Oregon’s Multifamily Dynamics Remain Strong Despite SB 608 Curbing Rent Growth
There’s been some agitation among owners and potential buyers in the Oregon apartment marketplace due to new rules regarding rent increases and no-cause evictions. I’ve already reviewed this new state-wide measure [1] and its immediate effects. Here I’ll review the strong operating dynamics of the Oregon apartment market that continue to benefit multifamily investors and owners.
? Oregon is still an in-demand location with positive net in-migration and job growth, especially in Portland and its suburbs. According to the latest Multnomah Economic Indicators report, 2018 was the 9th straight calendar year with 238,900 job gains in the Portland metro.
? Apartments still offer tax shelter of income. With CoStar reporting Q1 2019 vacancy rates in Oregon ranging from 5.5% (Portland) to as low as 1.8% (Medford), multifamily investments are the envy of other types of commercial property. During economic downturns, apartments have historically been less prone to swings income compared to other commercial real estate.
? Lender rates are off the bottom and look stable. The Fed voted March 20th to maintain its benchmark interest rate in a range of 2.2%5-2.50% for the balance of 2019, as inflation remains tame and economic growth slows.
Despite Oregon’s strong metrics, new state laws have tempered investor enthusiasm since they added a layer of complexity for owners and property managers. If Oregon’s pioneering rent control legislature is considered a success, it may be replicated in other states. Rental Housing Journal recently reported that eviction bills are moving forward in Washington State that could impact the Vancouver apartment market (Portland MSA).
Here are some important items for all investors, owners, and property management companies (located in and outside of Oregon) to consider:
? Understanding your legal responsibilities, such as requirements for termination notices and limitations on rent increases, is more important than ever. Penalties for raising rent above limits (7% increase + CPI) for example, include:
-3 months rent penalty;
-Actual damages;
-Potential attorney fees;
-Defense to eviction action for nonpayment.
?Passive landlords with low turnover may be as much as 20% below market on rental rates, and now it will take multiple years to catch up. Conducting monthly rent comparable surveys are a great way to know if you’re at market.
?Turnovers: Inspecting a unit immediately upon receiving a vacancy notice will help proactively assess whether a light or heavy turn is appropriate. Doing light, quick turns first can get a unit back on the market ASAP. Taking a unit offline for two months to turn it (vs. one month) effectively doubles the vacancy rate and causes a commensurate hit on income.
?Expenses: A stable rent environment means owner/landlords are more dependent on managing expenses to increase NOI.
- Contracts: Laundry and garbage contracts are notoriously difficult to get out of, so understand what you’ve agreed to first. In Portland, garbage is not franchised so landlords may shop and select a contractor. Make sure you’ve got enough capacity since overflow means more special charges. On laundry, it may be worth owning your machines and collecting 100% of the income instead of giving half to the laundry company.
- Utilities: Water/sewer is about one month of rent per year (at least in the city of Portland). If your storm water billed per square foot seems unusually large, address the inefficiency.
- Insurance: Quote annually, since pricing does change based on market conditions.
? Marketing: Reviewing competitors is essential to defining and emphasizing your property’s positives, and remedying any short-comings. Tracking a property’s online reputation monthly and replying to both positive and negative reviews demonstrates a thoughtful, active and engaged owner/manager—something prospective tenants value.
In addition to being a licensed broker in Oregon and Washington state, I personally own rental property and understand what other owners and investors are facing. The focus at IMG Northwest is to help multifamily real estate owners maximize their income and to maximize value at sale. To request more information or a complimentary Broker Opinion of Value, contact me at (971) 888-4010 ext. 107.
Steve Morris
[1] Oregon Senate Bill 608 (Enrolled, 2019).