Fall 2006 issue of Horizons

INDUSTRY REAL ESTATE Real Estate Industry Outlook

Bryan Keller, CPA

Chris Langley, CPA

Each year, we put together a summary of the current state of the multi-family industry. As in prior years, it continues to be difficult to gauge where we are in the market and where we're headed, given its direct link to the economy. With that said, our current analysis offers some familiar themes and new twists that are affecting the real estate market. In recent years, we have seen the single-family housing market main- tain rapid growth and development. Home ownership has skyrocketed, and houses and condominiums have risen in cities across the country. In some urban areas, land short- ages and demand have driven developers to seek out prop- erty in formerly downtrodden or deeply distressed areas. These areas have been renovated, revived and rebuilt, with stunning economic and community development benefits.

With increasing construction costs and rising land prices, this market is showing some signs of a slowdown. At the same time, the multi-family industry appears to be picking up some momentum. There are a number of economic factors that are contributing to these positive trends. These factors are exam- ined more closely in the following sections.

ECONOMIC CONDITIONS

The rising price of oil has had a major impact on the real estate industry. We've broken these effects into three cate- gories. First, the rising cost of oil continues to push operating utility costs higher for existing apartment projects. Second, as oil prices rise, construction costs rise. The oil prices influence

56 • summer 2006 issue