Apartment buildings sizzle, too, in Seattle's hot market
For anybody who's lost a bidding war for a house in Seattle, here's a small consolation: Some of the biggest real-estate magnates in the...
Seattle Times business reporter
For anybody who's lost a bidding war for a house in Seattle, here's a small consolation: Some of the biggest real-estate magnates in the world are enduring the same experience as they try to buy into the region's hot housing market.
In what brokers are calling "a perfect storm" of economic circumstances, investors from Australia to Bellevue are pouring money into Seattle-area apartment complexes, breaking sales records and driving up prices because they see rents about to take off.
Some $2.1 billion worth of apartments have changed hands in the Seattle metro area this year, triple the level of two years ago, and the traditional year-end flurry of sales hasn't even happened.
Apartments in Seattle are selling for an average $140,000 a unit — nearly 60 percent higher than two years ago. A luxury lakefront complex in Kirkland, Carillon Heights, recently sold for a regional record $370,000 a unit.
This is good news for landlords but probably bad news for tenants. It's a sign rents are headed upward, probably sharply, in the next year.
For everybody else, the apartment boom is another indication the region's economy is really starting to kick.
"This is the strongest market I've seen, and I've been doing this for almost 20 years," said Jon Hallgrimson, a senior vice president at commercial brokerage CB Richard Ellis.
"This is very similar to '97-'98, when we started to get some good job growth, and rents started to take off. Jobs and rents are tied together," he said.
Over the past several months, state payroll surveys have indicated the Seattle economy is starting to generate 2,000 to 5,000 jobs a month.
Those new jobs have a gradual ripple effect on the entire economy, but they hit the apartment market almost immediately.
Greg Laycock, senior director for multifamily housing at brokerage Cushman & Wakefield, said that when the economy is slow, single people find roommates and hunker down in a shared apartment. But when things improve and they land decent jobs, one of the first things they do is move into their own places.
Housing developer Claudio Guincher, whose company, Continental Properties, is building condos downtown and in Ballard, says his favorite tip-off is out-of-state license plates showing up in parking lots. That means people are starting to move here again, and the first thing they need is shelter.
But here's the rub: In Seattle, the overall supply of apartments actually shrank this year for the first time anyone can remember.
The number of new apartments is not keeping up with the number converted to condominiums or demolished.
Laycock said there could be demand for 10,000 to 20,000 more apartments during the next two years but only about 4,000 to 5,000 new units are being built. Scores of new condo and apartment projects are being planned — about 30 in Seattle alone — but if the region produces 100,000 more jobs, as some project, the apartment market could stay tight.
This kind of potential to make money has put Seattle on the hot lists of national and international real-estate investors, said Dan Fasulo, director of market analysis for Real Capital Analytics, a New York company that tracks major real-estate transactions nationwide.
"When a major property goes up for sale, you're seeing five, six, seven, even 10 bids," Fasulo said. "They have to be budgeting for some near-term increases in rents; that's the only thing that's going to justify some of the prices that are being paid."
This year, representing sellers, Laycock said he's frequently had the happy experience of multiple buyers, and he's seen some representatives of big investment firms frustrated at being repeatedly outbid.
On one recent deal, "we had four offers all at the same price, and it got to be a beauty pageant in selecting a candidate to go to contract with," Laycock said.
Hallgrimson, who has sold 12 apartment properties this year, said it's getting to be like selling a perfect house in a hot neighborhood.
"We will get anywhere from 10 to 20 offers on a well-located, B-plus asset or better," Hallgrimson said.
But, he notes, "Not too many people were envious of me in 2002 when rents were going down every month."
Ultimately, the apartment-bidding wars of 2005 have their roots in the 2000-01 tech wreck and Boeing layoffs. On top of that, low interest rates encouraged many renters to buy their first homes.
Apartment builders, seeing vacancy signs everywhere, stopped building.
"Why is this all of a sudden happening?" Hallgrimson said. "It takes two, three years to get a building permit. After '02, [developers] stayed home and watched CNN. Nobody was getting anything permitted. So we had a real hole in the market."
Tom Boyer: 206-464-2923 or firstname.lastname@example.org
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