Lumber Price Drops Fueling Multifamily Building Boom

Lumber Price Drops Fueling Multifamily Building Boom

“Our renewed interest is now turning into actual orders and people placing business here for the second half of this year.”

By Lynn Pollack | August 16, 2021 at 07:10 AM

A drop in lumber prices has invigorated demand for commercial building projects, especially for multifamily product, Sherwood Lumber chief operating officer Kyle Little told CNBC last week. 

A drastic runup in lumber prices earlier this year created a challenging environment for builders, but the industry appears to be well on the path to recovery from the sell-offs of the first half of 2020. Little told CNBC that the current lumber prices make “absolute sense” when viewed against that backdrop.

The price of lumber hit $480.40 per thousand board feet the previous week, a low watermark since July 2020, and CNBC reports that lumber prices should hit their 13th consecutive week of loss this week. 

 “Over the last three weeks we’ve seen renewed interest,” Little said on CNBC’s The Exchange. “Our renewed interest is now turning into actual orders and people placing business here for the second half of this year, most notably in the commercial segment and into the multifamily unit segment.

While the drop in prices is indisputably good news, there is still some pricing uncertainty that concerns observers.

Lumber futures declined by more than 40% in June, but NASDAQ futures prices for the commodity were more than $530 per thousand board foot. 

“Futures represents the price of a railcar that is shipping sometime from September 15th to September 30th,” Mike Wisnefski, CEO of online commodities marketplace MaterialsXchange, told GlobeSt in an earlier interview. “From years of experience, it is difficult to say why futures prices are where they are,” Wisnefski continues. “So many different parties are involved and each one has its own unique set of circumstances that they are dealing with.”

But these are prices to wholesalers. While the cost to builders has been “slowly coming down,” as Wisnefski points out, “there is a lot of high-priced inventory in the supply chain right now.” That means builders might still be paying more than they’d like.

Now, Little says, the market is seeking equilibrium.

“What we’re finding is the support level that follows the bottom end of that continual trend pre-Covid is very, very bullish,” Little told CNBC. “It’s also one that would be making a lot of us in the lumber world feel much more comfortable going and rebuilding inventory here for the second half of this year with the projected demand that we are now seeing.”

The transaction for this property in Oceanside, California, was the city's highest-price apartment deal on record and the third-largest this year in the San Diego region.

Apartments in San Diego County Trade in One of Region’s Biggest Deals of 2021

Local Investor Buys Capella at Rancho del Oro Apartments in Oceanside, California, for $110 Million

The transaction for this property in Oceanside, California, was the city's highest-price apartment deal on record and the third-largest this year in the San Diego region. (CoStar)

By Lou Hirsh
CoStar News

August 16, 2021 | 2:44 P.M.

A $110 million apartment sale in Oceanside, California, is among the largest this year by total price in San Diego County and the highest-price multifamily deal on record for the region’s third-most populous city.

Brokers at Marcus & Millichap, which represented the seller and procured the buyer, said investment firm Property West Residential of San Diego acquired the 284-unit Capella at Rancho del Oro, recently rebranded as Elan Oceano, in a deal equating to $387,324 per unit. The seller of the property, built in 2001 at 4795 Frazee Road, was investment firm FPA Multifamily of San Francisco.

Christopher Zorbas, executive managing director with the brokerage firm’s Institutional Property Advisors division, said in a statement that pricing on the deal was heightened in part by limited apartment buying opportunities along the state Route 78 corridor, where “investors have adjusted their underwriting criteria to be more competitive.”

Most of the apartments along that corridor of northern San Diego County are garden-style properties built in the '60s, '70s and '80s, Zorbas said.

The Oceanside deal is San Diego County’s third-largest by total price so far in 2021 and the highest-priced on record for Oceanside, according to CoStar data. The North County apartment market, which includes Oceanside, has a current vacancy rate of 2.1%, tighter than the overall San Diego region’s 2.9%, and its average monthly rent of $2,092 is above the regional average after growing 11.7% in the past year.

The North County area is among the San Diego region’s most active places for investors, especially among “value-add” buyers looking to acquire and renovate older properties. “With high interest among both institutional and local parties, sales volume is typically among the highest in the metro, and the submarket provides an opportunity for investors to often get a foothold in the region for under the county’s average pricing,” said Joshua Ohl, director of market analytics for CoStar Group in San Diego.

Home Prices Update: June 2021

Home Prices Update: June 2021

July 28, 2021

• Justin Garosi

• Brian Uhler

Home prices are important to the California economy for a number of reasons. In the short and medium terms, home price increases often drive construction activity, which in turn spurs employment growth in a wide range of sectors. In the longer term, chronically high housing costs have hurt the state’s business climate and been a key reason California loses residents to other states on net in most years.

