Landlords have taken plenty of heat this year from tenants and their advocates in a debate over how to improve affordability for renters.
Apartment owners haven’t exactly been putting smiles on their investors’ faces either.
That disappointment was discovered when my trusty spreadsheet reviewed a nationwide investment performance report on commercial real estate by industry tracker Green Street, based in Newport Beach. July’s tracking of “institutional” assets – that’s largely big investments controlled by giant property owners – showed apartment values among the nation’s worst-performing real estate niches.
By this math, apartment values were flat in the year ending in July. Why is unchanged so disappointing?
Well, apartments were the only commercial real estate niche that saw no value gains over those 12 months. And zero return comes as much of commercial real estate enjoys a revival after a four-year slump. Green Street’s main property index was up 5% in the past year, though it remains 13% off its 2022 peak.
Real estate investors of all stripes were pummeled after the Federal Reserve turned off the cheap money machine in 2022. It wasn’t just pricier loans that hit apartment owners.
Overbuilding tied to a misreading of the pandemic’s rental frenzy left numerous units empty. That miscalculation led to flat or discounted rents in many markets, especially for the high-end units the big operators like to build and manage.
Equally painful is the fact that operating costs, from insurance to repairs, have soared. Capitol Hill’s rough battles over housing policy also stirred uncertainty among residential real estate investors.
That’s the backdrop behind a 19% tumble in apartment values since real estate’s 2022 peak, according to Green Street’s math. It was the third-largest drop among the 12 niches tracked.
Surprisingly, the best results of the 12 niches came from malls, up 12% in the past year. And mall values are 3% above the 2022 peak, also the industry’s top result.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
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