Whether the city of Eugene wants it or likes it, it appears that denser neighborhoods will be coming to the city. Oregon lawmakers have approved a new law that bans single-family zoning in the state’s larger cities. Neighborhoods that were previously restricted now must accommodate duplexes, triplexes, and townhomes. This will create more opportunities for infill for more multifamily in Eugene. Little by little we are chipping away at solving the housing shortage in Eugene. You can read the full article here:

Eugene has been at odds over density. A new state law could force the issue

Eugene will kick and scream, but denser neighborhoods likely will become a reality for Oregon’s second-largest city in the coming years.Three weeks ago, Oregon lawmakers gave final approval to legislation that effectively bans single-family zoning in larger cities by requiring those neighborhoods to accommodate duplexes, triplexes and town homes.The legislation, if signed into law by Gov.

The primary land-use zoning in Eugene is for single-family homes, and although this permits some duplexes and other higher-density dwellings, regulations make the process complex. The new law changes that dramatically. According to writer Christian Hill in his article:

[T]he legislation, House Bill 2001, requires cities to allow duplexes on every lot on land zoned for single-family housing. In addition, it requires cities to allow “all middle housing types” — so named because they fall between homes and apartment complexes — in these neighborhoods…The city’s regulations have stymied construction of new duplexes. In the past 10 years, the city has issued building permits to construct 2,192 single-family homes but only 78 duplexes, according to the city’s online database

Many consider there to be an affordable housing crisis in Eugene. Low- and middle-income people have found themselves priced out of home ownership. Some consider this law to be a step in the right direction, and others are concerned about the impact on noise, traffic, and privacy in neighborhoods.

My goal as a commercial real estate investment broker is to help you understand the developments in commercial real estate Eugene and how to make the most of them as an investor. The professionals at Pacwest Commercial Real Estate are Eugene multifamily experts. Call today if you would like to discuss this further at 541-912-6583.

Link to original article

[embedyt]https://www.youtube.com/watch?v=Zd3oM-wjUZA[/embedyt]
Watch or Read

Rent Control and Multifamily Property Investment

Zoe York: I’d really love to hear about your perception of rent control.

René Nelson: Rent control is impacting a lot of my multifamily owners that I deal with on an ongoing daily basis. I continue to educate myself and learn as much as I can so I can help give them advice and tell them here’s when you need to contact an attorney, here’s where you need to ask your property manager some of the important questions. You definitely need to be using the newest rental agreement forms, as an example. I am always advising people to consult with their real estate attorney, because one mistake can cost a minimum of three months rent plus the damages. It can get really expensive quickly.

That said, I also feel like it’s important to learn the ins and outs and what we’re going to be able to do as property owners. I’ve attended seminars and done a lot of research to keep on top of the latest information.

In our area there are a lot of 1970s and 1980s apartment units, where people really haven’t done much for improvements and their rents are below market. Their rents are in the $662 to $700 range for a one bedroom, one bath, but right now if you looked in the Eugene market, I’d say it’s closer to probably $850 at a minimum. So if you’re at $650 because you have been lagging behind the market and you haven’t had any vacancy, you’re going to have a tough time at 10 percent rent increases annually to catch up to where you should be at 850.

For that reason I think a lot of multifamily owners may consider selling because they’re just going to get to that point where they’re concerned about rent control, they don’t like the government mandating what they should be doing. And I think for a lot of people may also be in that final stage of retirement and now they’re looking at rent control, thinking, “I wonder if they’re going to change the rule or the limit.” Because at 7 percent plus the 3 percent CPI, it’s around 10.3% this year, but if they lower that in the next legislative go round, maybe in two years, they could change that. There’s no guarantee that it’s going to stay at a 7 percent on an annual basis. Last year San Francisco was around 1.7 percent. If all of sudden rents were capped at 3 percent, then that’s hard to even keep pace with maintenance and repair and property taxes.

