Brenden Hogberg from A Lite Construction uses a riding power trowel on fresh concrete at the construction site for 192 Avenue Station, a new retail center being built at Southeast 192nd Avenue and 20th Street in east Vancouver.

Commuters who pass Southeast 192nd Avenue at 20th Street are witnesses to a retail construction revival in east Vancouver. They’re also partially responsible for the resurgence.

About 20,000 vehicles a day pass the spot, just west of the border between Vancouver and Camas. The high visibility of the area attracted nine restaurant, service and retail businesses that are leasing space in the first two buildings coming out of the ground, at what is slated to eventually become a six building, $50 million 192nd Avenue Station development. The complex will anchor the northeast quadrant of 192nd and 20th, complementing an already-built companion retail center to the south, called 192nd Avenue Plaza.

Expected to open midspring, the new center will house Tropical Smoothie, Twilight Pizza and Bistro, A Barber, Pinache hair salon, the chiropractic office of Dr. Paul Scott, Bedont Orthodontics, real estate company Real Living, and the Denim & Frills Children’s Resale Boutique.

“There’s quite a bit going on out there,” said Julie Lewis, owner of Denim & Frills, which has operated its flagship store for 15 years at 10501 N.E. Highway 99 in Vancouver’s Salmon Creek area.

The 192nd Avenue store will be her company’s second location. Other businesses signed on to lease space include a Mio Sushi restaurant and a martial arts business.

“We’re looking at a midspring opening,” said Dean Kirkland, who is developing the site with partner Tom Flies of Columbia Pacific Leasing and Income Properties.

Kirkland said traffic streaming by on 192nd is the primary draw for retail tenants. The site could be even busier upon completion of a $3.5 million road project proposed by Camas to connect Vancouver’s 20th Street to Northwest 38th Avenue in Camas.

The city of Camas is waiting for federal permits to acquire property and begin work on the less-than-one-mile-long roadway, which will also serve as an additional route to the new office campus of Fisher Investments asset management firm.

“We’re working on getting the federal permitting now,” said Phil Bourquin, Camas’ community development director.

Dean Kirkland expects space will fill up quickly in his company’s next retail project, south of 192nd Avenue Plaza. He anticipates starting work this summer on the project, to be called 192nd Avenue Plaza South.

In the meantime, Kirkland said retail businesses are relying on consumers in search of convenience near the 20th Street and 192nd Avenue intersection.

“It’s a major thoroughfare with great access to (state) Highway 14,” Dean Kirkland said, adding that his project is on the Vancouver side of the border between the cities, but still at a main convergence between Camas and Vancouver.

“It fills the need where they don’t have to go as far west to shop in Vancouver,” he said.

See original story

Here’s the gist of the original story by Joe Smith that ran with this video on the KGW website:

VANCOUVER, WA — You may hate traffic. But, for business owners along 192ND in East Vancouver it’s a green light to move forward with more development.

One shopping center under construction is the 192ND Avenue Plaza, which sits at what could be the new gateway to Camas. It may eventually roll out the red carpet for more business and jobs to Clark county.

“We’re really looking at 192nd as the place to go,” said Dawn Stanchfield, owner of Lilly Atelier.

Dawn is a business owner expanding with another store in the Plaza development.

“This is 100-percent leased,” said Dean Kirkland, Chairman of Kirkland Development.

This is Dean Kirkland’s biggest project to date. It’s worth $12 million and is slated to be completed by the end of August.

“We started out as an 18,000-square-foot building. Then, as we picked up momentum, we went to a 29 and now we’re at 35,” Dean Kirkland said.

Along with the construction will come much needed jobs. Tim Kofstand is a superintendent with Perlo Construction.

More jobs will come when Phase Two begins next year. It is across 20th street on eight acres. It’s all part of major building boom in East Clark County.

“We’ve got a new Costco going in 200 yards to the north. We’ve got Fisher Investments going in right over here to our Southeast, that will bring almost 500 employees,” said Dean Kirkland.

