Proprietary Data Insights
Top Residential REIT Searches This Month
Source: Google Finance
Over the last month, the luxury apartment REITs (real estate investment trusts) The Juice loves have recovered nicely, outpacing the major indices.
Why do we love them? Because of filthy rich renters:
For every meaningful decline in home prices (and we all have our own subjective definition of meaningful), enough renters step off the sidelines and become homeowners, effectively acting as support (like the support level for a stock) for housing prices.
At the same time, another financially healthy subset loves the freedom of and intends to keep renting, which will keep luxury rentals at premium prices, even if overall median prices start to decline.
So there’s always demand for the high-end apartments AvalonBay Communities (AVB), Equity Residential (EQR) (the first and second most searched residential REITs in Trackstar, our proprietary sentiment indicator), and Essex Property Trust (ESS) own and operate in prime urban and suburban areas.
These companies command premiums on rent because of their high-end luxury – as in amenities and new or relatively new construction – and in-demand central city and suburban locations.
Just consider Manhattan, where EQR has a large presence.
As of November, average monthly rent for a one-bedroom apartment there hit $4,190. The median is $4,000. Of course, median represents the middle number in the range of values. The average inches higher due to the higher costs of luxury units.
The apartments EQR leases in Manhattan’s top neighborhoods – Chelsea, NoMad, and the West Village – generally rent for between $5,000 and $7,000 each.
Check out the income data from all the upper-echelon markets EQR runs in:
Source: Equity Residential
Suffice to say, these numbers skew higher in Manhattan.
Overall, a nightmare scenario for most renters. A relative drop in the bucket for the most affluent.
But nightmares can become dreams when renters turn the screws on their landlords. Like the following eye-popping data out of San Francisco…
Landlords Paying Tenants?
That’s how much a San Francisco landlord paid two tenants to leave their Pacific Heights apartment in August.
Like winning the lottery.
And, incredibly, it’s only the third-largest buyout in the city’s history. Here are the recent numbers:
Source: San Francisco Chronicle
This shows how badly landlords want rent-controlled tenants out of their units. In San Francisco, once a tenant leaves, the landlord can charge the market rate for their unit.
The median rent for a one-bedroom in San Francisco hit $2,964 in November. For a two-bedroom apartment, it’s $3,850.
Like in Manhattan, property owners can get considerably more than the median in San Francisco’s most desirable neighborhoods, which is where these landlord buyouts are concentrated.
The Bottom Line: This is yet more data to reinforce our haves and have-nots investing thesis. The headlines scream about high rents and people fleeing big cities. While both of these points definitely represent some form of reality, like any astute investor, you gotta read between the lines.
When you do, you discover there are more than enough gainfully employed, even wealthy, people renting in the Manhattans and San Franciscos of the world. Even as rents ease, luxury units in posh neighborhoods command top dollar, even if top dollar is a few percentage points lower this year than it was last.
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