramp up,” he said.
In Bellevue, clients are looking for development sites in downtown and the Spring District.
“Everybody loves the Spring District,”
O’Connor said of the 36-acre development where Facebook will have enough space for an estimated 7,000 employees.
Nearly 800 apartment units already have been built in the district and there’s capacity for 400 more, according to developer Wright Runstad & Co.
It’s not just the Eastside that multifamily developers are circling. Interest is also mounting in Shoreline, where Sound Transit is building two light rail stations that are scheduled to open in 2024.
“We’re doing Shoreline job after Shoreline job. The action now tends to be there or on the Eastside and Tacoma,” O’Connor said.
On the Eastside, it’s “the Amazon effect,” said O’Connor, who has seen this play before.
About 10 years ago, when it became evident how much the company would grow in the city, multifamily developer money was pouring into the region.
“All they wanted to hear was the Amazon story. I would tell them, ‘Hey, you should look at Bellevue,’ and they were like ‘meh.’... The money (still) wants to follow the energy that Amazon creates, so I’m pretty bullish on it,” O’Connor said.
Apartment development in Bellevue
Under construction: 598 units in 4 buildings
Proposed: 5,748 units in 23 buildings
Bellevue – downtown 6.4%
Bellevue – suburban 5.4%
Properties offering concessions
Downtown Bellevue: 45%
Suburban Bellevue: 61%
By Marc Stiles – Staff Writer, Puget Sound Business Journal
Sep 4, 2020, 6:25pm EDT
It's estimated that in May alone, apartment owners in the four-county Seattle metro region likely didn't collect more than $22.6 million in unpaid rent due to coronavirus-caused unemployment.
In King County, Seattle was most affected, with over $14.5 million in lost revenue, according to modeling by Commercial Analytics of Seattle. Estimated impacts on the Eastside and South King County were nearly $4 million and $3.5 million, respectively.
Seattle For Growth, a nonprofit that promotes policies to increase the stock of housing, commissioned the study. The group has been advocating for cash relief for households suffering from job losses caused by government shutdowns.
Seattle For Growth Director Roger Valdez said the U.S. Centers for Disease Control and Prevention has banned any rental assistance, and that state and county governments are making help hard to get, and will cover only 80% of unpaid rent.
“What this survey shows is that the vast majority of people are paying rent, but many people need help,” Valdez said in a press release. “State and local government should be acting fast to get resources to the people that need it most."
Commercial Analytics surveyed about 750 housing providers in King, Kitsap, Pierce and Snohomish counties, representing just over 22,300 units of rental housing.
Of the surveyed units, only 3.9% had not paid full rent as of May 15.
Separate from the study, 86% of households in Seattle Housing Authority properties paid rent in April and 89% in May, according to SHA spokeswoman Kerry Coughlin. By the third week in June, the numbers were back up to "very normal high numbers – 96.5%," she said.
Another housing provider, Bellevue-based HNN Communities, which has about 6,500 apartment units in Western Washington, has been "consistently surprised at how amazing our residents are doing paying their rent," Heidi Anderson, HNN resident relations manager, told the Business Journal.
Ninety percent of HNN households paid rent by the end of April, though that number declined in subsequent months, falling to 82% in August, she said.
The September delinquency numbers will be telling with federally enhanced unemployment benefits having expired at the end of July.
To determine non- or partial payment from rent rolls, Commercial Analytics analyzed each property’s documents for units with unpaid rent and the delinquent rent amount. Commercial Analytics then followed up with property managers by email surveys or phone interviews to determine the reason of non- or partial payment.
The Seattle submarket showed the most delinquency, at 6.1%, followed by South King at 4.5%, Kitsap, 4.2%, and Pierce and the Eastside, both at 3.2%. Snohomish County's delinquency rate was 2.5%.
To determine the possible impact of rent delinquency, Commercial Analytics used two of its datasets: rents and apartment inventory. The company calculated an average rent per unit for each submarket, weighted by the frequency – or appearance – of rents in survey sample.
Commercial Analytics multiplied the delinquency factor to inventory of multifamily properties to estimate the units possibly delinquent in each submarket.
