Optimizing multifamily profitability is a bit art and a bit common sense.  Two areas where underperforming will impact cash flow are: 1. Failure to work renewals proactively, and 2. Poorly managed “Make Ready” costs.  Below is an article by John Wilhoit Jr. with some great pointers on both.  Click on the title to go to his site for additional great articles…he’s the real deal.

Multifamily Make-Ready’s Made Easy

by John Wilhoit Jr. on October 18, 2011

Next week I’ll be testifying as an expert witness in a property tax appeal case for an 120+ unit multifamily asset in Salem, OR.  Part of my research is to interview the on-site property manager.  I was very impressed with how well she knew her area, the asset she managed, historical vacancy rates, concession rates…she was a pro.  Some people have an innate talent for property management and she is clearly one of them.  Others may need some top notch training to fulfill their potential.  I am an unabashed fan of Grace Hill Training for multifamily pros.  They offer low and no cost programs that your management staff will benefit from.  Multifamily management is not easy.  One asset owner I talked to thought training was over rated.  I responded:  “You’ve got a highly motivated  person willing to put in long hours on your behalf to help you optimize the profits on a $10 million dollar asset.  Give them tools so they have them the greatest chance to create positive outcomes on your behalf.”

The next GracHill Offering has that FREE pricepoint that value conscious owners like:

GRACE HILL & MproTV PRESENT LET’S TALK TRAINING - In their second episode of Let’s Talk Training, you’ll discover new and innovative ways to keep your maintenance teams trained and motivated by using new methods of learning.  They will discuss challenges and benefits of several methods:

• Online training
• Hands on training
• On the job training
• Training facilities
• Videos/podcasts
• Outsourcing

If you are an owner, trainer or supervisor, join them on Wednesday, October 12, 2011 at 2:00 PM ET for Maintenance Team Training and Motivation.  Click here to reserve your spot now.  Let’s Talk Training is always free of charge, so it will fit nicely into your training budget!

When you think of top notch multifamily training, think of Grace Hill.  To optimize your multifamily portfolio contact Rick Bean of Rose City Commercial Real Estate at: 503.577.1034 or rick@rosecitycre.com

Failure to review each property’s profit profile annually is roughly the same as burning money.  There are a number of ways to increase the profitability of a single commercial asset or portfolio.  Remodel, Repaint, Reposition, and Repurpose are obvious choices…that typically require significant equity and allocation of resources to accomplish.  Revamp the rent schedule is another…although being too aggressive can actually increase vacancies and turnover costs.  In this post we’ll cover low and no cost solutions, such as lowering property tax, utility and insurance costs, plus enhancing revenue through captive cable programs.

REMINDER: In a 6 Cap rate market every dollar in reduction of expenses (tends) to increase the value of the asset by $16.66, in addition to the increasing NOI.  Permanently shave $15,000 off your operating expenses and you’ll increase the cash flow to the owner by $1,250 per month and increase the value at time of sale by $250,000.

PROPERTY TAXES

Property taxes are the second largest single expense item for many multi family assets.  The truth is that the assessor gets it right much of the time.  But if someone has to pay more than their fair share of taxes it wont be my client.  I became a believer in property tax appeals working on profitability improvement projects in Las Vegas, NV and Tempe, AZ. 

Las Vegas, NV:  The REIT I worked for had approximately 200 total 3 and 4 bedroom homes in Clarke County, NV that they purchased from a builder as a bulk sale.  They were on only one tax lot so it was pretty obvious that they were being operated as a multifamily asset.  Part of what we were working on to create additional value was getting them individually platted so we could sell them as condos.  Shortly after the plat was recorded tax bills were delivered and they went up collectively $200,000.   The reason I tell you this is that I called the Clarke County Assessor’s office and told them that I thought the property should be taxed as it was being operated…as an apartment.  I followed up with a formal letter…they agreed and changed back to apartment values, saving the firm $200k per year. 

Tempe, AZ:  When the market started cooling in Phoenix we felt one of our assets was grossly over valued by the Maricopa County Appraiser.  We worked with a vendor and reduced the assessed value by $13,000,000.  That raised the cashflow significantly due to adding $150,000 to NOI.  At the prevailing Cap at that time this would have created a $3,000,000 increase in sales price if the property was to be marketed.

