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An Unequal Recovery

Hamptons of Brownstown

When it comes to falling vacancies, institutional-grade owners have it much better than smaller apartment operators.

Nobody will argue that apartment owners had a good year in 2010. But how much have things improved? Depends on whom you ask.

Carrollton, Texas–based MPF Research reports that from the fourth quarter of 2009 to the fourth quarter of 2010, things tightened up quite a bit, as vacancies moved from 8.2 percent to 6.5 percent. In the same time frame, the Census Bureau showed similar tightening, but things weren’t as strong—the data show that vacancies for properties with five units or more moved from 12.5 percent in the fourth quarter of 2009 to 10.4 percent last quarter. “Recovery is much better at the top end of the market, so the Census numbers certainly could be impacted by sample distribution,” says Greg Willett, MPF’s director of research.

What’s more, according to data from the Census Bureau, vacancies for all rental properties (including single-family homes) moved from 10.7 percent to 9.4 percent. “The five-plus [units survey] goes all the way to relatively small markets—places where vacancies just last longer because the economies of scale aren’t as large,” says – David Crowe, chief economist for the National Association of Home Builders.

Orchard Lake, Mich.–based Princeton Enterprises founder and CEO Matthew B. Lester has a portfolio of 14,000 units, usually older B-and C-level assets in secondary markets. In many of his properties, he’s seen occupancies and collections rise, while concessions have fallen. In certain properties, rents have risen. “We’re seeing a recovery, but it’s a little early to declare victory,” he says.

So what’s causing the data differences? For one thing, the inclusion of single-family rentals in the Census equation. Willett says that rental vacancies in single-family homes have been stuck near 10 percent for the past few years. Willett cautions, however, that MPF isn’t solely focused on institutional properties, and adds that the MPF database extends beyond the core and core-plus classes of apartments.

“While there’s demand for that rental single-family product, the amount of available single-family stock is going up too, since so many foreclosures are bought by investors who then put the units into the rental pool,” he says.

Crowe says the recovery will eventually spread to smaller owners, pulling their vacancies down further, but it will be several years before those smaller owners have totally recovered. “They will see reduced vacancies because the economy will improve and the younger generation will be renters before they’re owners, if they even become owners,” he says.

By:Les Shaver
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