June 2021 data show rapidly accelerating home price growth in both California and the rest of the country over the past year: the typical home in California has appreciated 18.7 percent since June 2020, well above the national figure of 15.0 percent. California has seen higher 12-month growth rates before: price growth topped out at 25.2 percent in 2004 and 23.7 percent in 2013. In contrast, the nation’s highest previous growth rate since 1996 (the first year in Zillow’s database) was 11.9 percent in 2005. High materials prices, low interest rates that make monthly mortgage payments more affordable (all else equal), and low inventory levels have contributed to the price increases, and the pandemic-driven shift to remote work may also be driving home prices up.

The next figure shows the month to month change in home prices in the state and the nation. The state has seen more price growth than the nation in each of the last eleven months. In June, both the state growth rate of 2.83 percent and the national figure of 1.97 percent were the highest monthly growth rates recorded in Zillow’s entire database dating back to 1996.

The slower home price growth that prevailed in 2018 and 2019 made a minor dent in the affordability gap between the state and the rest of the country. Housing in California has always been relatively expensive, and the gap has widened considerably since 2012. Previous recessions have had disparate effects on home prices: they were largely unaffected by the collapse of the dot-com bubble in 2001, while in the late 2000s the collapse of the housing bubble was the single biggest factor that led to the financial crisis. Recent evidence shows the affordability gap widening again.

The graph below shows appreciation over the past 12 months for the state’s 15 largest counties, and suggests that the shift to remote work has been a key factor in recent price changes. San Francisco has long been northern California’s largest business hub, and historically a large share of its work force has commuted in from other counties. With remote work becoming more common, there is less of a premium on living close to the office and as such home prices in San Francisco have not seen the explosive growth common in the rest of the state. San Francisco’s average home price is up just 2.1 percent over the past year, and neighboring San Mateo is up 10.8 percent. All the other large counties in the state are up at least 15 percent.

Source: Zillow

San Diego Could Make Outdoor Dining Permit Program Permanent

San Diego Could Make Outdoor Dining Permit Program Permanent

Permanent ‘Spaces as Places’ Would Collect Fees From Restaurants To Maintain Amenities

San Diego officials are mulling a program that would allow restaurants to continue operating permanently in public areas including curbsides, sidewalks and parking lots for a fee. (CoStar)

By Lou Hirsh
CoStar News

July 27, 2021 | 1:30 P.M.

San Diego is considering making a temporary outdoor dining permit program, considered a crucial lifeline for many restaurants and bars during the pandemic, permanent.

The City Council, which discussed the "Spaces as Places" program this week, said a vote could be on the docket as early as this fall. If the council votes to make the program permanent, the city would collect fees from participating restaurants to help defray safety and other costs associated with maintaining dining on public sidewalks, curbsides and parking lots.

Like other cities that introduced similar measures during the pandemic, the city is considering adjusting the program to be one "proposed for the post-pandemic world when restaurants can function at full capacity indoors and outdoor dining would add to the total seating capacity, thus creating additional real estate for businesses.”

Related: San Francisco Moves to Make Pandemic Restaurant Patios Permanent

A fee structure is yet to be determined, but some portion of the collected funds could go toward amenities to make those spaces more welcoming, such as shady trees and recreational elements.

City officials have also said they would like to see the program contribute to the city's environmental goals by reducing the amount of cars on the road. That's going to mean a balancing act juggling the needs of drivers, pedestrians and residents; outdoor dining spaces have already reduced or eliminated available parking spaces in several San Diego neighborhoods.

During a meeting of the council’s COVID-19 Response and Recovery Committee this week, Council President Jennifer Campbell said officials may need to ensure that parking spaces are preserved near dining areas for the disabled, elderly and other visitors who need close access and can’t avoid using their cars.

“We don’t want to leave them out of enjoying life and enjoying these public spaces,” Campbell said.

San Diego officials in May voted to extend current permits for outdoor dining on city streets and sidewalks through July 13, 2022, expanding the program that started in July 2020 to help businesses survive pandemic lockdowns and capacity restrictions.

Outdoor dining is expected to remain a crucial business generator for the foreseeable future in California, where Los Angeles and other counties have recently reimposed indoor mask mandates amid a rise in coronavirus infections and hospitalizations, particularly among unvaccinated people. More counties are considering similar moves that would affect customers regardless of vaccination status, though San Diego had yet to do so as of Tuesday.

Bosa Development Completes Diega Apartments in Downtown San Diego

Bosa Development Completes Diega Apartments in Downtown San Diego

Downtown's Third-Largest Building Is Canadian Developer's First Apartment Project in California

Bosa Development this month is opening Diega, a 617-unit apartment complex in downtown San Diego. (CoStar)

By Lou Hirsh
CoStar News

July 22, 2021 | 6:52 P.M.