Full Disclosure:  I saw how important property tax appeals were that it inspired me to found a company that does just that.  Prime Property Tax Negotiation appeals property taxes on commercial assets in the US with a focus on OR, WA, and CA.  More information is available at: www.primeptn.com .  You can contact us at:  info@primeptn.com or 503.577.1034.

MULTIFAMILY INSURANCE

One of the best bargains in multifamily is insurance.  Coverage is far more affordable now than it was 5 years ago.  Price per door has actually dropped.  It’s also important to review your coverage.  You should have the higher of what your loan agreement requires, and replacement cost.  This is not a place to go cheap.  The three really good providers are usually well priced…I recommend using them instead of second or third tier vendors.  (If you want my opinions on the best companies and agents please contact me at 503.577.1034 or rick@rosecitycre.com.)  Second thing to remember if you have a portfolio of properties is that you may be able to improve your coverage and reduce your average per door cost of insurance by getting bids based on the portfolio rather than the individual properties.  I worked for a local investor on a portfolio approach and reduced his cost per unit, increased cash flow by $10,000 per month and increased the aggregate value at time of sale by $2.6 million dollars.

RUBS

Utility cost increases that are borne by the owner are a silent profit killer.  When Renters Utility Billing Service (RUBS) is used the landlord pays the utility and bills back to the tenant their portion.  The way to cut the water usage in half is to make the tenant pay for using it.  All of a sudden a toilet that flushes continuously will be reported, as will the under sink leak.  Billing amounts may be derived from sub-metering, or apportioning, and in some cases the landlord actually breaks even or makes a buck.  Be aware that some municipalities have laws regarding the methodology permitted.  This program is good from day one…and will help the landlord from absorbing future utility increases.

CAPTIVE CABLE REVENUE SHARING

A number of  cable signal providers want to shut out their competition.  To secure sole provider rights they offer revenue sharing programs to multifamily property owners.  Most of the ones I’ve checked into require 100 to 200 doors as a minimum.  this can be as a single asset or as a portfolio.  Typical contracts range from 4 to 8 years with an initial payment of $100 to $125 per door and additional quarterly payments totalling $400 over the life if the contract.  When the contract is up you can renew or change vendors.  (Note the numbers cited are for one example…other offers may be higher or lower.) This works out to be roughly $1oo per door per year additional revenue.

HOW MUCH MONEY ARE YOU BURNING?

Contact Rose City Commercial Real Estate for additional information on how to tune up the profitability of your multifamily investments, or to expand your portfolio: Rick Bean, rick@rosecitycre.com. Phone:  503.577.1034.

I prefer to buy at the bottom of the market…how about you?

The time to buy multifamily assets is now…its a refrain that I’ve been offering for several months.  But there is a difference…now it makes sense for stock holders to move their equity into multifamily.  Rose City Commercial Real Estate can show you how to invest your IRA…and not create a taxable event!  Let me show you how by calling 503.577.1034 or contacting Rick Bean at: rick@rosecitycre.com.

The latest data shows Portland at a 3.5% average vacancy rate…yet multifamily building permits for the period  fell.  Why? The costs and risks of development are still high

If you want to be a genius in 5 years…make smart multifamily investments today.

relative to the returns available at the current revenue structure.   (Particularly when the costs and risks of building are compared to buying existing multifamily assets.) For those that have only been in the multifamily arena for a few years that may not mean much.  What it says to the others is that:

A.)  We are poised for significant increases in rents even without macroeconomic improvement.  Our population continues to grow, yet the market has not responded by starting more apartments.  If the economy does turnaround rents will really head up.

B.) There will be downward pressure on Cap Rates. This will raise asset prices. 

HOW I SAY IT:  “The next few years will be a golden age for Portland apartment owners.”

Below I have attached a great article from Investor’s Business Daily:

By JOE GOSE, FOR INVESTOR’S BUSINESS DAILY Posted 08/25/2011 03:51 PM ET

 Rising renter demand is filling apartment buildings around the U.S., in defiance of the economic malaise.