Traffic patterns now bring in about 21,000 vehicles. Research indicates that could more than double when Costco opens.

New residential developments began in 2008 on 20th Street and then the street will be expanded into Camas.

“Drawing that linkage over to 20th becomes paramount, especially when we’re looking at commercial retail,” said Camas Mayor Paul Dennis.

The project will cost between $2- and $8-million. Plans are drawn up, now it’s a matter of getting the funding.

The 192nd Avenue Plaza will be completed in August. Tenants hope to move in by fall, in time for the holidays.

Mon May 17 17:26:43 PDT 2010
East Clark Co. sees major building boom
Heavy traffic patterns along 192nd Ave. in East Vancouver are spurring more business for eastern Clark County. View full article

By: Cami Joner – Columbian Staff Reporter

Two of six planned retail buildings will soon be under construction at the $50 million 192nd Avenue Station development at the corner of Southeast 192nd Avenue and 20th Street in Vancouver.
(Photo by Troy Wayrynen)

A once-rural crossroads near the divide between Vancouver and Camas is shaping up to be one of the hottest development corners in all of Clark County.

The east Vancouver junction of Southeast 192nd Avenue and 20th Street is also poised to become a gateway to Camas, one of the driving forces behind nearly $70 million worth of construction planned near the intersection. Smoothie drinks, pizza, an orthodontist’s office and a barber are just a few of the services lined up to lease space in the $50 million, six-building 192nd Avenue Station retail center. The complex is being built on the northeast side of the interchange, which will soon lead to a $30 million Camas office complex under construction for Fisher Investments.

More retail, apartments and hotel construction, worth between $20 million and $25 million, are to be built starting next year on tracts south of 20th Street and 192nd Avenue.

The new retail tenants are focused on attracting 400 Fisher Investments employees who are about to move into the first of four buildings planned for the campus, said Roger Qualman, the Vancouver-based chief operating officer of NAI Norris, Beggs & Simpson commercial real estate firm.

In addition to Fisher Investments, the area is attractive to retailers — despite Clark County’s sluggish retail market — because of its affluent neighborhoods, nearby schools and access to state Highway 14 on the southernmost leg of 192nd.

Qualman said retailers, which generally follow rooftops, are not about to ignore a large concentration of daytime workers who are apt to go out for lunch, take clothes to the dry cleaners or stop for a haircut.

“Fisher employees will be looking for services on their way to and from work,” Qualman said.

The campus and a new street linking 20th Street to Northwest 38th Avenue on the Camas side are expected to generate an additional 20,000 daily vehicle trips past 192nd Avenue Station, according to Dean Kirkland and Tom Files, of Columbia Pacific Leasing and Income Properties, the project’s developers.

The business partners also developed the $12 million, two-building 192nd Avenue Plaza on the southeast side of the interchange.

The new project’s general contractor, K&F General Contracting, will build 192nd Avenue Station in stages, starting with one building at the north end of the site near 15th Street and a second building near 20th Street.

“The bigger building is 86 percent leased and the smaller one is 100 percent full” and expected to open in mid-2012, Files said.

The buildings, a 25,000-square-foot, two-story structure and a 10,000-square-foot, single-level building, are designed to resemble the neighboring retail complex on the south side of 20th. Site plans include generous parking arrangements for nearly 500 cars.

Qualman said Camas-based tech companies, such as WaferTech and Sharp Microelectronics of the Americas, also generate traffic along the corridor. However, manufacturing firms don’t produce many retail and restaurant patrons, he said.

“The big campuses typically have their own cafeteria and services,” Qualman said.

Gateway to Camas

If Camas officials have their way, the smaller city will soon be reaping the benefits of becoming a home base to new retailers. The city expects to start construction next year on a $3.5 million stretch of road to tie the city’s Northwest 38th Avenue to Vancouver’s 20th Street, making the location even more accessible to Camas residents.

That connection will open up more than 50 acres of commercial land for development on the Camas side of the border, said Paul Dennis, executive director of the Camas-Washougal Economic Development Association.

