Think of it as the perfect storm in an already-brewing economic tsunami. As the Clark County real estate market struggles to buoy itself amid waves of foreclosures, short sales and stagnant lending, multifamily housing – which includes duplexes and apartment buildings – has been marked for even greater market declines, despite their ability to generate positive cash flow.
"If you need to unload [a duplex] to get liquidity in your portfolio, it's really hard to do that now," said Thurman Karrick, a Clark County real estate appraiser with more than 20 years in the industry. Adding to the misery are appraisals of multifamily dwellings, which often come in under the selling price, making for a tightrope walk for buyers when it comes to financing, Karrick said.
With multifamily units selling for an average of $215,000 in Clark County during 2009, compared to $237,800 for a single-family home, according to Southwest Washington MLS, it may not make much fiscal sense for a would-be investor to leverage himself with a small rental investment.
"Even in a bad market, the first-time, entry-level homes are always the best buy," Karrick said.
Doug Palin, who's sold Clark County real estate since 1967, sees a much-changed multifamily real estate investment market today from only a few years ago. Once a starter for a real estate portfolio, a duplex or four-plex – even the attractive property in great locales – are subject to stringent cash flow audits from would-be investors, who want to see a strong balance sheet and more financial skin in the game.
"These days, if they don't make money, like any other investment does, they [investors] won't buy it," Palin said.
And in another conundrum for the multifamily market: unlike single-family homes, which can hit the market as soon as an owner moves, accepts a job in an out-of-state market or becomes a "burning-to-sell" asset of a bank after foreclosure – multifamily real estate investors don't usually have the same pressure to sell.
In the midst of a real estate market driven by bank-owned property managers working under constant pressure to liquidate stagnate assets, unmotivated buyers have been known to ask too much for their real estate or, more likely, to simply hold on to the investment until the storm passes and some market value returns.
"Right now, a lot of apartment owners are saying, ‘Why should I sell? I'm doing O.K.,'" said Greg Frick, a partner in HFO Investment Real Estate, a Portland-based commercial real estate firm doing business in Oregon and Washington state specializing in apartment sales.
The doing O.K. part springs from a healthy rental occupancy rate – hovering in the mid-to-high 90s – for apartment building owners, property managers say. And that, too, is economy driven.
Single-family home foreclosures are also a factor in the relatively high occupancy rate among rental properties, according to property managers contacted by the VBJ this month.
Carmen Villarma, president of The Management Group in Vancouver, said that one in three of the firm's new renters are looking for a place to live after having their home foreclosed upon.
Other occupancy factors include renters doubling up, taking on a roommate to share housing costs in an attempt to weather the economic storm.
While occupancy rates may be one positive area for the region's rental market, other forces are helping force down the market for multifamily buildings, making this real estate sector an unattractive option for new investors.
With Clark County's unemployment rate logging in at 14.3 percent during December, according the U.S. Bureau of Labor Statistics, there's economic pressure among building owners to keep rents flat and offer concessions (think a month's free rent) to new renters who have the fiscal resources to afford an apartment's rent.
But affordability for renters isn't a guaranteed thing as more and more workers lose their jobs. Worse yet is the cinched cash flow as some of the jobless lose long-term unemployment benefits that once helped to pay their rents. Rental delinquency rates are up and one in four potential renters do not pass credit and background screenings, said Gary O'Connell, president of Quantum Residential, a Vancouver property management firm.
Property managers say that the employment situation will have to turn around before rents begin to climb from their current levels.
"No one wants to be the first to stick their necks out and push up rents," Frick said, adding that this summer will likely bring some upward testing in the rental market.
But even with the real estate doldrums, some property management firms are looking ahead to acquisitions.
Richard Gress of RealVest Asset Management said that the latter part of 2010 looks intriguing for potential multifamily property purchases for his firm. And Villarma of TMG said her firm has all of the "dirt work" complete on a 54-unit property in Battle Ground, with financing and permitting on the project still in the works.
Still, for the solo investor, multifamily real estate – and the headaches it brings, including disgruntled renters who can spread their discontent around – doesn't make fiscal sense in this market, where entry-level single-family homes can be had for similar price tags.
"Single-family homes have always been the best investment," Palin said. "A single-family home almost always generates cash flow. It's harder with duplexes."