Vacancy rates are shrinking all over, in tight markets such as Minneapolis and loose ones like Phoenix.

It’s an unusual situation. Job creation typically drives apartment demand. But this time the tenant top-up is largely about a lack of new supply — in the face of paltry employment growth. Meanwhile, demographic trends and the single-family housing slump are creating tenants, says Hessam Nadji, a managing director at Marcus & Millichap Real Estate Investment Services.

 

“The demand for apartments is at levels that we haven’t seen since economic boom years like those in 1999 and 2000,” he said. “It is clearly decoupled from the economy.”

The property brokerage projects that asking rents will grow an average of 3.5% this year in the U.S.

After the Big Apple at just a 2.8% vacancy rate, the tightest areas are now Minneapolis, San Jose, Calif., and Portland, Ore., all under 4%.

Widespread Improvement

Some 3 million young adults age 24-34 that moved back in with family or roommates in the last five years are now moving into their own places as their employment prospects improve, Nadji says. Hiring has sputtered over recent quarters, but this age group captured 65% of the new jobs created in 2010.

Other factors are creating tenants too, Nadji notes: A double-dip in single-family home values has made house hunters wary of buying. Tougher mortgage qualification requirements deter purchases. And homeowners who lost houses to foreclosure have become renters.

Together, those trends helped to lower the U.S. average apartment vacancy rate to 5.9% at the end of the second quarter. That was a 1.9 percentage point improvement from a year earlier, as noted by Marcus & Millichap.

While bellwethers like New York and Boston are among markets with vacancies below average, Minneapolis, Milwaukee and other markets also beat the average, largely due to decent job creation and scant new construction. Minneapolis employers added 7,000 workers in the first half of 2011. They had let go 6,200 a year earlier.

Among very tight markets, Minneapolis and Portland vacancy rates fell 2.2 percentage points from a year ago in the second quarter.

Even markets that were battered by rampant speculative home and apartment construction in the last decade have seen rapid improvement. Vacancy in Las Vegas, for example, plunged to 8.1% at the end of June from 11.1% a year earlier.

Continuing weakness in the Las Vegas housing market contributed: One in every 99 homes in the metro received a foreclosure notice in July. But now the jobs picture is improving slightly. Employers are expected to hire 16,200 workers this year, which would mark the first year of job growth since 2007.

A glut of empty single-family homes reverting to rental houses in Sin City and other overbuilt markets could slow further occupancy gains, Nadji says. But he and other observers point out that single-family homes don’t appeal to most renters ages 24 to 35. Instead they want places that provide maintenance, amenities and services.

Terry Considine, CEO of Denver-based Apartment Investment and Management Co. (AIV), told analysts during the second-quarter earnings call in July that foreclosed homes and rental houses were “not really competitive with professionally managed apartments.”

A sign beckons renters near Tampa, Fla., where vacancy has fallen to 6.9%. AP View Enlarged Image

“They serve different market segments where customers have different interests and preferences,” said Considine, whose company owns or manages more than 600 multifamily properties in 38 states, Washington, D.C., and Puerto Rico.

Buying Splurge

Encouraged by improving fundamentals, investors are flocking to apartments. Some $21.6 billion in multifamily properties changed hands in the first half of 2011, more than double a year earlier, says Real Capital Analytics, which tracks sales of more than $5 million.

Capitalization rates slid to an average 6.4% in the second quarter from 6.6% in the first. They tell a property’s initial yield, falling as prices rise.

Sellers in major coastal markets are fetching prices that reflect cap rates of 5% or less, says Jeffrey Baker, executive managing director in the New York office of global brokerage Savills. That’s sending some institutional investors to secondary markets, where yields are higher.

It also is sparking new construction, which can ultimately generate higher yields of 6.5% to 7.5% for investors. Savills recently arranged equity financing for The Victor, a $140 million luxury apartment project in Boston that just broke ground. It’s the first big multifamily development in the city since the financial markets collapsed in 2008.

“There certainly will be some measured development that’s going to happen over the next couple of years,” Baker said.

Opportunities also exist for mom-and-pop investors in most markets among smaller properties, yet to appreciate at the same rate as top-tier assets, Nadji and Baker say.

