Reno Multifamily Newsletter

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CBRE
Reno Multifamily
Newsletter
www.cbre.com/invreno
Second Quarter 2015
Record-Breaking Performance for the Reno/Sparks
Multifamily Market in Q2 2015
Aiman Noursoultanova, CCIM
Senior Vice President
T: +1 775 823 6983
e: [email protected]
LinkedIn: www.linkedin.com/in/aimannoursoultanova
Twitter: @AimanCRE
Web Site: www.cbre.com/invreno
SUMMARY: “The Reno/Sparks multifamily market continues to post a record breaking performance as the rental rate
this quarter hit $920, an all-time high for the market and an increase of 3.49% from $889 last quarter. Notably, the
vacancy rate dropped 70 basis points to 2.27% which is its second lowest level on record.”
Rental Fundamentals Continue to Improve Locally
National Perspective: Rental demand Accelerates
The Reno/Sparks multifamily market continues to post a
record breaking performance as the rental rate this quarter
hit $920, an all-time high for the market and an increase
of 3.49% from $889 last quarter. Notably, the vacancy rate
dropped 70 basis points to 2.27% which is its second lowest
level on record. For reference, the vacancy rate reached an
all-time low of 2.13% in Q3 of 2014.
While vacancy stays low and rental rates increase on the
national front, rental demand also continues to increase
quite dramatically, and we are not prepared. According
to a June 2015 Urban Land Institute article entitled “We
are not prepared for the growth in rental demand,”
researchers concluded that from 2010 to 2030, the growth
in rental households will exceed that of homeowners by 4
million, with an increase of 13 million rental households
and 9 million homeowner households, which equates to
five renters for every three homeowners. This demand is
attributed to various behavior and economic changes,
including the fact that we’re still recovering from the
“recession hangover.”
While an increase in new units being delivered to the
market has partially offset the low vacancy rate this quarter,
according to state and regional economic development
experts, this is only the beginning of a sharp and sustained
increase in needed construction. According to the executive
director at the Economic Development Authority of
Western Nevada, the projected demand for new housing,
apartments and condos is beyond the scope of any prior
housing boom. Using conservative estimates there will
be more than 50,000 new jobs by 2020, with more than
60,000 new residents.
To consider the magnitude of Northern Nevada’s housing
challenge, the Economic Indicators Planning Committee
(EPIC) estimates that we’ll need some 42,000 new housing
units by 2020. Previously, the highest number of new
housing units ever built in Reno/Sparks was just over 6,000
in 2005, and we’re going to soon need almost 9,000 a year
for the next five years.
While this scenario plays out nationally, on the local front,
the Reno/Sparks market is also facing a crunch in supply
as rental demand continues to outpace available inventory,
as evidenced by a vacancy rate as low as 0.44% in some
submarkets. According to the Q2 2015 Johnson | Perkins
| Griffin Apartment Survey, although several projects are
under construction, supply within the major apartment
projects in the region is expected to remain extremely tight
over the coming year. Furthermore, with increased job
activity and moderate levels of new construction activity,
demand and supply pressures may continue to play out
even more drastically than in other US markets.
2015 CBRE, Inc.
New projects are being completed at a brisk pace
but the amount of new and planned construction
compared to the projected demand is not going
to keep up. As noted recently by the Economic
Development officials, the region is forecast to bring
in over 50,000 jobs and population growth of over
60,000 in next five years. Northern Nevada needs
thousands of new homes to meet demand from a
jump in jobs and population growth expected in the
next few years.
There are currently 566 units under construction,
with 2,673 units of planned construction. Recent
completions include the following projects:
• The Village at Arrow Creek, a 208-unit
apartment complex by Ryder Homes in South
Reno.
• Phase I (180 units) of The Bungalows at Sky
Vista, a 338-unit project in Reno’s North
Valleys by Silverwing Development.
In Q2, the following projects were under
construction:
• The Villas at Keystone Canyon, Phase I
consisting of 288 units is halfway completed
(scheduled completion is November 2015
and 168 were completed at end of Q2 2015).
• The Edgewater at Virginia Lake by Silverwing
Development, which will consist of 288
apartments and 48 condos in the former
location of Virginia Lake Apartments.
Scheduled completion is February 2016.
• Phase II (158 units) of The Bungalows at Sky
Vista, a 338-unit project in Reno’s North
Valleys.
In terms of planned construction, the following
projects are currently in the pipeline:
• Vista Rafael Apartments located on a ±21
acre parcel at the southwest corner of N.
Virginia and Vista Rafael Parkway will consist
of 416 units.
1. 209 apartment units around the partially
completed parking garage at the Sparks Marina,
with construction to commence in late 2015
2. 920 units on 20 acres, adjacent to the Outlets
at Sparks, to start construction in late 2016
3. ±100 units in a remodel of the Silver Club at
Victorian Square
• Silver Peak Apartments (420 units) has a special
use permit that will expire in March of 2016.
• The Village at Arrow Creek Parkway, Phase II,
which will consist of 252 units (beginning in 2015).
• The Villas at Keystone Canyon, Phase II, which will
consist of 120 units.
