By Carolyn Cummins
INVESTING in United States real estate will not be for the faint-hearted in coming months, but there is a sign of some life in the future, say property brokers.
This optimism is despite figures this week showing US apartment rents fell in the first quarter and the vacancy rate rose to a five-year high as job losses and falling incomes reduced demand.
Vacancies climbed to 7.2 per cent from 6 per cent a year earlier and 6.6 per cent in the fourth quarter, says the New York research firm Reis Inc. Vacancies were at the same level as the first quarter of 2004, matching the highest since Reis began conducting its survey in 1999.
In its latest report, Citi's US property analysts say they believe that the odds of being in a better economic place 12 months from now are higher. While probably not the time to dive in head first, it just might be the time to begin seeking opportunities within the sector.
The apartments sector has been given a cleaner bill of health by ratings agencies, compared with office and retail trusts that continue to feel the pressure of the weaker US economy. Citi's brokers say that while US employment losses continue unabated, spending programs should begin to stem the job losses.
"Housing and debt programs also look to strengthen markets. Granted, there are innumerable risks to this thesis, and limited supportive overall evidence," the broker said. "We continue to be cautious on the apartment space given this conundrum."
This cautious optimism was supported by the ratings agency Moody's. Its latest report on the sector says that while the fundamentals of the apartment industry have continued to erode, trusts in the sector have taken appropriate steps to shore up liquidity and most continue to have stable outlooks.
"Multi-family real estate investment trusts have increasingly adopted defensive postures with their balance sheets and operating activities, seeking to maximise liquidity via a number of initiatives, including the use of Fannie Mae and Freddie Mac debt, ratcheting down development activities, and asset sales," says Moody's vice-president, Chris Wimmer. "As management teams appropriately focus on the challenging conditions, most balance sheets are well prepared for the next 12 to 18 months."
Moody's rates nine multi-family real estate investment trusts, eight of which have a stable outlook.
with wires