While buyers typically need to do minor upgrades to justify rent increases in such properties, the reasons to pursue acquisitions have become more compelling, particularly with interest rates around 4.5% on a 10-year loan, Nadji adds.

“The turmoil in the stock market has made people think harder and more aggressively about buying apartments,” he said.

__________________________

If you would like to talk about transitioning your equity from a volatile stock market into the relative stability of multifamily investing please contact Rick Bean today at 503.577.1034 or rick@rosecitycre.com

In order to put our local apartment market in perspective I performed my own analysis of the data.  The headlines about big REIT players and  Class A assets?  Absolutely true.  But under reported is the way that all segments of the multifamily market have picked up.  The average age of multifamily investment closed in the last 12 months?  36+ years!  That suggests that repositioning opportunities and value add plays are as important as the flagship pride of ownership assets.

Apartment investments continue to be the preferred commercial real estate niche both locally and nationally.  CoStar reports  multi family volume jumped 80% in the second quarter over

For additional information on my study, contact me at 503.577.1034 or email me: rick@rosecitycre.com.

the same period last year.  Nationally almost $15 billion in  sales closed in the second quarter this year along with $9.5 billion in the first quarter for a $24.5 billion start to the year.  While that is less than the peak market, (mid 2007) it is still quite robust.  REITs are a major factor in this story…but acquisistions are also being made by individual portfolio owners large and small.  Nationally the average cost per unit is up to $88,500.  There’s been lots of press about all the deals in Phoenix ($1.3 B first half  2011) but during that same time period San Francisco ($2.1 B); Los Angeles ($2.3 B) and Washington DC ($2.6B) have actually had higher sales. It should be noted that the price per door in Phoenix is much lower.

So how is Portland doing?  Well…sales have been robust here…REITs have actually been net sellers…although all that I have talked to are still in buy mode.  I ran a list of all activity of $1 million and up  multifamily sales in a 25 mile diameter area roughly equal to the Greater Portland Metropolitan for the last calendar year.  Here are some of the highs and lows:

• Total number of multifamily sales in excess of $1 million: 94. Greater than $5 million: 20;  Greater than $10 million: 12; Greater than $20 million: 7; Greater than $30 million: 3.
• Highest sale price:  $36,875,000 for Kearney Plaza in NW Portland.
• Busiest area: East side of town.  Only two of the 7 largest assets sold were on the West side of town (Kearney Plaza and Park 19). The remaining 5 were on the East side (Russellville Commons, Orchard Pointe, 2121 Belmont, and Kemton Downs).
• Lowest Cap Rate (Actual): 2121 Belmont at 4.4% (Kearney Plaza was second lowest at 4.75%
• Highest Cap Rate (Actual):  Heather Glenn 10% .  Honorable mentions: Burnside Station 9.32% and Pioneer Plaza Manor: 9.99%
• Average Cap Rate:  6.91
• Average per unit: $82,650
• Newest 1 year old
• Oldest: 108 yrs old
• Average age of property sold: 36 years

Investors continue to prefer U.S. apartment buildings over most commercial properties, even commercial office space, as total multifamily sales volume jumped nearly 80% in the second quarter over the same perioud last year.

Although still just a fraction of its mid-2007 peak, the nearly $15 billion in sales in the quarter brought total investment for the first half of 2011 to $24.5 billion, according to CoStar Group data.

The average per-unit price of apartment properties reached $88,500 in the quarter — the highest since the third quarter of 2008, said CoStar Global Strategist Michael Cohen during CoStar’s Mid-Year 2011 Multifamily Review & Forecast.

FREE:  Rose City Commercial Real Estate will give you a no cost opportunity to develop a long term investment plan customized to your goals.  Portland multi-family investments are poised for solid gains.  Contact Rick Bean now at: 503.577.1034 or rick@rosecitycre.com

Meanwhile, strong renter demand continues to push down apartment vacancy rates and nudge up rents. With capitalization rates for existing properties seeing strong compression in some high-flying markets, larger multifamily developers have responded by starting to ramp up their development pipelines with new projects.

