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Apartment Articles

"The Creation of a Professional Tenant"

Originally appeared inNew Mexico Apartment Report Vol. 3.1 - Q1’96
The recent rash of rent concessions in the Albuquerque market has become a concern to many owners and property managers. This edition will address this issue head on, and support the need for eliminating concessions or rent freebies by properties. The thought process behind concessions is simple - offer an additional service or feature to a prospective tenant that will attract them to your property over another. Unfortunately, this thought process encourages the rise of the professional tenant, disintegrates any long term tenant retention program that you have in place, lowers the average tenancy of the property, and increases churning of the existing tenants. The above might be acceptable if led to a higher occupancy, but unfortunately, any rise in occupancy is short-term until the next “special” comes out at your competing property. So if concessions or a plague to our market, why do we see them? Typically concessions are driven by a soft market, which is usually caused by overbuilding, declining job growth which eventually leads to an exodus in population. To determine the viability of Albuquerque Apartment Market, we will review five main topics: new construction, current occupancy, current rental rates, job growth, and population growth. Each of the components represent a key ingredient to determining the health of our market. New Construction During the first six years of this decade, 4,691 permits were pulled for multifamily communities. Compare this number to preceding decades: 1970’s - 25,982 1980’s - 14,573 And you can see that the current rate of construction, is minor compared to proceeding decades. 1984-6 represented a time period when Albuquerque constructed some 9,963 units, and had a total population of 474,400. Current Occupancy Currently, the average vacancy at this date is 7.5%. The all time high vacancy rate in Albuquerque's history is 16.5% in 1986. Current Rental Rates On average, current rental rates are $.70 per square foot, reflecting a 6.61% growth over 1994’s average of $.66 and a 35.1% growth since 1990’s average of $.50 Job Growth According to information provided by the New Mexico Labor Department, job growth in Bernalillo County is at a steady 4.2%. Population Growth According to information provided by the City of Albuquerque, the population of Bernalillo County (which contains a majority of Albuquerque, continues to grow at a steady rate of 2.5%) The cost to purchase a house According to a report just issued by the National Association of Home Builders, Albuquerque is now the 10th least affordable housing market in the country, with a median home price of $137,000. What is a Healthy Market? Historically, the metro areas in the southwest have been an early indicator of what the occupancy will be in the rest of the country. A majority of these markets have functioned at an average occupancy level of 92-94% during the last few years. Albuquerque has been fortunate to maintain an average occupancy level in the high 90’s for the last five years, and only during this quarter has this number settled down to 92.5% - a number that is envied by many major metro markets. Where have the good times gone? Gone are the days when you could selectively pick tenants from a long waiting list, gone are the days when you could charge the tenant to be put on the waiting list, gone are the days when you could charge the tenant for applying to reside at your property, and gone are the days when this job was easy. To add insult to injury As if this current problem was not bad enough, local organ izations that should foster positive means to correct this problem, are busy spreading the mis-information that the sky is falling. Let’s face it - we have been spoiled by the the last few years unusually high occupancy rates, and now that they have normalized to a level that is still much better than surrounding cities, we still believe the “sky is falling”. The Solution - a call to action- End Concessions! - (to be continued)

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by Todd Clarke CCIM (www.nmcomreal.com/nmcomreal)
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