Dennis said Issaquah-based Costco had considered building its store on one of the tracts. Instead, it chose its current site at Southeast First Street and 192nd in Vancouver for a store that opened this year.

“They said the connection was one of the major deciding factors,” said Dennis, who was Camas mayor at the time.

Even with the city’s carefully cultivated cluster of businesses and upscale neighborhoods near its Vancouver border, Camas doesn’t receive a bit of the sales tax generated by big-box stores, boutiques and restaurants along Southeast192nd Avenue, said Scott Higgins, current Camas mayor.

Sales from those stores produce tax revenue for Vancouver, he said.

“The Costco and QFC, all of it goes to Vancouver. There’s nothing we can do about that now,” Higgins said.

Files said tenants in the already finished 192nd Avenue strip center include a convenience grocery store, a drive-through auto licensing business, a coffee shop and clothing boutique. It also houses a mortgage company and east-side restaurant locations of Applewood and Hula Boy Char Broil.

He said most of those tenants were attracted by the center’s location, adding that 192nd Avenue now carries a traffic count of 40,000 vehicles daily.

Other tenants that have signed leases for the north side of 20th in the 192nd Avenue Station include a chiropractor, a sushi restaurant, a martial arts school and a violin shop.

Watch this presentation by Bob White of Real Capital Analytics, for the latest…

Morgan Stanley signage is displayed at their headquarters in New York. Photographer: Peter Foley/Bloomberg

Relative yields on securities tied to offices, hotels and shopping centers have been hovering at about the highest levels since June 2010 as investors shun riskier assets amid concern a Greek default may infect European lenders and as economists lower U.S. growth forecasts. Banks have pulled back from making new loans to package into bonds as price swings erode profit margins on the deals.

“This momentum certainly would encourage banks, but it takes a few more pricings to demonstrate a trend,” said Jeffrey Berenbaum, a commercial-mortgage debt analyst at Citigroup Inc. in New York. “It’s a matter of taking a step back to see how things settle before looking to continue lending.”

Barren Pipeline

While lenders are poised to sell as much as $6 billion of stockpiled debt through October, the rest of the year may have no offerings, Bank of America analysts said in a Sept. 9 report. More than $24 billion of the debt has been raised in 2011, following $11.5 billion last year, according to data compiled by Bloomberg.

JPMorgan is marketing a $1 billion issue, according to people familiar with the sale. Goldman Sachs Group Inc., Citigroup Inc., Wells Fargo & Co., Royal Bank of Scotland Group Plc and Deutsche Bank AG are also arranging transactions, the people said.

Elsewhere in credit markets, a benchmark gauge of U.S. corporate credit risk fell for a third day from a two-year high. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, dropped 2.4 basis points to a mid-price of 126.4 basis points as of 12:03 p.m. in New York, according to Markit Group Ltd.

The index, which typically falls as investor confidence improves and rises as it deteriorates, has decreased from 135.9 basis points on Sept. 12, its highest level since July 2009. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Commercial Paper

U.S. commercial paper outstanding declined $22.6 billion to $1.043 trillion in the week ended Sept. 14, the Federal Reserve said today on its website. That’s the lowest level since the market, which has fallen for nine straight weeks, reached $1.042 trillion in the period ended Feb. 16, according to Fed data compiled by Bloomberg.

The commercial-mortgage bond offering from Morgan Stanley and Bank of America is composed of 63 loans on 76 properties, the person said. Retail property debt accounts for 46.3 percent of the offering and office debt is about 30 percent. Loans in Texas and California account for 31.2 percent of the pool.

Wider Spreads

The securities were priced as German and French leaders expressed support for Greece remaining in the euro monetary union and speculation that China may help the region’s most- indebted nations.

Political and economic turmoil drove relative yields on top-ranked commercial-mortgage bonds to 303 basis points more than Treasuries on Aug. 25, the most since June 2010, before narrowing to 291 yesterday, according to Barclays Plc index data.