Top coastal markets continued to dominate sales volume in the first half of 2011, including Washington, D.C with $2.6 billion; Los Angeles, $2.3 billion and the San Francisco Bay Area, $2.1 billion. In Atlanta, where investors have sought a large number of distressed properties, sales totaled $1.3 billion in the first six months. In Phoenix, a housing bust market where fundamentals have picked up markedly, also logged $1.3 billion in sales.

For the second quarter, the top five transaction markets were New York City, with $1.35 billion; D.C., $1.3 billion, Los Angeles, $1.21 billion; Atlanta, $764 million and San Francisco, $689 million. Those markets accounted for about 36% of all sales volume nationwide during the quarter, with CBDs and well-located submarkets seeing the lion’s share of deals.

Institutional investors were by far the most active net apartment buyers, with net purchases of $1.6 billion on total acquisitions of $3.9 billion. REITs, private equity and owner/users were also net buyers, while REITs were also net sellers in a few markets such as Portland, Phoenix, the San Francisco Bay Area and Atlanta.

Average apartment capitalization rates continued to fall in the second quarter to slightly below 7%, while weighed average cap rates, driven by the large high-priced transactions in prime markets, declined to 5.7%. However, cap rates for mid-size value-add and opportunity deals are also declining. Cap rates on smaller transactions remain in a holding pattern.

Top deals in the second quarter included the acquisition of a 25% interest in a 20-property foreclosed portfolio by The Related Cos. from Fannie Mae for about $300 million; TIAA-CREF’s acquisition of The Corner at 200 West 72nd St. in New York from Gotham Organization and Phillip International for $209 million, or 1.07 million per unit; and Canada Pension Plan Investment Board’s $84 million acquisition of a 44% interest in a 654-unit property in Seattle from New Tower Trust Co.

Supply Tight Now, But Construction Starts Are Rising

Job growth has been the traditional source of apartment demand in the past. But in this cycle much of the demand is coming from many former homeowners who have become renters since the beginning of the housing crisis. That trend, combined with a growing number of young people forming households, is driving competition for a diminishing supply of apartments, powering the improvement in apartment fundamental since 2009.

CoStar forecasts total supply additions of just 30,000 units in the 54 largest markets in 2011, just one-third of the pre-recession average of apartment delivered between 2003 and 2008. However, multifamily construction starts are starting to tick up, with more than 70,000 starts in the first two quarters of 2011, suggesting a rise in completions in coming years, particularly in the 2013-2015 time period, Cohen said.

“It’s worth paying attention to the supply front,” Cohen said. “This is where I think the apartment market could be a victim of its own success. While we are forecasting below-average annual supply growth, we need to monitor the permitting data and the starts data.”

Vacancies, Rent Concessions Continue to Decline

Renter demand, while not at the outsized levels of 2010, remains very strong across the board, led by the fast-growing southern metros and the rebound in Detroit. Demand growth equaled about 66,000 units in the first half compared to the extraordinary increase of 105,000 units in the first six months of 2010, which was the strongest since 2005. However, the 45,000 units absorbed in the most recent quarter was more than the absorption of the two previous quarters combined, Cohen noted.

Yesterday, August 8, 2011 it took much longer (all day) for the Dow Jones Industrial Average to drop 635 points, losing 5.6% of it’s value. Again that’s roughly $1,000,000,000,000…a trillion bucks.  Today investors bought back in and the market rebounded, regaining all but a few hundred billion dollars of the past day’s losses. Ouch!

It’s almost like we have our 401K’s and our stock portfolios being tended by a blindfolded drunk careening around.  Hang on, we might make or lose a ton of money.  Now on the more conservative side we have our bond holders.  Yesterday’s close at 2.182% for 10-year Treasuries is scarier in a way than the NYSE: At least with stocks you could make some money. Take a million dollars worth of bonds, pay taxes on the 2% profit and lose 2.7% due to inflation and you’re guaranteed a loss.  Nobody won the Warren Buffet Excellence in Investing Award by only losing .8% a year.

I am not trivializing the large losses of the one group, nor the guaranteed loses of the other.  It’s just that I believe investing in commercial real estate has an answer for each of them.  Over the next few posts I will detail varied multifamily acquisition strategies.  The next in the series is: Multifamily Acquisition Strategies for the Conservative Investor.