Of the 876 households that did not pay full rent as of May 15, 70% paid no rent, with the rest paying partial rent.
The most common reason (77.6%) for nonpayment was verified income loss due to unemployment because of the Covid crisis. Just over 15% gave no reason for not paying. The rest did not pay rent for reasons unrelated to the pandemic.
Apartment rents in the Seattle region could drop by 10 percent, but even so, not many people will be able to move with COVID-19-putting the economy at a standstill.
There have been mass layoffs and unemployment benefits and other government aid still to come, leaving a lot of people unable pay the rent.
Seventy-six percent of tenants are seeking some form of relief, according to a survey of property managers who oversee about 34,000 units at 216 properties across the four-county metro. Seattle-based Commercial Analytics conducted the survey March 23 to April 3.
As this unprecedented situation continues to evolve, one thing is certain: There will be a big impact on the rental market where a statewide ban on evictions is in place.
It's hard to predict what will happen, said Commercial Analytics co-founder Brian O'Connor, because of the magnitude and uncertainty of the crisis.
"This is craziness," he said. "It's a major disruption to the whole system."
O'Connor said the survey data indicate most renters are "hunkering down." He still thinks vacancies will rise, though not to 15 to 20 percent.
He sees less rent being paid. He expects this will work itself through the system as unemployment and other benefits reach tenants and benevolent landlords hang on until their renters get their jobs back.
O'Connor thinks people who are just opening new apartment buildings are most exposed. They'll be forced to lower rents and cause managers of existing buildings to follow suit.
"(Properties) are going to cannibalize each other for a little while," he said.
O'Connor anticipates rents will drop by at least 10 percent in the short term as what happened after 9/11. He said landlords will act to staunch the rise in vacancies before they get too out of hand.
"Managers usually don't let the vacancy rate rise too high. They'll let it go to 5 to 7 percent and then drop rents to keep it in that realm," said O'Connor, an appraiser who advises developers and investors.
He told one client to write this year off because there will be less demand. The question is what happens next year.
"The thinking right now for me and other folks I'm talking to is we're going to get back to somewhat of a normal (market) probably by next spring, next March. That's the thinking right now but to be perfectly honest, nobody really knows," O'Connor said.
For the second time in four months North Carolina-based Bell Partners Inc., bought a large apartment property in Redmond, and the deal looks similar to the company's first Seattle-area acquisition.
Bell paid Trammell Crow Residential $91.6 million for the new 222-unit property at 6335 180th Place NE. That's four miles northeast of another new property that Bell bought for $96 million in September. The most recent acquisition has been renamed Bell Marymoor Park, and it's 94 percent leased, according to Bell. The company said market-rate units are renting for about $2.75 per square foot.
Bell is among investors banking heavily on the Seattle-area apartment market. Rise Properties Trust spent about $588 million last year buying nine apartment properties in the region, where rents are rising thanks to continued growth of tech companies. Amazon is entering Redmond, joining Facebook, Google, and Microsoft.
While still going up, Redmond's rent growth has weakened due to a significant boost in new inventory.
After increasing 3.9 percent between and third quarter of 2018 and the first quarter of 2019, Redmond's rent growth slowed to about 0.7 percent from March to September 2019, according to Commercial Analytics, a Seattle company that tracks the multifamily market. During those six months, rents increased nearly 1.5 percent across the Eastside and about 1.2 percent in Seattle.
Commercial Analytics reported that Redmond added 1,281 new apartment units over the last two years, with another 2,120 under construction. King County has added more than 14,000 units since 2018, and 13,380 new units are being built this year.
Bell Executive Vice President of Investments Nickolay Bochilo said the Eastside, with its high-quality schools, rapidly expanding tech companies, high cost of buying versus renting and "differentiated lifestyle amenities" support attractive fundamentals for rental housing.
The rate of apartment rent growth across the four-county metro Puget Sound region area is neither super high or super low, and the vacancy rate is similarly on an even keel.