Sale Trends in 80+ unit Apartment Communities
In Q2 2015 three multifamily properties over 80 units
sold: Caviata at Kiley Ranch (184 units), Sundance West
Apartments (350 units), and Sunset Ridge Apartments
(100 units). The Bluffs (300 units) also traded as part of a
large portfolio sale whereby Kennedy-Wilson acquired a
61.5% interest in Vintage Housing Holdings, representing
a portfolio of 30 affordable and senior apartment
communities nationwide. (Due to the nature of the sale,
we have not included this portfolio as a part of our sales
graphs.)
Caviata at Kiley Ranch: The sale of Caviata at Kiley
Ranch is a testament to the hot apartment market that
Reno/Sparks has now become. The asset sold in an
off market transaction from Walnut Creek, CA-based
Tilden Properties, to San Francisco, CA-based Oakmont
Properties for $33,840,000 or $183,913/unit and
a 5.38% cap rate. This asset sold two years ago for
$24,475,000 or $133,016/unit representing a 38.26%
appreciation over the hold period.
Built in 2007, this 184-unit property was developed as
a luxury condo project and instead became a rental
community when the recession hit. Units feature fully
equipped kitchens with granite counter tops, direct access
garages, oversized windows, a gas fireplace with mantle
and ample closet space. The property features a fitness
center, sparkling pool, spa and miles of jogging and
biking paths.
2015 CBRE, Inc.
Q2 2015 | PAGE 2
• Fountainhouse, a residential project by
Silverwing Development containing 236
multifamily units and space for retail and
commercial development, which is set to
break ground later this year near Victorian
Square in Sparks on two vacant parking lots
adjacent to Century Theaters.
• LandCap Development has three projects in the
works:
Reno Multifamily Newsletter
New Construction in Reno & Sparks
Property Name
Address
# of
Units
CAVIATA AT KILEY
RANCH
950 Henry Orr Pkwy,
Sparks, NV 89436
SUNDANCE WEST
3245 Clover Way,
Reno, NV 89509
Price/Unit
Price/SF
Year
Built
Date
of Sale
Cap
Rate
Buyer
184 $33,840,000 $183,913 147,200 $229.89 800 2007 5/19/2015 5.38%
TildenCaviata LLC
Oakmont
Properties
350 $23,450,000
Sundance Sundance Hc2
West-raf LLC
LLC
$6,050,000
SF
Avg.
Unit
Size
Seller
SUNSET RIDGE
APARTMENTS
100
2141 Centennial Way,
Reno, NV 89512
Price
$67,000 238,636 $98.27
682 1977 6/16/2015 5.76%
$60,500
Sunset Ridge
Mentor
Apartment
930 1969 5/6/2015 6.60% Development Homes LLC
LLC
(The Apartment
Company)
Sale Trends (cont.)
Sundance West: Built in 1977, Sundance West
is a 350-unit apartment community comprised of
studios, 1-bed/1-bath, 2-bed/1-bath, and 2-bed/2bath units and is located in Reno’s old Southwest
corridor. The transaction sold at a 5.76% cap rate to
an Omaha, Nebraska based buyer. The buyer plans
to upgrade and improve the property.
Sunset Ridge Apartments: Sunset Ridge
Apartments is a 100-unit, tax-credit apartment
community located at 2141 Centennial Way in Reno,
located near the University of Nevada, Reno. The
complex was built in 1969 and features an on-site
leasing office and lounge, a community laundry
facility, playground and sport court. The property
underwent many recent renovations. The asset sold
for $6,050,000, which represented a 6.6% cap rate.
92,952
$65.09
Reno Multifamily Newsletter
Table 1: Q2 2015 Significant Sale Transactions
RENO | SPARKS
Local Forecast: Increased Housing Demand,
Strong Job Growth
The Reno/Sparks apartment market will continue to
tighten up given the forecast demand for housing and
strong job growth in the region in the next few years.
Land availability for multifamily use is dwindling fast
in the region as well, which will mean that the outlying
areas of Reno/Sparks proper will get more attention
and increased demand. Higher construction costs and
increased site costs will plague multifamily construction
in the near term. A potential increase in interest rates
this Fall may dampen the demand for apartments in the
region somewhat but it will most likely be negated by the
strong rental appreciation given low vacancy levels.
Reno is now on the radar of national and international
investors looking to enter the region for the first time. Even
though such strong buyer demand has prompted some
owners to sell, others are choosing to hold assets in order
to capitalize on growing tenant demand and increasing
rental rates and values.
2015 CBRE, Inc.
Q2 2015 | PAGE 3
*Estimated stabilized CAP rate per research. | Source: Washoe County Assessor’s office, CoStar & CBRE Research, Q1 2015.
U.S.
Nevada
The state Department of Employment, Training
and Rehabilitation noted that Nevada’s Statewide
jobless rate dropped to 6.9% in June of 2015,
down from 7% in May. Governor Brian Sandoval
said the June number is the first time Nevada
hit below 7% since before the worst of the
recession seven years ago. In Reno/Sparks, the
unemployment rate also went down from 6.9%
to 6.4% from Q1 of 2015 to Q2 of 2015.