Just as in nature where Fall is followed by Winter which is in turn followed by Spring, multifamily investing follows a cycle.  And cities have an investing climate, too.  Las Vegas tends to be real hot or real cold.  The same with Phoenix. A great deal of institutional money is being pumped into those two cities.  The amount of money to be made and risked is much greater than in more moderate investment climates like Portland and Seattle.

RECOVERY

Recovery is to Investing what Spring is to Nature.  They are both about great potential being born.  There’s no guarantee that your garden will grow…but it has the best chance if planted at the proper time.  It’s a great time to invest too.  Many investors sit on the sidelines during the Recovery phase to make sure that things have really hit bottom.  As a result they buy during the Expansion phase and don’t reap all of the rewards that are available for “trigger pullers.”  The Recovery Cycle is characterized by:

• Decreasing Vacancy Rates
• Low build rates
• Moderate absorption
• Low to moderate employment growth
• Low to negative rental rate growth
• LOW prices relative to potential upside

A broad spectrum of investment strategies are viable during Recovery. “Buy and Hold”, Refurbish, Flip, Repurpose, Build and “Convert” all have their place at this time.  Unlike Nature, the Recovery Cycle is not set in the time it will take to move into the next phase, Expansion.  But just as we know the rains of Spring will yield eventually to the sunshine of Summer, so shall Recovery turn into expansion.

NEXT POST: We’ll cover the attributes of the Expansion Phase of the investment cycle.

More posts in our Timing Your Multifamily Investment Series:

• Multifamily Investment Basics-Part 1 of a series
• When To Make Multifamily Investments-Expansion-Part 3 of a series
• When To Make Multifamily Investments-Hypersupply-Part 4 of a series
• When To Make Multifamily Investments-Recession-Part 5 of a series

• Maximus Advisors, a multifamily research firm states that we are entering into four years of improving conditions for multifamily.
• Portland’s 4% occupancy rate was cited recently as being the second lowest in the nation’s 75 largest MSAs.
• We were also cited as having the second highest rate of rent increase at 10.43% on an annualized basis.
• Please note that is the average for the quad counties…Beaverton had an even higher average increase at 13% annualized.
• Larger rent increases ahead?  As we get closer to 2% vacancy we will see even faster and larger rent increases.  Remember that it takes a week or two to turn a unit.

Much less reported, but much more important to net profitability is the virtual disappearance of

If you are ready to expand your investment portfolio into real estate, contact Rick Bean of Rose City Commercial Real Estate at: 503.577.1034 or rick@rosecitycre.com.   Two things to remember: 1.  If you want to be a genius in 5 years, make smart real estate investments today. 2. Nobody is going to consider you an Einstein for almost taking action.  Call today.

leasing incentives.  I worked the Vegas market in property management during its decline from superstar status to cellar dweller.  On several institutional size properties we were giving away 2 months for a 12 month lease.  That’s 1/6 of the total gross revenue…16.66 almost 17%.  Other companies were giving away a flat screen TV as an incentive.

That’s a hell of a swing, moving from having to give away 17% of your gross rent to maintain 12% vacancy…into having 4% vacancy and adding 10% to your revenue.

Financing from traditional sources is returning to the market, as is conduit debt, GSE agency and insurance lending.  With rents rising, affordable financing becoming readily available and record low building levels, the national multifamily investment market looks solid for some time to come.  And Portland appears poised to be one of the nation’s leaders!

Rent increases replaced landlord giveaways as U.S. apartment vacancies dropped in the second quarter to the lowest in more than three years, bolstered by rising demand on the West Coast, according to Reis Inc. (REIS)

The apartment vacancy rate fell to 6 percent in the three months ended June 30 from 6.2 percent in the first quarter and 7.8 percent a year earlier, the New York-based property research firm said in a report today. The second-quarter rate matched the first three months of 2008 and was the lowest since 5.7 percent at the end of 2007, the year commercial real estate prices peaked. Rents rose in all but two of the cities Reis tracks.

Please check back to the Multifamily Insider Report on Friday, July 15th for my analysis on the benefits of replacing incentives with rent increases.   Remember, you don’t have to wait until Friday if you want to get started investing in Portland Multifamily Real Estate.  Call Rick Bean at Rose City Commercial Real Estate:  503.577.1034, or e-mail me at: rick@rosecitycre.com.