Spreads climbed from this year’s low of 178 on April 26 as Fed auctions of mortgage securities assumed in the rescue of American International Group Inc. weighed on credit markets. The selloff was exacerbated in July as the sovereign-debt crisis engulfed Italy and lawmakers in Washington clashed over raising the U.S. debt ceiling, leading S&P to cut America’s top credit grade on Aug. 5.

Economists are lowering their growth forecasts for the U.S. Gross domestic product will expand 1.7 percent this year, less than the May forecast of 2.8 percent, according to a survey by the National Association for Business Economics issued Sept. 12 in Washington.

Delinquencies Fall

Commercial-mortgage bond sales have tumbled from a record $234 billion in 2007. A dropoff in new lending may make it harder for some borrowers to refinance maturing loans, according to the Bank of America analysts led by Alan Todd.

“Borrowers with less capital or less attractive properties will obviously have fewer options,” the New York-based analysts wrote. “It is likely that the trend of liquidating smaller loans and modifying and extending larger loans will persist.”

Delinquencies, which climbed to a record 9.01 percent in July, fell 36 basis points last month, according to Fitch Ratings.

Banks have increased the so-called credit enhancement, which protects AAA bondholders from losses, to 30 percent on deals offered since last month as investors pushed back on terms and demanded higher yields. That compares with 16.875 percent on a $1.48 billion transaction from Wells Fargo and Royal Bank of Scotland in July.

‘Nice Pickup’

The additional investor protection coupled with property valuations in recent deals compares favorably with bonds sold in 2005, while offering a “nice pickup” in spread and yield, said James Grady, a managing director at Deutsche Asset Management in New York, including commercial-mortgage debt.

“This is a trade that makes sense and you will see investors take advantage of this opportunity while it lasts,” Grady said.

The slide in the safest classes of commercial-mortgage bonds has made the debt attractive relative to other fixed- income investments, Wells Fargo Chief Financial Officer Timothy J. Sloan said in a Sept. 12 conference call with analysts.

“Spreads blew out pretty significantly over the past few months,” Sloan said, referring to the most senior portions of commercial-mortgage securities. “That’s not the only class that we think is attractive, but we definitely want to be able to take advantage of opportunities.”

———
To contact the reporter on this story: Sarah Mulholland in New York at

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Vacancy rates are shrinking all over, in tight markets such as Minneapolis and loose ones like Phoenix.

It’s an unusual situation. Job creation typically drives apartment demand. But this time the tenant top-up is largely about a lack of new supply — in the face of paltry employment growth. Meanwhile, demographic trends and the single-family housing slump are creating tenants, says Hessam Nadji, a managing director at Marcus & Millichap Real Estate Investment Services.

“The demand for apartments is at levels that we haven’t seen since economic boom years like those in 1999 and 2000,” he said. “It is clearly decoupled from the economy.”

The property brokerage projects that asking rents will grow an average of 3.5% this year in the U.S.

After the Big Apple at just a 2.8% vacancy rate, the tightest areas are now Minneapolis, San Jose, Calif., and Portland, Ore., all under 4%.

Widespread Improvement

Some 3 million young adults age 24-34 that moved back in with family or roommates in the last five years are now moving into their own places as their employment prospects improve, Nadji says. Hiring has sputtered over recent quarters, but this age group captured 65% of the new jobs created in 2010.

Other factors are creating tenants too, Nadji notes: A double-dip in single-family home values has made house hunters wary of buying. Tougher mortgage qualification requirements deter purchases. And homeowners who lost houses to foreclosure have become renters.

Together, those trends helped to lower the U.S. average apartment vacancy rate to 5.9% at the end of the second quarter. That was a 1.9 percentage point improvement from a year earlier, as noted by Marcus & Millichap.

While bellwethers like New York and Boston are among markets with vacancies below average, Minneapolis, Milwaukee and other markets also beat the average, largely due to decent job creation and scant new construction. Minneapolis employers added 7,000 workers in the first half of 2011. They had let go 6,200 a year earlier.

