Log in
Forgot password ?
Become a member for free
Sign up
Sign up
Dynamic quotes 

4-Traders Homepage  >  Equities  >  Nyse  >  Apartment Investment and Management Co    AIV

News SummaryMost relevantAll newsSector newsTweets 

Apartment Appeal Is Weakening For Some Investors

share with twitter share with LinkedIn share with facebook
share via e-mail
03/06/2012 | 09:46pm CEST

--Investors are pushing back on property prices, rent growth is slowing and yields are flattening in some markets

--Overall argument for apartments remains sound, analysts say

--One market investors are watching is Washington, D.C., which is bracing for an onslaught of new apartments

   By Matthew Strozier and Dawn Wotapka 

The apartment sector, one of the best-performing of the commercial real-estate market in recent years, is starting to lose some appeal for investors.

Last year, residential rental properties were one of the most sought-after property types, with sales totaling $54 billion by one measure, up more than 50% from the prior year, according to Real Capital Analytics. The average apartment price per unit, about $102,000 nationally, is near peak levels.

But this year, the excitement is fading. Investors are pushing back on property prices, rent growth is slowing and yields are flattening in some markets.

While few investors believe apartment buildings will be a bad investment, the best rent hikes of this cycle are likely "in the rear-view mirror," said Andrew McCulloch, an analyst with REIT research firm Green Street Advisors.

Such concern is weighing on the stocks of real-estate investment trusts that own and develop apartment buildings. Shares of Colonial Properties Trust Inc. (>> Colonial Properties Trust Inc) have gained less than 1% this year, while sector giant Equity Residential (>> Equity Residential) is up less than 3%. In comparison, stock prices of industrial real-estate giant Prologis Inc. (>> Prologis Inc) are up about 20% year-to-date while Brookfield Office Properties Inc. (BPO) has gained 11%. Zelman & Associates, a real-estate research firm, expects net operating income growth to slow over the next year at the 10 apartment REITs it covers.

Investors and developers are changing course in response.

"Eighteen months to two years ago, you really could have owned apartments in any major U.S. city and made very attractive returns," said Jay Leupp, a portfolio manager at Lazard Asset Management. Now "we are being more cautious of the apartment investments that we make" and diversifying.

With the Lazard U.S. Realty Equity Open fund, for example, the firm has in the last six months reduced its holdings in apartment operators Equity Residential and Apartment Investment & Management Co. (>> Apartment Investment and Management Co.) and beefed up shares in hotel operator Marriott International Inc. (>> MARRIOTT INT'A') and First Industrial Realty Trust Inc. (>> First Industrial Realty Trust, Inc.), which specializes in industrial space.

Other investors are also changing tack.

"It's a lot harder for people to buy and make money, as opposed to building and making money," said Gary Kauffman, managing director and head of U.S. transactions at Parsippany, N.J.-based Prudential Real Estate Investors. Prudential will still look to buy properties, he said, but is moving more toward constructing new buildings.

There is some worry that a bubble could be forming, fed by low-cost financing and aggressive cash-flow growth assumptions. Research by economist Sam Chandan of New York-based Chandan Economics, shows that multifamily buyers in competitive large metropolitan areas last year were often too optimistic about their future cash-flow growth. This could spell trouble if the owners don't meet these targets and then must refinance at higher rates.

But the overall argument for apartments, as Chandan and others say, remains sound. People need to live somewhere, and apartments have won out as the home-ownership rate has dropped. Over the past five years, renter households have increased by more than 4 million, or 12%, according to Green Street, helping explain why the sector was so healthy despite the ailing economy. And while job growth has been weak overall, the upticks have been weighted toward those more likely to rent.

As a result, vacancy rates have dropped to levels not seen in years, allowing landlords to raise monthly rents. In the fourth quarter, the vacancy rate fell to 5.2% from 6.6% a year earlier, according to Reis Inc. Nationwide, landlords raised asking rents an average of 0.4% in the fourth quarter, to $1,064 a month.

Yet some believe those rent hikes can't continue, especially as the supply of new rental properties grows. Nearly 180,000 units were started in 2011 and some 225,000 starts are expected this year with an additional 280,000 starts in 2013, according to Zelman.

