Toti and Mehta noted that unlike previous recoveries in which supply initially increases in low-barrier markets, developers today are targeting the highest-tier, coastal, so-called A markets. That is because lenders are more willing to fund projects in these less risky areas, such as downtown Bethesda, Md., where cranes rise above the busy streets. Once considered a suburb of Washington, D.C., Bethesda is now a prime urban market, and developers and REITs such as ederal Realty Investment Trust are reaping big rewards, despite what some call an overheating market.

“We’re not concerned about any of that,” said John Tschiderer, vice president of development for Federal Realty. “I think a lot of it is location-driven and place, quality of place-driven, and in our investments our locations are strong, based on transit and the quality of what we build.”

Apartment vacancies fell to just 4.2 percent nationally in the first quarter, down from 5 percent a year earlier, according to Reis Inc. That pushed rents higher by more than 3 percent year-over-year.

“Analysts have wondered how rents could keep climbing when jobs are being created at a sluggish rate and wage growth has been relatively stagnant,” Reis economist Victor Calanog wrote in a recent report. “One answer is that the moribund housing market left households with little choice but to absorb rent hikes, but with the housing market now recovering, does that mean the tide is turning against landlords?”

(Read More: Boomers a Boon to Urban Home Builders)

Article source: http://www.cnbc.com/id/100646124

There were just over 200,000 multi-family housing starts in 2012, according to the U.S. Commerce Department, far lower than the annual average of 340,000 over the past decade.

“We are still woefully short of what’s going to be coming in terms of demand,” says Buck Horne, a housing analyst at Raymond James. “Lennar is going where the demand is going to be. They’re going where they know they can make money.”

Lennar has positioned itself with offices in Atlanta, Charlotte, Chicago, Dallas, Denver, Miami, Orange County, San Francisco and Seattle, all markets where apartment demand is high, despite a recovery in the housing market.

“You’ve got to be very selective about your locations,” warns Miller. “We stay pretty thoughtful about where there are imbalances and too much building going on. This is not a market where you can start building any place.”

Miller is not concerned with competition from investors in the single family rental market, again focusing on location as his leg up. A lot of the foreclosed properties being absorbed by hedge funds and the like are not concentrated in the top markets targeted by Lennar. They are either inner city or third-level suburban, according to Miller.

Expanding household formations, coupled with credit and down payment-challenged new home buyers will benefit the rental sector for the foreseeable future. Many renters will eventually move to home buying, especially as their families expand. For Lennar, getting those potential buyers into a Lennar rental can only benefit the builder in the future.

“In many instances, the very first introduction to housing is through rentals and through branding and knowing consumers. Being there gives us a leg up and advantage in terms of new home sales later,” says Miller.

Article source: http://www.cnbc.com/id/100407898

Developers are rushing to increase supply of multi-family apartments, as there are now more This even as single-family rentals continue to gain market share. Continued uncertainty in the housing market, tighter mortgage underwriting and weaker consumer wealth has pushed ever more Americans to rent; the foreclosure crisis forced others.

The boom in multi-family is already raising red flags.

“We are incrementally more cautious on the multi-family sub-sector, as we see a rising supply environment in 2014,” note analysts at Cantor Fitzgerald. “Although at this point, data indicate demand remains strong and absorption in check.

(Read More: One Overlooked Fact About the Housing Recovery)

Apartment demand increased “noticeably” in the fourth quarter of 2012, according to Reis Inc. This despite record-low mortgage rates and renewed faith in the housing market. Rents continued to rise, although at a slower pace than the previous quarter. They still managed to hit another all-time high, “propelled by strong demand, limited new supply growth, and a still weak for-sale housing market.”

The single-family housing market is rebounding off its historic lows, but the very limited supply of homes for sale gives cause for concern.

Low inventories are pushing prices higher, faster than expected. All-cash investors are pushing those gains, and in turn pushing out first-time home buyers. While non-investors are slowly moving back into the market, they are not arriving in the necessary numbers, and they are also not finding much to choose from.

(Read More: Home Builder Confidence Stalls)

Article source: http://www.cnbc.com/id/100388194

(Read More: JC Penney’s CEO On ‘The Rocky Road to Reinventing Retail’)

Regional malls, however are outperforming the neighborhood strip malls, with vacancy rates declining in the third quarter of this year. What may be helping some of these larger properties is an influx of big chain restaurants taking over retail space. Darden
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]  restaurants, which includes the Olive Garden, LongHorn Steakhouse and the Capital Grille, to name a few, is increasingly moving into retail mall space. Chipotle
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] is following suit.

The amount of mall space being leased by restaurants is rising steadily at 15.8 percent through August of this year, up from just over 10 percent in 2006, according to CoStar Group.

Percentage of Retail Leases Signed by Restaurants by Square Footage:

While vacancy rates are dropping from their record highs during the recession, according to Reis, mall owners are and will be increasingly challenged by the move to online shopping. That’s why the fundamental face of shopping malls is beginning to change; rather than just retail with a food court, malls are now becoming entertainment destinations.

“We have seen restaurant and what I’ll call ‘other entertainment venues’ drive that mall growth and malls have become a gathering place for people and the, Panera’s
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] of this world help make that happen,” says Bob O’Brien of Deloitte Commercial Real Estate.

So-called “entertainment retail centers” are now the focus of real estate investment trusts (REITs) like Entertainment Properties Trust
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], which has invested over $600 million in eight such centers, according to its website:

“Sometimes called ‘the new mall of the new millennium,’ entertainment retail centers attract a wide range of businesses because consumers have a wide and deep thirst for fun and rejuvenating leisure experiences… now also it’s dinner and shopping, dinner and ice-skating, dinner and bowling, dinner and miniature golf, or dinner and sports events on the tavern big screen with friends.”

(Read More: Why Brick-and-Mortar Stores Will Trump Online in End: CEO)

Higher end malls are seeing the biggest benefits of economic recovery and of higher end chain restaurants moving in. Mall owners want these tenants because the hope is they will drive traffic back to the retail surrounding them. Strip malls have a harder time, as patrons don’t always have to walk past another store to get to the restaurant.

SECTOR WATCH: U.S.-Based REITS

• Host Hotels Resorts
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• Simon Property Group
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• Equity Residential
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• Apartment Investment Management Co
  [AIV 
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• Vornado Realty Trust
  [VNO 
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• Boston Properties
  [BXP 
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• FelCor Lodging Trust
  [FCH 
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• AvalonBay Communities
  [AVB 
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• American Capital Agency Corp
  [AGNC 
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• UDR, Inc
  [UDR 
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• Camden Property Trust
  [CPT 
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  ]

Questions?  Comments?  And follow me on Twitter @Diana_Olick