Numbers game 

Is apartment construction boom bounty or bust for renters?

Anyone following real estate in Missoula County knows that the market is tight. Just ask Lambros Realtor Mindy Palmer.

“It’s what I call ‘survival of the fastest,’” says Palmer. “You’re showing a house and writing an offer on the hood of the car and trying to be the first foot in the door. It used to be you’d give 48 hours for a seller to respond. I give them a couple hours now.”

While the housing market doesn’t appear to be loosening, there are indications that the market for apartment rentals may soon be in flux, depending on whose numbers you use. According to Missoula Housing Authority (MHA) Executive Director Peter Hance and market watcher Bill De Cou, 1,011 new apartment units were permitted for construction in Missoula during the past fiscal year. RaeAn Sarconi in the Office of Building Permits says that number is actually 981. C.E. Abramson, a commercial and industrial real estate broker involved with the Pleasantview development near Hellgate Elementary School, estimates up to 3,000 apartment units coming online by mid-2004.

Whatever the precise number, as apartment supply increases, there remains the question of demand: Is it strong enough to support the coming boom?

Bill De Cou is a tenants-rights leader with Montana Peoples Action. He is also a member of the Western Montana Landlords Association and the National Association of Rental Property Managers, and the owner of 25 rental units on six properties. Since 1995, De Cou has released a monthly report on Missoula vacancy rates.

When the city has a low vacancy rate (such as 1 or 2 percent), the market is considered tight, and owners are able to charge higher prices. When the vacancy rate is high (such as 10 percent), the market is considered loose, and buyers are in a position to haggle. De Cou isn’t paid to compile his monthly vacancy rate survey. He does it as a public service to the city. For the month of June, De Cou’s study indicates that Missoula’s vacancy rates are averaging 1.5 percent, according to data provided by three of the city’s major property managers, which together represent approximately 10 percent of the market as a whole. In other words, it’s a seller’s/owner’s market. These numbers match those offered by the MHA.

But others call those numbers into question.

Abramson, for one, says of the current vacancy rate, “It’s a big lie. Everybody’s lying about it. Let’s say your business was managing rental property. Somebody calls you up and says, ‘What’s your vacancy rate?’ I mean, are you going to tell them it’s 10 percent? Are they going to want you to manage their property?”

In other words, Abramson argues, property managers are supplying De Cou with “wishful thinking” numbers in order to make it appear that their tenants are so satisfied that few ever leave, or that if they do, their place is soon taken by another renter.

“We’ve probably got 3,000 rental units coming online, and we don’t have 6,000 people moving to Missoula, so there’s some real distortions.”

De Cou, on the other hand, points to “pent-up demand” and continuing population growth as legitimate rationales for new construction.

He does admit, however, that there’s “wiggle room” in property managers’ definitions of “vacant.”

“If it’s empty but there’s work to be done on it, it may be empty, but it’s not really vacant until it’s fit to rent.”

Abramson disagrees. To him, any property that is not collecting rent should be considered vacant, and he describes a mathematical method for calculating vacancy rates.

“You take all the apartments in Missoula, you multiply that number by 365.25 so that you’re accounting for leap year, and then you take all the days for which no rent was received.”

Abramson breaks it down into a concrete example: “How many weeks are there in a year? Fifty-two. So if you don’t get rent for one week, what’s that vacancy rate? It’s almost 2 percent.

Using this formula, Abramson says that the current vacancy rates projected by property managers are too low.

“How often do you think that somebody moves into an apartment and starts paying rent the same day somebody else moves out?” he asks.

Cory Cote, one of the owners of Bounty Real Estate, knows about Abramson’s formula. But, he says, “Nobody actually does it. Nobody really wants to know what their vacancy rate is. They’re afraid of it…There is a way to calculate it. Just be aware that most people do not do that.”

Cote has attempted to find out the actual vacancy rate for Missoula. He’s sat on four separate city task forces attempting to get at the number, but the mission is nearly impossible, he says, because no one is even sure how many apartments there currently are in Missoula.

“There’s probably a 35 to 40 percent range between the highest and lowest estimate of [number of] apartments in Missoula, which indicates to me that nobody has a very good handle on it.”

“No one keeps track of all the apartments in Missoula because different people deal with different markets and niches,” says the Housing Authority’s Hance.

If the current vacancy rate is actually in the neighborhood of 1.5 to 2 percent, as De Cou and most property managers contend, then it would seem that newly available apartments will be easy to rent.

However, if the current vacancy rate is actually “much higher than 5 percent,” as Abramson contends, then the new constructions could flood the market with an overload of supply, without the demand to match. Cote argues that the building of the new apartments is, indeed, a reaction to overstated demand.

If Cote is correct, the new construction would spell bad news for those collecting the rent checks, but welcome news for those writing them.

“Those who have to rent will be real happy to have a choice for a change,” says Hance.

Abramson, meanwhile, argues that it’s not such a rosy picture for renters, even if the market does swing in their favor, because managers would be left with less money for maintenance and investment back into community institutions—a kind of “trickle down” from real estate profits.

No one can say for sure exactly how new construction will affect the market, but in Missoula’s real estate world, all eyes are alert. “It’s going to be a hot topic for the next year until we see how this shakes out,” De Cou says.

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