One market in particular that investors are watching is metropolitan Washington, D.C., which is bracing for an onslaught of new apartments even as the area's main employer, the federal government, slows down hiring. AvalonBay Communities Inc. (>> AvalonBay Communities, Inc.), a large apartment owner, is tracking 8,600 new apartment units to open this year and another 15,000 units in 2013.

"In specific markets, with D.C. really being the poster child, we are worried about supply," said Zelman analyst Dave Bragg.

There is also concern about Seattle, which saw eight quarters of vacancy-rate declines end in the fourth quarter, partially because more than 1,800 apartment units were built last year, according to Apartment Insights Washington LLC. More than 6,000 additional units are expected.

-By Dawn Wotapka, Dow Jones Newswires; 212-416-2193; [email protected]

share with twitter share with LinkedIn share with facebook
share via e-mail
04/20 AIMCO : Achieves Denver Post Top Workplace Designation for the Fifth Consecutive..
04/05 APARTMENT INVESTMENT AND MANAGEMENT : The Gsa Capital Partners Llp Has $261,000 ..
04/04 APARTMENT INVESTMENT AND MANAGEMENT : Team Members Give Back to Local Communitie..
03/31 APARTMENT INVESTMENT AND MANAGEMENT : Aimco Announces Dates for First Quarter 20..
03/23 APARTMENT INVESTMENT AND MANAGEMENT : Aimco Declares Dividend on Class A Cumulat..
03/14 APARTMENT INVESTMENT AND MANAGEMENT : Aimco Declares Dividend on Class A Cumulat..
03/09 APARTMENT INVESTMENT AND MANAGEMENT : Community Leaders Join Aimco to Celebrate ..
03/06 APARTMENT INVESTMENT AND MANAGEMENT : AIV) Files An 8-K Regulation FD Disclosur..
03/06 APARTMENT INVESTMENT & MANAGEMENT CO : Regulation FD Disclosure, Financial State..
03/03 APARTMENT INVESTMENT AND MANAGEMENT : Aimco Announces Participation in Citi 2017..
More news
Sector news : Residential REITs
03/15 STOCKLAND (ASX : SGP) talks 1H FY17 results
02/22DJSTOCKLAND : Net Profit Edges Higher in First Half
2016DJInvitation Homes Files Confidentially for an IPO
2016DJLegg Mason, Owens-Illinois to Leave S&P 500
2016DJEQUITY RESIDENTIAL : Trump Buildings To Be Renamed; Nod to Residents -- WSJ
More sector news : Residential REITs
News from SeekingAlpha
04/14 REAL ESTATE WEEKLY : REITs Rally For Third Straight Week
04/03 Analysis And Ranking Of Residential REITs
03/16 REIT RANKINGS : Apartments
03/15 Roughed-up REITs rally after rate hike
03/09 Selloff in REITs accelerates
Financials ($)
Sales 2017 990 M
EBIT 2017 254 M
Net income 2017 77,1 M
Debt 2017 3 662 M
Yield 2017 3,30%
P/E ratio 2017 84,25
P/E ratio 2018 79,18
EV / Sales 2017 10,6x
EV / Sales 2018 10,3x
Capitalization 6 879 M
More Financials
Duration : Period :
Apartment Investment and M Technical Analysis Chart | AIV | US03748R1014 | 4-Traders
Full-screen chart
Technical analysis trends APARTMENT INVESTM...
Short TermMid-TermLong Term
Technical analysis
Income Statement Evolution
More Financials
Mean consensus OUTPERFORM
Number of Analysts 17
Average target price 47,3 $
Spread / Average Target 8,0%
Consensus details
EPS Revisions
More Estimates Revisions
Terry Considine Chairman & Chief Executive Officer
Paul L. Beldin Chief Financial Officer & Executive Vice President
Michael A. Stein Independent Director
J. Landis Martin Lead Independent Director
Thomas L. Keltner Independent Director
More about the company
Sector and Competitors
1st jan.Capitalization (M$)
UDR, INC.-1.40%9 618
More Results