Bosa Development, a prolific builder of condominiums on the West Coast, this month is opening its first California apartment project, downtown San Diego’s newly completed, two-tower complex known as Diega.

The building at 702 Broadway, in an area of downtown better known for office buildings, arrives after three years of construction and is downtown’s third-largest apartment building by unit count at 617, according to CoStar data. It includes towers rising 41 and 20 stories high.

It is unlikely to add to San Diego’s supply of much-needed affordable housing, however, with an average monthly asking rent of $3,340. That’s well above the downtown average of $2,719 and the San Diego regional average of $2,057.

Filings with the city indicate Vancouver, British Columbia-based Bosa decided to forgo building 10% of its units as affordable and instead paid an in-lieu fee of nearly $4 million to a city fund that goes toward affordable housing programs.

“Building affordable units is still very costly, and in some places like Downtown, it doesn’t provide much of a rebate for builders,” said Joshua Ohl, director of market analytics for CoStar Group in San Diego. “This has been an ongoing struggle to add more affordable units, and one likely to continue, given the sky-high rent growth and record high rent levels across the region.”

Ohl noted that 90% of San Diego County’s apartment construction pipeline consists of luxury units. The region is expected to see 5,000 apartments constructed this year alone, the bulk of them downtown.

CoStar data indicates Bosa and other developers are looking to capitalize on downtown rents that have risen 8.5% in the past year, even though the downtown apartment vacancy rate of 9.5% is currently well above the San Diego regional rate of 3.2%. That said, the pace of leasing for newly built downtown apartment buildings has been steadily rising over the past year.

Bosa officials did not immediately respond to a request from CoStar News for comment. A statement from the developer said Diega is geared to “urban enthusiasts and professionals looking to live in a community full of entertainment,” including several prominent nearby restaurants, museums and art galleries. The property includes a fitness center, yoga studio, rooftop pool, social lounge, coworking spaces, ground-floor retail and a “dedicated pet retreat.”

Over the past 20 years, Bosa has built several luxury, high-rise condominium projects in other parts of downtown San Diego, and began leasing rental units at Diega in April.

Apartment Rent Growth Soars to Record High in San Diego

Apartment Rent Growth Soars to Record High in San Diego

Luxury Communities Are Driving the Surge

By Joshua Ohl
CoStar Analytics

July 13, 2021 | 1:17 P.M.

Rent growth across the San Diego apartment market is soaring in 2021. On the back of unprecedented demand, landlords have achieved nearly unparalleled pricing power as the stabilized vacancy rate, which tracks all properties that are older than 18 months or have reached 90% occupancy following delivery, fell to 2.2% at the midway point of this year.

Local landlords are reporting 100% occupancies everywhere from Chula Vista and El Cajon to Oceanside and Mission Valley. This level of demand is just something that that market hasn't seen in the past 20 years.

It’s a reversal of fortunes from only a year earlier, when annual rent growth entered the second half of 2020 at 0%.

Annual rent growth ended the second quarter of 2021 at a record high of 8.4%, far outpacing the previous high of 7% recorded at the end of the third quarter in 2015.

The current environment is a tale of explosive rent growth in 2021. Rents grew by almost 7% during the first six months of the year, the strongest such stretch on record.

Discounting the second quarter of 2020, when rents fell due to the impact of the coronavirus, rent growth had averaged 1.9% during second quarters dating back to 2015. The second quarter of 2021 recorded rent growth of 4.6%, easily the strongest second-quarter rent growth in 20 years in San Diego.

Three San Diego submarkets posted double-digit rent growth in the first half of the year, with the University Town Center area exceeding 14%. Even downtown San Diego reached 6%. The surge in performance has been buoyed by luxury communities, where rents grew more than 9% in the past six months, compared with 7.3% in mid-tier inventory.

However, San Diego’s county board of supervisors passed a measure that commenced in mid-June and lasts for 60 days that set the local rent cap at inflation, or about 4.1%. Importantly, that rate is for renewals, and CoStar’s data reflects average asking market rents, which hit $2,020 per month following the second quarter.

That measure is unlikely to apply the brakes to growth for asking rents in the near term, which have continued accelerating in July. But demand is unlikely to remain elevated near record-high levels, given that occupancies are already north of 98% in many areas of the region, and there just aren’t enough available apartments to continue absorbing at that pace.

San Diego is still under an eviction moratorium, which is helping to keep units filled. Although it is scheduled to sunset at the end of September, after the latest extension, many landlords are operating under that assumption that it will be extended again.

In the interim, local governments are flush with money that is intended to help renters backpay rent to their landlords, although reportedly the pace of distributing the more than $200 million in federal and state funds is frustratingly slow.