Among very tight markets, Minneapolis and Portland vacancy rates fell 2.2 percentage points from a year ago in the second quarter.

Even markets that were battered by rampant speculative home and apartment construction in the last decade have seen rapid improvement. Vacancy in Las Vegas, for example, plunged to 8.1% at the end of June from 11.1% a year earlier.

Continuing weakness in the Las Vegas housing market contributed: One in every 99 homes in the metro received a foreclosure notice in July. But now the jobs picture is improving slightly. Employers are expected to hire 16,200 workers this year, which would mark the first year of job growth since 2007.

A glut of empty single-family homes reverting to rental houses in Sin City and other overbuilt markets could slow further occupancy gains, Nadji says. But he and other observers point out that single-family homes don’t appeal to most renters ages 24 to 35. Instead they want places that provide maintenance, amenities and services.

Terry Considine, CEO of Denver-based Apartment Investment and Management Co. (AIV), told analysts during the second-quarter earnings call in July that foreclosed homes and rental houses were “not really competitive with professionally managed apartments.”

A sign beckons renters near Tampa, Fla., where vacancy has fallen to 6.9%

Buying Splurge

Encouraged by improving fundamentals, investors are flocking to apartments. Some $21.6 billion in multifamily properties changed hands in the first half of 2011, more than double a year earlier, says Real Capital Analytics, which tracks sales of more than $5 million.

Capitalization rates slid to an average 6.4% in the second quarter from 6.6% in the first. They tell a property’s initial yield, falling as prices rise.

Sellers in major coastal markets are fetching prices that reflect cap rates of 5% or less, says Jeffrey Baker, executive managing director in the New York office of global brokerage Savills. That’s sending some institutional investors to secondary markets, where yields are higher.

It also is sparking new construction, which can ultimately generate higher yields of 6.5% to 7.5% for investors. Savills recently arranged equity financing for The Victor, a $140 million luxury apartment project in Boston that just broke ground. It’s the first big multifamily development in the city since the financial markets collapsed in 2008.

“There certainly will be some measured development that’s going to happen over the next couple of years,” Baker said.

Opportunities also exist for mom-and-pop investors in most markets among smaller properties, yet to appreciate at the same rate as top-tier assets, Nadji and Baker say.

While buyers typically need to do minor upgrades to justify rent increases in such properties, the reasons to pursue acquisitions have become more compelling, particularly with interest rates around 4.5% on a 10-year loan, Nadji adds.

“The turmoil in the stock market has made people think harder and more aggressively about buying apartments,” he said.

———-

By Joe Gose, For Investor’s Business Daily

By: Victor Calanog

Even if economy does not contract sharply, how would slow growth affect the near-term prospects of commercial real estate fundamentals?

Fortunately, we already have evidence of how various property types will fare through a slow economic recovery.

The latest figures from Aug. 26 show that U.S. GDP grew by only 1% in the second quarter on an annualized basis, implying that the economy crept forward at a decidedly unhurried pace of 0.7% in the first half of 2011.

Job growth was flat in August, netting out to a paltry monthly average of 109,000 net jobs created year to date.

The U.S. economy needs to grow at an annualized rate of at least 2.5%, and produce around 200,000 jobs per month, for the unemployment rate to even begin falling.

It’s been more than two years since the recession ended, so we already have ample evidence of how commercial properties will perform through a tough slog.

ASSESSING REAL ESTATE FUNDAMENTALS

The latest monthly data show that recovery in commercial real estate fundamentals remains mixed. Retail properties continued to lose occupied space, albeit at a measured pace compared to the hemorrhage back in 2009.

Vacancies for neighborhood and community centers hit 11% in July, just 10 basis points shy of the record high observed in 1990.

Effective rents deflated slowly, falling by 0.1% year to date through July, but it stands in marked contrast to the nascent recovery of the office sector.

