Fall 2006 issue of Horizons

INDUSTRY REAL ESTATE Real Estate Industry Outlook

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In St. Louis, the outlook in the marketplace is positive, though not quite as optimistic as the rest of the nation. St. Louis has experienced job growth at only half the rate of the rest of the nation. The rental rate has increased 2.1 per- cent in 2006, less than the national average. Two trends that will boost this region's multi-family market are a decrease in the purchase of single-family homes and a migration back toward the city. According to Apartment Finance Today, 4,900 new residential units will be built downtown in the next two years, which could bring 8,000 new residents to the city. Most of these housing units are being placed in older historic buildings, allowing developers to take advantage of Missouri's historic tax credit and a federal tax credit designed to promote these developments. With respect to the continued shift in the multi-family market to condo conversions, multi-family owners should proceed with caution. The current shift is occurring at the peak of the national housing cycle and at a time when single-family con- struction is soaring and mortgage rates are on the rise. In past housing cycles, slowing single-family home sales have been followed by slowing condominium sales. As these condo sales slow, incentives for condo conversions also will dissipate, affecting both pricing and performance of the rental properties. At best, the shrinking rental inventory will no longer provide additional occupancy boosts for remaining properties. At worst, a large inventory of units could be offered for rent in a relatively short period of time, causing a shake-up in the competitive rental market. Owners should be prepared to deal with potential fallout from the condo boom in certain locations and adjust their future strategic plans accordingly. As we progress to the finish line in 2006, the real estate industry continues to be an interesting market that is driven by a number of economic factors. Economic factors and upward demand for multi-family housing have provided the foundations for steady industry growth in the upcoming year. As occupancy rates and rental rates continue to rise, multi-

family owners find themselves in a more favorable market than in recent years. The competition for new renters will continue to be a focus on the marketing front. As the hous- ing market cools off, multi-family owners may see some of the traditional renters return to their market. One thing is cer- tain: the real estate industry will continue to offer plenty of excitement and anxiety for owners and investors. We invite you to look for the 2006 Apartment Stats, an annu- al survey by the Real Estate Services Group of RubinBrown, expected to be released in September. This annual survey serves as a valuable development and management tool to use in comparing your financial operations to the operating results of your contemporaries.

Questions? Contact Bryan Keller, CPA Partner-in-Charge, Real Estate Services Group 314-290-3341 bryan.keller@rubinbrown.com or Chris Langley, CPA Partner, Real Estate Services Group 314-290-3209 chris.langley@rubinbrown.com

59 • summer 2006 issue

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