Using Value-Add to Increase Rents

I have been encouraging my multifamily owners that are wondering what to do to consider a value-add opportunity, where they transition their tenants out. Of course, they have to ask their attorney or their property manager and talk about this, but there is a carve-out in Senate Bill 608 that allows you to give a 90-day no-cause notice if you’re going to have a family member that lives in the property or if you’re going to do a substantial rehab or renovation to the property.

An easy measurable tool for this is habitability, which I heard an attorney explain at a seminar. His example was that if you’re going to go into an apartment and rip out the bathroom and the kitchen, then the unit would have no hot water, no toilet, no sinks, and no way to cook, making the unit technically not habitable. If you have an available unit in your apartment complex, you have to move them there first. But let’s say it’s your average 20-unit apartment complex and it’s 100 percent full and you want to go in and rehab five of those units, you could give notice to those tenants. In this situation, the owners are going to have to pay one month of rent because that allows the tenant to have some cash to pay deposits for when they want to move. But this gives multifamily owners the opportunity to go in and rehab those units and get rents back up to where they should be.

Zoe York: I agree with that, and I do think habitability is an important thing to consider and to talk to an attorney about. Owners want to meet that standard of the unit not being habitable for renovation, because if you have below market rent in this strong market, it’s going to be very tempting to go in and just paint and do the floors and call that a significant renovation. I’m not sure that would classify as not being habitable, so I think multifamily owners are going to want to be careful. They should talk to their attorneys, make sure they’re not doing the bare minimum, which could get them in trouble and open them up to liability.

We have a lot of these older complexes that have deferred maintenance, and so they need some improvements anyway. A lot of them need improvements to the exterior and to the roof. And those types of improvements would not classify for making the unit uninhabitable, but if you’re going to do those things anyway, this is a great opportunity to get your rents up to market and kind of loophole around the rent control. When you’re looking at a pretty significant capital expenditure, but you’re looking at a capitalized a couple hundred dollars per unit per month rent increase, I think it probably does start to pencil out for property owners.

Another consideration is if you have a property that’s below market like that and you don’t have the value-add when you go to sell it. You basically have to get your rents back up to market over the long-term with the rent increases in order for you to maximize your property value. That makes you not very liquid in your real estate during that stabilization time, or you have to be willing to take a hit because somebody else is going to have to do that stabilization.

I think you take a risk as a property owner if you’re just slowly increasing your rents with the rent control ordinance because over that stabilization period, your property is worth less because the rents are lower. This makes value-add an important opportunity to make sure that your real estate is a little bit more liquid by adding that value immediately rather than waiting for the market to catch up.

René Nelson: I agree. I’ve put together a rent control packet especially for out-of-town investors because I think a lot of owners are unsure how to proceed since Oregon is the first state that now has statewide rent control. I want to educate owners on what they need to do to protect themselves.

Zoe York: I think at this point owners need prudent management and to really understanding what they can and cannot do. The rent control cap is very large. We’ve previously discussed that historically rent increases have been at 3 percent per year, and 10 percent is well above that. The true impact on values right now doesn’t appear to be on anything that’s not well below 10 percent below market rent. But I think the big problem for investors right now is this concern that it might change in the future.

We seem to have this balance of what’s currently happening with rent control, and numerically it’s not actually causing that much of an impact, except for the properties that are well below market, and the fear of what could happen. You have the investor perception of fear of change and fear of government control in the future. I believe those two things are going to be balanced for both investors coming into Oregon and current property owners; both have to deal with what is actually happening as well as their perceived risk. Because this is a fairly new bill, we’re going to see over the next 9 to 12 months what’s actually going to happen in the market.

If you have questions about rent control and investing in multifamily properties, contact me today: René Nelson 541-912-6583 / rene@1031guru.com    www.eugene-commercial.com. You can also visit Rent Control Central.

Following Statewide Rent Cap Oregon Multifamily Investment Drops 38%

By: Emily Anderer In the wake of Oregon’s new statewide law capping apartment rent growth, multifamily investment – particularly from out-of-state buyers – has significantly declined. This may hold lessons for states around the country grappling with rent control measures.