Office properties notched another small gain in July, with vacancies dipping by 10 basis points to 17.4%. Occupied space has increased by 12.6 million sq. ft. since the start of the year, and effective rents have risen at a modest but consistent pace in each of the past seven months, growing by 1% through July.

The multifamily sector remains the best performer, with vacancies cratering by 80 basis points to 5.8% in July. Directly benefiting from the ongoing travails of the housing market, rental properties notched a healthy 1.4% gain in effective rents over the last seven months.

WILL THESE PATTERNS CONTINUE?

Real Estate Trends

Retail vacancies are projected to rise to 11.2% by the end of the year.

Office vacancies began to fall from the cyclical high of 17.6% earlier this year, but further improvements will be gradual.

“If office-using employees typically occupy 100 to 200 square feet of space, we can only conclude that employers are being very cautious about leasing new space,” says Brad Doremus, senior analyst for Reis.

“The 12.6 million square feet of positive net absorption through July translates to just about 15 square feet of new space leased per net job created – a plodding pace at best,” adds Doremus.

The prospects are better for multifamily, but not every robust projection materialized this year. “Unless job growth turns sharply negative, we probably won’t see the kind of contraction in household formation that we saw back in late 2008 and 2009,” notes Kyle McLaughlin, senior associate at Reis.

With house prices still in disarray, rental properties will benefit, McLaughlin emphasizes. “But national effective rents have not grown at the 4% to 5% rate that many thought they would. Landlords are happy to get new tenants, but are rightly capping large rent increases given the jittery job market.”

Economic growth is likely to proceed at a lackluster pace for at least the next couple of years, but we have some evidence that most commercial property types will post gradual improvement.

We expected that recovery following such a devastating recession would be a long, slow climb. Tempered expectations may be the best attitude to adopt in these volatile times.

Victor Calanog is head of research and economics for New York-based research firm Reis.

The Portland metro’s supply/demand balance has shifted in favor of apartment owners, and with this year’s construction pipeline staying extremely light, rents are poised for solid growth through 2011. Re-employed residents steadily entered the rental market during the first half of the year, sending the market’s vacancy rate below 4 percent, a decade low, enabling operators to push up effective rents near pre-recession highs.

Since the start of 2011, operations in or near major employment centers in downtown Portland have posted the most significant increases to occupied stock. Apartment demand accelerated more than 3 percent during that time, and as further job creation enables additional renters to return to the market, the area’s vacancy rate will realign with long-term averages by year end. Employment growth also has translated into resurgent apartment demand in suburban communities, but the pace of rent growth farther from downtown is tiered.

A stronger upswing in rent gains for Class B/C properties remains several months away, but as the market’s lull in new supply magnifies absorption trends, lower-tier property owners will increasingly raise rents toward the close of 2011 as leases roll over.

With Portland’s rental market firmly rooted in recovery, deal flow has gained considerable momentum, particularly within the top tier. Over the past 12 months, transactions involving assets with more than 200 units doubled, pushing up the per-unit price for these properties by 20 percent. As a result, cap rates for larger deals have compressed to below 6 percent.

As the year progresses, some California buyers seeking higher yields than in their native markets will target Portland assets, bolstering Class A trading through year-end 2011. Given this heightened level of competition for top-tier inventory, buyers’ interest will progressively spread to a broader array of investment opportunities in both asset class and location, lifting deal flow across the board.

In general, average cap rates will start in the high-6 percent range for Class B properties in desirable locations and range to the high-7 percent range for lesser complexes or suburban areas.

