Investors: Portland Multifamily-Even Hotter Than You Thought!

Portland-Real-Estate-Hot-Multifamily-Market
Real estate investors know that I have been touting Portland’s meteoric recovery from The Great Recession for some time.  But it may be even better than you thought in regarding investment real estate…particularly in the Multifamily Segment.  Industrial, Office, and even Retail properties are doing very well in Portland, but Multifamily is still the “Belle of the Ball”. Not only is PDX a hot multifamily market…but the fundamentals seem to support long term success as well.

#1 Spot as a Top Moving Destination

United Van Lines issued their 2015 Movers Study last week.  It showed Oregon as the Number 1 Destination State with 70% Inbound vs. 30% Outbound moves.  This was Oregon’s third straight year being Number 1…and Oregon actually increased it’s percentage lead over other states in 2015.  Bear in mind that while Oregon is cited…its the Greater Portland Area that is the primary cause.

I call it “youngification”.  Millennials are moving to Oregon in droves.  They may be the leading segment, but their not the only ones.  Oregon’s livability is a key…but there has also been significant job growth too.  Nike and Intel seem to be racing to see who can expand the fastest.  Its just about impossible to find office space of 25,000 plus in the Sunset Corridor, and downtown is even tighter.  Start-ups see Oregon as a great place to start operations…we’re one of the 3 fastest growing tech centers in the nation.  All those folks need somewhere to live.

Portland #1 for Home Price Increases

Portland has been booming.  The most recent S&P/Case-Shiller Home Price Indices show Portland, Dallas, and San Francisco with a 10.9% year-over-year increase in October, 2015 …the highest in the nation.  Portland has been near the top for awhile.  To give Portland’s numbers some contrast, our 10.9% increase is more than double the rest of the nations 5.2% increase. With so many moving to Portland there is upward pressure on housing prices that show no signs of abating.  One of the impacts of rapidly rising home prices is that the affordability level for purchasing moves up…meaning that many would be owners are forced to be renters.  This in turn pushes up rents.

New Figures Show Oregon’s Vacancy Rate Lowest in U.S.

The Associated Press reported two weeks ago that data from The U.S. Census Bureau shows that Oregon’s rental vacancy rate was the lowest in the country in at 3.6%…down from 4.4% the previous year.  Second was California at 3.9%; Massachusetts, Vermont, and Washington State were also low.

While those vacancy rates seem low…Portland’s extremely low vacancy rate, even lower than most of the state, is skewing the numbers downward.

What it Means to Investors

As recently as 3 weeks ago I was quoted 3.125% on multifamily debt.  That means even buying at a 5.0 Cap Rate you have a 175 points of favorable leverage when comparing Acquisition Cap Rate vs. Debt Cost.  While you can make pretty good returns on that basis in a flat market…a market like PDX that holds long-term promise for continued upward results explains why so many institutional players lover Portland.

I spent much of The Great Recession telling potential Buyers that unless they were buying for all cash from a highly distressed Seller they should stay out of the market.  I could have used those commissions, to tell you the truth.  For the last couple of years I have been a big proponent of multifamily, particularly in Portland.

Outlook

While it won’t go on like this forever…growth will slow down before it stops.  I continue to see signs of of the local market in Expansion Phase.  I see the influx of population and jobs continuing for some time.  Higher single family home prices will create a condo friendly environment as well as higher rent rates.  My advice: continue buying if you already have a portfolio…and start buying if you don’t.

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