“The ongoing recovery and tightening vacancies continue to generate greater pricing power on the part of landlords,” Ryan Severino, an economist at Reis, said in the report. “Vacancies should continue to decline while rents rise at an even faster pace than we observed in the first half.”

Demand for rental apartments in the U.S. has soared as foreclosures forced people out of their homes and prospective homebuyers found it harder to get mortgages. The home ownership rate in the U.S. fell to 66.4 percent in the first quarter, the lowest since 1998, according to the U.S. Census Bureau.

“There’s still a stigma to buying houses,” said Stan Harrelson, chief executive officer of Pinnacle, a Seattle-based company that manages more than $17 billion of apartments and other commercial properties. “Even with job growth, people aren’t ready to take that step.”

Landlords had a net increase in occupied space of about 33,000 units in the second quarter, down from 45,000 units in the first quarter, Reis said.

$997 a Month

Effective rents, or what tenants actually pay after perks such as a free month, climbed in 80 of the 82 metropolitan areas surveyed, to an average $997 a month from $974 a year earlier and $991 in the first quarter.

San Jose, California, led rent growth last quarter, followed by New York’s Westchester County and San Francisco, according to Reis.

Las Vegas, one of the cities hardest hit by the housing collapse, had an increase in effective rents for the first time since 2008, Reis said. Rents in the city were still down from a year earlier.

The national rent increases mark a reversal from early last year, when many landlords were offering gifts to attract tenants. Aspira, a 325-unit luxury apartment building in Seattle, gave away dozens of iPads and 40-inch televisions, preloaded credit cards worth $1,000 each and up to three months of free rent when it opened in January 2010. With occupancy surpassing 80 percent, such enticements are no longer needed.

Incentives ‘Gone’

“They’re gone,” said John Schwartz, director of the Northwest regional office for Keller CMS Inc., the Los Angeles- based project manager that oversaw the development of the 37- story Aspira.

San Jose, the largest city in Silicon Valley, led rent growth for both the second quarter and the 12 months through June 30, Reis said.

“San Jose is everyone’s darling and rents are through the roof, but that will plane off” as new supply comes to market in the next 12 to 18 months, said Harrelson of Pinnacle.

Seattle is still one of the best markets for potential rent growth, he said, citing increased hiring by technology companies and airplane manufacturer Boeing Co.

Shane Lynch, a software developer in Microsoft Corp. (MSFT)’s Xbox gaming division, said he plans to renew his lease, at the Neptune apartments in Seattle’s high-tech South Lake Union district, even though the rent for his one-bedroom unit is going up 11 percent to $1,300 a month.

‘Everyone’s Increasing’

“I’ve been looking around and it seems like everyone’s increasing that amount,” said Lynch, who moved to Seattle about a year ago from the Baltimore area to take the job with Microsoft. “I’m not seeing anything cheaper, and there’s also the cost of moving.”

Lynch, 26, said he plans to consider buying a house after he gets to know the city better.

“Because I’m so new to Seattle, I don’t want to be tied down to a certain neighborhood, but if rents continue to increase and get closer to mortgage prices, it will be kind of silly not to buy,” he said.

Rising rents have in turn attracted investors to apartment properties, encouraging new developments and purchases.

“We don’t anticipate a recovery in for-sale housing until at least 2013,”Michael Schall, president and chief executive officer of Essex Property Trust Inc. (ESS), said on a May 5 conference call to discuss first-quarter earnings. The company, based in Palo Alto, California, owns and operates apartment complexes in California and Washington state.

Supply and Demand

“Each month from December has shown significant improvement, and we are now confident that the apartment supply- and-demand equation is tipping towards housing shortage,” Schall said.

Market rents at Essex properties have increased 9.2 percent since the first quarter of 2010 and the rate of growth is accelerating, Senior Vice President Erik Alexander said on the conference call. Occupancy for the company’s apartments reached 97.1 percent by the end of April.

“We should see lower occupancies during the summer months as market rents continue to grow, more leases expire and we push rents on renewals,” Alexander said