In fact, in the first three months that rent control became law, investment in multifamily properties was down 38 percent compared to that period last year. In her article, Emily Anderer notes:

Over this three-month period [March–May] in the current year, 60% of multifamily investment in Oregon came from in-state buyers. By contrast, during the same period in 2018, just 22% of capital came from in-state buyers. In the wake of the rent cap, out-of-state buyers are choosing to invest substantially less in Oregon multifamily.

It appears that out-of-state investors are concerned that further rent control measures are coming. The current rate of 7 percent plus inflation is higher than typical rent increases, but people are likely worried about where this is going and for now, some appear to be taking their real estate investment dollars elsewhere.

My goal as a real estate investment broker is to help you understand how to capitalize on the latest trends and to increase your personal net worth and safety. The professionals at Pacwest Commercial Real Estate are Eugene multifamily experts. Call today if you would like to discuss this further at 541-912-6583.

Link to original article

[embedyt]https://youtu.be/L0Z5DJZzIh4[/embedyt]
Watch or Read

How Do You Grade or Rate Multifamily Properties?

René Nelson: Last year there were some large apartment sales—Brentwood, for example. Would you call that a three star, four star?

Zoe York: From the appraisal standpoint, we tend to look at investment grade, rather than starring it three star, four star. I know if you look on CoStar, they specifically will put three star, four star. And I think they have it as a three star.

René Nelson: I would say that the average sale bid in the last 18 months is more in the $2 million range and typically happens between local investors. Local investors that own multifamily that have cash to play. They want to buy and add more units—1031 buyers, of course. Although, I think that may transition and change a little bit with rent-control from California investors wanting to 1031 into apartments. It will be interesting to see how that trends and the impact of rent control impacts. But just looking at it from a sales standpoint over the last 18 months with investors, what are you seeing as an average cap rate?

Zoe York: What I’ve seen in the last 18 months for these more sizeable projects that are $2 and $3 million and above tends to be in the 5.5-plus or minus range. It’s interesting when you talk about rent control and the impact that might have, because when you’re looking at a cap rate, a lot of those sub-five cap rates that I saw were based on actual in-place income. Some of those had some upside for rent increases. But I definitely have seen a strong trend of below 5.5 cap rates for those very high-dollar, newer, and larger investment multifamily properties.

What Is Motivating Sales?

René Nelson: What do you think motivates the average seller to sell? Because I know that you have to do some analysis, not only the numbers but was it an arm’s length transaction? When you’re doing that analysis on a sale, what do you typically find? Are they 1031 exchanging into other property, commercial and multifamily? Or are they transitioning out of the area?

Zoe York: I see a lot of 1031 exchanges, particularly on these high-dollar sales.

René Nelson: That makes sense. In the Portland market, we’re seeing that prices are starting to soften and cap rates are starting to adjust. I think it’s just because a lot of investors are skittish on the Portland market. There is a lot of class-A inventory that is still being built. And those rents are softening and that’s starting to put pressure on that. Are you seeing that in the Eugene market at all?

Zoe York: There’s very, very limited inventory to buy in Eugene. I think that alone will keep the demand up, even if the interest from out-of-area developers drops slightly. You’re still going to have interest in our area, given the strong economy. I wouldn’t be surprised if rent control softened it slightly, just because I do think it’s making out-of-area developers and investors a bit skittish on investing in the Oregon market overall. Of course, interest rates have a positive or negative impact on cap rates, so the promising thing over the next year is that they’ve indicated that they aren’t going to raise rates.

I’m an expert in multifamily properties. Contact me today if you would like to discuss the possibilities: René Nelson 541-912-6583 / rene@1031guru.com    www.eugene-commercial.com

[embedyt]https://youtu.be/rUfNJar91yI[/embedyt]
Watch or Read

René Nelson: One thing that I find interesting is how the University of Oregon plays into vacancy and rent trends in Eugene. The university is the second largest employer in Eugene, and when you look at the U of O’s population, there are around 23,000 undergrads. I think about 80 percent of those students live off campus, so that really creates that healthy, robust renter pool that most property owners are looking for.