That's according to Seattle company Commercial Analytics' report, which found that the vacancy rate in March was 2.75 percent while rents grew by 2.28 percent over the preceding six months. During the height of the boom rents were much lower and rent growth was off the charts.
"The market is fundamentally in equilibrium. I haven't seen that since the crash," said appraiser Brian O'Connor of O'Connor Consulting Group, a Commercial Analytics co-founder. "It's like we are in this Goldilocks moment."
The results varied by county, with rent growth ranging from 1.6 percent in Snohomish, for all sizes of apartments. One bedrooms there rented for an average of $1,379. Overall rents rose 8 percent in Kitsap, where the average rent for one bedrooms was $1,336.
King County rents increased 2.2 percent for all sized apartments, with the average one-bedroom rent at $1,873. There was a 2.3 percent rent increase in Pierce County, where the average one-bedroom rent was $1,190.
The Eastside showed a much stronger pattern of rent growth than any other King County submarket, with an increase of 4.1 percent versus 1.35 percent in Seattle. "The Seattle market is clearly beginning to show signs of the significant new supply of units," O'Connor wrote in the report.
Rent growth in downtown, South Lake Union and Belltown was 1.35 percent. Most everywhere in Seattle, rent growth was under 2 percent, with the University District and Northeast Seattle seeing a gain of nearly 1.1 percent. The lone exception was 4.4 percent in West Seattle.
Developers continue to build. Region-wide, 15,500 apartment units are under construction, up 10.3 percent, according to Commercial Analytics. Four-fifths of the units are going up in King and Snohomish counties, and two Vancouver, Canada companies, Onni Group and Westbank, lead the way with a total of 2,300 units.
Developers are homing in on sites around transit stops, and they're becoming more and more loath to building in Seattle with the city's higher "mandatory affordable housing," or MHA fees compared to other cities.
O'Connor, who advises developers, said builders have taken a shine to Shoreline. Ask why, and "the first words out of their mouths are no MHA fees," he said.
By Marc Stiles – Staff Writer, Puget Sound Business Journal
Feb 20, 2019, 5:46pm EST
A report by a new Seattle company contains a big surprise: Seattle apartment landlords have not suffered from the new-supply glut as had been anticipated.
Commercial Analytics' inaugural report fills the void of locally sourced market data left after the unexpected closure of Dupre + Scott Apartment Advisors in December 2017. The Seattle company closed after 38 years of publishing the gold standard of market intel used by industry players from developers to public policy makers.
In downtown Seattle and South Lake Union, where some observers have been anxious over the addition of thousands of new units in recent years, the year-over-year vacancy rate ticked up about a point to 5.1 percent in September. The average rent increased 5.4 percent to $2,140. The 2017 data was from Dupre + Scott while Commercial Analytics gathered the 2018 numbers.
"The apartment market has remained pretty healthy," said appraiser Brian O'Connor of O'Connor Consulting Group. He and brokers Candice Chevaillier of SVN Whitecap and Jim Bowles of Lee & Associates co-founded Commercial Analytics in partnership with Seattle tech company NavigatorCRE.
What sets Commercial Analytics apart from national apartment market data companies is that the new firm, like Dupre + Scott, drills down by neighborhood, unit type and year built. The company's coverage area includes all four metro counties. It is a cloud-based service that crowdsources market information to provide fine-grain detail. In-house staff verifies data with landlords.
Commercial Analytics will release data about landlord concessions in its forthcoming development report, but the firm's January survey found that 28 percent of properties across the region offered free rent and other concessions, while in Seattle the number was 30 percent.
Among Commercial Analytics' upcoming offerings will be reports on apartment buildings' expenses, sales and investment activity and the condominium market.
The report costs $695 a year for the spring and fall rent-and-vacancy report, plus a $95 membership fee. It comes with a copy of a supplemental report called Data Junkie that analyzes market fluctuations and offers forecasts, which is penned by O'Connor.
O'Connor wrote that King County's slowdown in 2017 was, in part, due to slower regional job growth, which subsequently rebounded. Given that employment growth is expected to slow this year to perhaps 40,000 jobs, down from 53,000 last year, it seems reasonable to expect lower demand and rising vacancies, he said.