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Negative Press

Tuesday nights OPB News Hour had a valid story about big trouble with commercial real estate, particularly office, hotel and retail properties. It reported that consumer demand is way off so these properties are under performing. This is leading to more and more commercial mortgages going into default.

This negative press helps apartment investors because it casts all commercial real estate in the same light, causing fewer investors to consider well performing investments like apartments. Apartments are weathering the financial storm nicely because demand for them is centered on the basic human need for affordable housing. Apartment vacancies in Portland have climbed from 3.5% to 6% as more tenants double up, move home, or just move around more often. This has slowed rent growth and increased some expenses, but for the most part apartments are not struggling.

Affordable housing is a safe investment as long as the population is stable or continues to grow. Portland’s population is growing in spite of the high unemployment. Of the 13% unemployed individuals, very few are on the streets. In fact higher unemployment reinforces the need for affordable housing. While demand is growing, no new construction is taking place. Serious new apartment construction can’t afford to start until rents go up 15% to 30%.

WHY IS THIS GOOD FOR INVESTORS? Apartment operations are stable for basic economic reasons, especially when compared to other types of investment real estate. High profile stories keep most investors attention focused on other investment vehicles. Fewer buyers keeps prices lower and equals better opportunities. Today there are very few buyers. The largest group of apartment investors would be in the market to buy right now but they would have to sell their existing properties in order to trade up and now is not the time to be selling. That creates bargains for those who have cash today and are not dependent on the sale of an existing property for capital.

The sky is not falling everywhere. Industries that are providing for basic human needs are doing well, and those who can do so at low prices are thriving. Think Wall Mart VS. department stores, fast food VS. nice restaurants. Frugality is becoming hip, as well as a necessity.

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