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Apartment tenants keep upper hand

John Seelmeyer

This promises to be a good year for people who rent apartments, partly because it’s such a lousy year for people who rent apartments.

Rents are likely to continue slipping downward, rental experts say, but that’s because the job market in northern Nevada remains so weak particularly for younger workers who commonly rent.

Rents dropped about 13 percent across the Truckee Meadows last year, says Debbie Warner, a vice president with Gaston & Wilkerson Management Group in Reno.

At the same time, landlords are offering all sorts of freebies such as one or two months of free rent, reduced deposits, and elimination of fees for credit checks or pets, Warner told members of the Institute of Real Estate Management in Reno last week.

Even with the freebies, Warner said vacancies are running about 11 percent, although the figures vary a bit among different sizes of apartments in different parts of the metropolitan area.

Vacancies may tighten a hair by the end of this year maybe to 10 percent or so and Warner said she expects rents to remain soft.

One exception: Three-bedroom units, which are popular with families that otherwise would be living in single-family homes. Rents for those apartments, Warner said, are likely to rise by about 7 percent this year.

Larry Bell, a vice president and commercial lender for Heritage Bank of Nevada, said apartment rents are being squeezed from two directions.

On one hand, the dramatic drop in home prices means that some potential apartment renters may be able to move into houses.

Mike Dillon, executive director of the Builders Association of Northern Nevada noted that homes priced under $250,000 are drawing strong interest, and homebuilders are feeling more confident about launching construction programs.

When renters decide to buy, their decision boosts apartment vacancies and pressures landlords to trim rents.

At the same time, Bell said some long-stay motels in the region are pressuring the bottom of the apartment market with aggressive price cuts.

He noted that joblessness has hit young people who often rent apartments particularly hard. The U.S. Labor Department says the unemployment rate for workers aged 20-24, for instance, is running nearly double the national jobless figure.

That means that some young renters either are doubling up with a roommate or moving back home leaving empty apartments behind them.

But the rental market may be correcting itself.

Floyd Rowley, an investment real estate specialist with Colliers International in Reno, notes that only about 750 newly constructed apartment units came on the market in Reno and Sparks last year, and fewer yet are expected to hit the market this year.

That, he said, will begin to tighten the high vacancy figures by the end of the year and may reverse the trend of falling rents.

In the meantime, Bell said bankers expect to see rising numbers of loan defaults by owners of apartment complexes as the result of weak rental revenues and falling property values.

Defaults already are playing a role in the market.

Five out of the 13 sales of multi-family properties that crossed the MLS system in November, December and January had been bank-owned, says Danielle Young, who brokers apartments from her office at Real Estate Connection in Reno.

Those bank-owned properties, Young said, sold for prices that were very close to the list price sometimes even above the list price.

Said Don Wilkerson, a principal in Gaston & Wilkerson, “I’m looking to buy. The market has turned.”