2011 Annual Apartment Forecast

	Employment: Portland payrolls will expand by 29,000 workers in 2011, a 3 percent gain, outpacing the addition of 4,600 jobs last year. The creation of 5,900 typically higher-paying professional and business services positions bodes well for downtown apartment owners, as a sizable share of these residents are likely to seek housing near work.
	Construction: Developers will complete 96 units in 2011, a mere 0.1 percent rise in existing stock, all of which will come online in the Inner North/Northeast/Southeast submarket. Supply growth in 2011 will remain 92 percent below the five-year annual average. Last year, 660 units were delivered to the metro.
	Vacancy: Slower construction activity and recovering demand will drive down vacancy again this year. During 2011, vacancy will slide 140 basis points to 3.1 percent, after retracting 240 basis points last year.
	Rents: Asking rents will rise 4 percent to $853 per month in 2011, as effective rents inflate 4.8 percent to $781 per month, reducing average concessions offered by three days of free rent. In 2010, apartment operators in the Portland metro raised asking and effective rents by 2.1 percent and 2.8 percent, respectively.

Economy

• In the first half of 2011, local employers added 15,600 jobs, a solid 1.6 percent increase, outpacing the addition of 8,100 positions during the same period one year earlier.
• Employment growth has been led by the trade, transportation and utilities sectors since the start of this year, which grew by 5,500 workers, a turnaround from the loss of 1,200 jobs in the prior two quarters. The only two sectors to shed jobs thus far in 2011 have been leisure and hospitality and other services segments, shrinking by a total of 1,700 spots.
• With the national economy on better footing, several metro employers have announced plans to expand staffing levels to meet growing demand. StairMaster and Sapa Group, for instance, have released plans to hire 100 workers each this year in Vancouver.
• Outlook: Portland employment levels will expand by 29,000 workers in 2011, a 3 percent gain, outpacing the addition of 4,600 jobs last year.

Housing And Demographics

• Single-family permit issuance increased 3 percent year over year in the sector quarter to 3,650 units, though housing starts fell by 7 percent. The number of multifamily permits pulled jumped 29 percent over the past 12 months to 1,230 units, which is still 80 percent below 2006 levels.
• In the second quarter, the median home price was $229,000, a year-over-year decrease of 3.6 percent. The median household income of $57,660 per year is $4,300 higher than the minimum qualifying income for a median-priced home.
• Using conventional financing terms, the monthly mortgage obligation for a median-priced metro home was $240 per month less than the average Class A asking rent as of the second quarter.
• Outlook: The pace of household formation will strengthen in the year ahead as the Portland metro enters a more vigorous recovery, resulting in the projected addition of 20,000 new households by year-end 2011, supporting healthy demand for housing.

Construction

• In the 12 months ending in the second quarter, developers completed 580 rental units, expanding existing inventory a modest 0.6 percent. One year earlier, more than 1,500 units were brought online.
• Thus far in 2011, two developments totaling 70 units were put into service in the Inner North/Northeast/Southeast submarket, increasing area stock by 1 percent.
• As of the second quarter, the market’s construction pipeline remained thin, with fewer than 180 units under construction. The number of planned projects total 2,980 units, but only 350 of those units contained established ground breaking dates.
• Outlook: Developers will complete 96 units in 2011, all of which will come online in the Inner North/Northeast/Southeast submarket. Last year, 660 units were delivered to the metro.

Vacancy

• Solid job growth, combined with slowing completions drove down the vacancy rate 100 basis points through the first half of 2011 to 3.5 percent. Measured year over year, the Portland metro registered a solid 220 basis point improvement, after falling 50 basis points in the preceding 12 months.
• Both Class A and Class B/C properties are benefiting from resurgent employment gains. In the past year, top-tier buildings posted a 230 basis point decrease in vacancy to 3.8 percent, while lower-tier apartments recorded a 220 basis point fall to an extremely tight 3.2 percent in the second quarter.
• As re-employed residents relocated closer to major employment centers, operational improvements in the Northwest/Downtown submarket have outpaced the market as a whole. During the past 12 months, the area registered a 310 basis point vacancy decrease to 7 percent, which is 730 basis points below the cyclical high reached in the third quarter of 2009.
• Outlook: Slower construction activity and recovering demand will drive down vacancy again this year. During 2011, vacancy will slide 140 basis points to 3.1 percent, after retracting 240 basis points last year.

