Anchorage Alaska Subsidized Housing Impact?

Question

Fellow investors familiar with Anchorage, Alaska real estate - how do you feel about investing in small multi-family apartment buildings in the current market? Rents seem to have been flat for several years and there has been little to no growth in the value of small apartment buildings for the last 10 years or so. Obviously our economy has struggled with the low oil prices, but a good friend who knows the market well partly blames the subsidized housing that seems readily available. In fact a quick search reveals several beautiful new construction apartments that are available for well under the typical rent rates (based on income, etc.)

Any thoughts? Does this make you hesitate investing here?

Thanks!

Any thoughts?  Does this make you hesitate investing here?

Thanks!

Scott Sewell · Answer

Hey @Kassandra T.,

Good to see you on BP again! Thanks for the stats (and all the help over the years) and as they pretty much parallel our investing career, I can vouch for their accuracy.

However, since the original question was about the subsidized housing market, I wonder if you and Eric have any input/information on that front specifically?

I wonder about the combination of this new construction (the ONLY in the 5+ unit market), along with the oil related job losses (and trickle down effect, which we are just seeing now) and our legislature's dysfunctional behavior in dealing with the deficit.

I seem to be seeing some softening in prices of 5+ unit buildings from the last couple of years and wonder if this is just profit taking (for those who can, and are getting out out of the market for a little while), or buyers who overpaid 2-4 years ago and are getting in trouble due to all of the above?

Always interested in your take,

AND anyone else's?

Scott

Kassandra T. · Answer

Good Day Everyone,

I thought it was best to chime in and help with numbers here. We manage several rentals and we are the 2nd largest in what we do in Anchorage - Matsu area.  (Not advertising or bragging, just trying to state our size without saying too much if our competition is watching this thread)

Rental Rates is just like property sales - there is a 7-year cycle in the Anchorage Market from our rental stats. - peak then slow down, then growth to peak, then slow down.

2008 - Bottom  - Average $1.05-$1.10/SQFt...Vacancy Rate 6-7%

2009 - Bottom

2010 - 2013- Going up

2014 - Peak

2015  -Peak $1.35 - $1.40 / SQFT  ...Vacancy Rate 1%-3%

2016 - Downward (Started in Fall of 2015 technically)

2017 - Downward / Might be flat  or Bottom $1.15/SQFT - Vacancy 4%-5% Still higher than 2008 numbers so that is your "appreciation" on a 30 year cycle.

Based on the rental stats, the low point was in 2016.  Yes, those that rented their place in 2015-2016 numbers they are dropping to the low 2016 numbers.  Those that were priced low and didn't know the market went up - missed out. I disagree that the market was "flat" for 10 years as stats say otherwise right now.

However, Based on what we have rented in 2017 it shows we are trending upwards or flat again. We shall see. There is a lot of movement with military and construction up north with shipping (See Alaska Business Magazine on details).

Another great source is AEDC. They are calling 2017 flat - maybe a little slow from residuals of job loss in the lower paid areas.

At Real Property Management  - Alaska Office we also watch A, B, C rentals.  What's fascinating is the A rentals and C rentals dropped significantly in price points. The B properties dropped a little but did not have a large drop due to demand increasing.  The average days on market (meaning sitting there waiting for a tenant) use to be 7 days and went all the way to  27 days.  Today, we are averaging 22 days and working hard to get it to 14 days.  SOOO....Lesson to investors Mid-market is much safer, not as risky, and tend to be stable.

We do post our stats about every 2 months to help the local landlords in the area through our local training class group.  I would state that group but don't want to be tagged as spam as that's not the point.  (PM me if you want it)

Ronald Laurion · Answer

Till very recently the rental market in Anchorage was super tight in my families experience, till the oil crash I was always told that the vacancy rate was less than 3% in Anchorage on rentals. I think the price for buildings on the market are high for the economic uncertainty that Alaska is facing currently.

@Erik Nosich we also update our units as well, we agree with you that there is a lot of really old rentals out there that are stuck in the 70's as well. People want to live in an updated place and are willing to pay for it in our experience.

Ron Healy · Answer

Great questions @Scott Sewell.  They bring my query to the next level.

Ron Healy · Answer

@Kassandra T. this is pure gold.  Of course it's good to talk to friends and other investors to get their opinions, but in the end, decisions have to be made on the data.  Thank you very much.  I'll PM you as well.

Kassandra T. · Answer

@Erik Nosich  I would say this is accurate in our market as the cycle is about 7 years.  So by the time everyone is talking about it, you are kinda a little late.  I bought several in 2008...sold in 2015 and did well.  Now I'm about to go at it again in 2017-2018 and hold the next cycle.  Many bought in 2015/2016 so they will have to hold out and wait till the next peak to make anywhere close.

Anchorage Alaska Subsidized Housing Impact?

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