What Are You Seeing on Campus for Rent Trends Right Now?

Zoe York: The occupancy rate I’ve seen in those projects has been as low as 80 percent to as high as 98 percent, and I don’t see that being market-derived occupancy because these projects are very similar. It doesn’t seem to be that the highest rents or worst located projects are the lowest occupancy. I do a survey each year of campus properties in September, including all those purpose-built properties. What you have is a 3 percent vacancy in campus still. We’ve had this larger market under-supply, and so students who previously lived off campus to have cheaper housing have moved more on campus because the rent levels have really grown off campus. The rent growth has been much smaller year after year just in the past few years. On campus has really been more in line with historic averages at 2 to 3 percent per year.

René Nelson: I’ve had four to five national student housing developers contact me in the last couple of months, but I think one trend that I’ve noticed is that every time they’re changing a building on campus, they’re putting classrooms in place. That tells me that the student population is probably going to start to grow. I see the trend where the economy and the market will be able to support more student housing projects. Would you agree with that?

More Student Housing Projects

Zoe York: I would agree with that. As long as our larger market stays under-supplied during the timeframe where enrollment is stagnant, I don’t think we’re going to have a problem with the demand for these new units. I think over the next few years, if enrollment is able to continue to increase, I don’t see a problem with adding new supply because our broader market is going to interact with that student population market.

René Nelson: That makes sense. I know one of the benefits for the multifamily owners that I work with that are off campus and own complexes from the 1970s to 2000s is that they love the graduate students, and the students that come from the university because they’re employable. I think that living in a campus area is one of the reasons that a lot of multifamily owners are holding onto their properties right now and not transitioning out of them at this point. Would you agree?

Zoe York: Yes. I do think that it’s also important, when you’re talking about student rentals, to recognize that there are some demographics within the student population, differing demographics. The folks that are looking to rent the brand new, by the bedroom, purpose-built projects are generally not the same tenant pool that is looking to rent the older 1970s projects a little bit further from campus, or even on campus. But they’re looking maybe for the lower rent levels, and maybe something a little quieter. They don’t need as many amenities. We tend to think of that as first-stage and second-stage students, but it also has to do with the larger demographics of the student population. And those demographics can shift even if enrollment stays steady.

For more information about opportunities for investing in multifamily real estate in Eugene, call me today: René Nelson, CCIM, CRE (541) 912-6583 / rene@1031guru.com / www.eugene-commercial.com

Tapping into my network of commercial real estate brokers in Eugene, I was able to find several properties that met his investment criteria but were not yet listed for sale on the open market.

This is the benefit of working with an experienced and well-connected broker. As a Commercial Property Broker in Eugene, Oregon, I have access to more than 19,000 multifamily properties as well as an array of commercial properties that are available for sale throughout the State of Oregon.

For the last 15 years, I have been a commercial real estate broker in Eugene, Oregon. I am a CCIM (Certified Commercial Investment Member) as well as a CRE (Counselor of Real Estate), and with those designations comes years of experience and knowledge to help you employ the right strategy to maximize your real estate portfolio.

Whether it is doing a 1031 exchange of multifamily into triple net or buying or selling more commercial property, I am here to help you reach your financial goals. Hiring a commercial real estate agent for your sale or leasing needs provides you with a wealth of experience and expertise, frees up your time, and gives you access to inventory that may not necessarily be for sale on the current market.

If you would like more information about the opportunities available in Lane County or a copy of my free Multi-Family Market Report, please call or email me. I want to be a resource for you when it comes to multi-family and commercial properties in Oregon.

René Nelson, CCIM, CRE
Real Estate Investment Broker
(541) 912-6583
rene@1031guru.com