Rents

• Over the 12 months ending in the second quarter, asking rents climbed 3.1 percent to $830 per month, and effective rents rose 3.6 percent to $757 month. During the first two quarters, asking and effective rents increased 1.2 percent and 1.6 percent, respectively.
• Asking rents in the Class A sector advanced 3.4 percent over the past 12 months to $965 per month in the first quarter, while the lower tier posted a 2.5 percent gain in that time to $706 per month.
• As occupied stock climbed and owners resumed raising rents, Portland apartment owners registered revenue growth of 6 percent over the past year, compared with a 0.3 percent decrease one year earlier.
• Outlook: Asking rents will rise 4 percent to $853 per month in 2011, as effective rents inflate 4.8 percent to $781 per month, reducing average concessions offered by three days of free rent.

Sales Trends**

• Transaction velocity increased nearly 13 percent during most recent trailing 12-month period, a considerable improvement when compared with a 31 percent drop in the preceding year.
• An enlarging pool of active investors has driven up the market’s price 10 percent over the past year to $69,700 per unit. The per-unit price for institution grade assets rose 21 percent year over year to $84,700.
• In the past 12 months, average cap rates fell 40 basis points to the mid-to high-6-percent range. Initial yields for institutional-grade properties, however, have averaged closer to the low-6 percent range, with a handful changing hands in the mid-5 percent neighborhood.
• Outlook: With the supply pipeline to stay empty and an influx of buyers reentering the market, the gap between buyers’ and sellers’ expectations that existed in recent years is quickly dissipating. This year, buyers in search of performing, well-maintained assets will be required to stretch for listings.

Capital Markets

By William E. Hughes, Senior Vice President, Marcus & Millichap Capital Corporation

• Apartment mortgage rates should remain favorable through 2011, enhancing property returns and supporting values. While the 10-year Treasury yield likely will remain in the low-to mid-3 percent range over the next few quarters, the relatively wide spread to all-in lending rates provides some cushion against potential upticks.
• Encouraged by sustained improvements in occupancy and rents, nearly all lending sources have increased funding for apartment deals. As a result, mortgage debt has become readily available for performing assets across markets and property classes, supporting a 40 percent increase in multi-family origination volume over the past six months when compared to the previous period.
• The agencies continue to dominate but have lost marketshare as insurance companies, private capital sources and local/regional banks, in particular, compete more aggressively for new business. In the near term, life insurance companies will continue to favor larger, best-of-class assets in primary markets, while local and regional banks focus on lower-quality assets with consistent revenue streams and strong, proven sponsorship.
• Underwriting requirements eased over the past year as strengthening apartment fundamentals and firming property values restored lenders’ confidence in the market. Debt-service coverage requirements slipped to 1.15 to 1.25, while loan-to-values on new loans generally improved to 70 to 75 percent, and in some limited situations, have pushed to as high as 80 percent.

Submarket Overview

• In the second quarter, Class A vacancy in downtown Portand settled at 8.4 percent, down from 21.5 percent recorded late in 2009. Since the start of 2011, the area’s top-tier vacancy rate has fallen 460 basis points, supporting a 2.3 percent year-to-date jump in asking rents.
• Investors will stay keen on assets in the Beaverton/Aloha submarket, which stands to benefit from Intel’s plans to develop facilities in Hillsboro. The project will create thousands of construction jobs this year and hundreds of permanent white-collar positions when completed in 2013.
• Several other major companies, including Nike, Boeing and IBM, also announced plans to increase hiring efforts this year, which will strengthen demand for housing in both Beaverton and Gresham going forward.

Submarket Vacancy Ranking

** Data reflects a full 12-month period, calculated on a trailing 12-month basis by quarter.

The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated using seasonally adjusted quarterly averages. Sales data includes transactions valued at $500,000 and greater unless otherwise noted. Sources: Marcus & Millichap Research Services, Bureau of Labor Statistics, CoStar Group, Inc., Economy.com, National Association of Realtors, Real Capital Analytics, Reis, TWR/Dodge Pipeline, U.S. Census Bureau.

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