Reno/Sparks MSA
Unemployment Rate
10%
9%
8%
7%
6%
5%
Q3 2013
Q4 2013
U.S.
Q1 2014
Q2 2014
Nevada
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Reno/Sparks MSA
UNITS SOLD
Chart 2: Number of Units Sold
In Q2 of 2015, 634 units (in 80+ unit properties)
sold, which is a slight decrease from Q1 of 2015
when 939 units sold. Properties that transacted
include: Caviata at Kiley Ranch (184 units),
Sundance West Apartments (350 units), and
Sunset Ridge Apartments (100 units). The Bluffs
(300 units) also sold, but is excluded from this
graph due to the fact that it was part of a large
portfolio sale.
Number of Units Sold by Quarter in 80+ Unit Multifamily Projects
# of Units Sold
1,000
900
Number of Units
Reno Multifamily Newsletter
UNEMPLOYMENT
Chart 1: Unemployment Rate
800
700
600
500
400
300
200
100
0
Q3 '13
Q4 '13
Q1 '14
Q2 '14
Q3 '14
Q4 '14
Q1 '15
Q2 '15
Current Vacancy-Rent Per Type
Chart 3: Vacancy Rate vs. Rental Rate Per Unit Type
Current Vacancy
Vacancy Rate
Rental Rate
3%
$1,400
3%
$1,200
$1,000
2%
$800
2%
VACANCY RATE vs. RENTAL RATE
From Q1 of 2015 to Q2 of 2015, vacancy
decreased by 70 basis points from 2.97% to 2.27%,
and rental rate increased by 3.49% from $889
to $920. The rental rate this quarter hit a new
high for our market. Similarly, the vacancy rate is
hovering around historic lows, after reaching an
all-time low of 2.13% in Q3 of 2014.
$600
1%
$400
1%
$200
Q2 2015 | PAGE 4
0%
$0
STUDIO
1BR/1BA
2BR/1BA
2BR/2BA
3BR/2BA
Rent Per Type
Page 1
2015 CBRE, Inc.
All unit types experienced an increase in rental
rate from Q1 2015 to Q2 2015, except for
studios, which decreased by $3 in average
rent. The highest increase in average rent was
in the 2-bed/2-bath category, which witnessed
an average rental increase of $43. Overall, the
market’s average rental rate of $920 represented
a $31 increase in average rental rate, reaching its
highest historical rate in the market.
Rental Rate
$925
$915
Average Rent
$905
$895
$885
$875
$865
$855
$845
$835
$825
$815
Q3 '13
Q4 '13
Q1 '14
Q2 '14
Q3 '14
Q4 '14
Q1 '15
Q2 '15
According to the Johnson |Perkins | Griffin
survey, only 17% of apartment properties offered
concessions in Q2 2015 compared to 36% in Q1
of 2015, signifying another milestone. Concessions
range from discounted deposits to one month
free rent with a six or 12-month lease. The most
commonly found rent concessions consist of
one month free rent, a discounted deposit, and
reduced rent with a six or 12 month lease.
Projects Offering Concessions
Concession Rate
% Offering Concessions
45%
40%
35%
30%
25%
20%
15%
Q3 '13
Q4 '13
Q1 '14
As for the various submarkets, all submarkets
experienced an increase in rental rate, except for
the Brinkby/Grove submarket which remained
unchanged. The Lakeridge submarket saw
an increase of $78 in rental rate, followed by
Northwest Reno, which witnessed an increase of
$44 in average rental rate.
CONCESSION RATE
Chart 5: Concession Rate
50%
Reno Multifamily Newsletter
AVERAGE RENTAL RATES
Chart 4: Average Rental Rates
Q2 '14
Q3 '14
Q4 '14
Q1 '15
Q2 '15
% Offering Concessions
Q2 2015 | PAGE 5
2015 CBRE, Inc.
Map: Reno Region Multifamily Submarkets
CONTACTS
N
For more information about this
Reno Multifamily
Newsletter
please contact:
RENO INVESTMENT PROPERTIES
Aiman Noursoultanova, CCIM
Senior Vice President
T: +1 775 823 6983
e: [email protected]
CBRE
6900 S. McCarran Blvd, Suite 3000
Reno, Nevada 89509
FOLLOW CBRE, Inc.
www.cbre.com/invreno
CBRE Capital Markets combines the top investment sales, finance and investment banking businesses into a single, fully integrated global
service offering. As the recognized worldwide leader in the acquisition and disposition of income-producing properties for third-party owners and as a
leader in debt and structured financing for all properties, we offer our clients complete capital markets solutions everywhere around the globe. In 2013,
CBRE led the industry with $87.23 billion of investment sales and loan activity nationally*. In 2013, CBRE ranked as the #1 investment sales firm overall
according to Real Capital Analytics.
Disclaimer © 2015 CBRE, Inc. | This information has been obtained from sources believed reliable. We have not verified it and make no guarantee,
warranty or representation about it. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current
or future performance of the property. You and your advisors should conduct a careful, independent investigation of the property to determine to your
satisfaction the suitability of the property for your needs.

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