It’s been three decades since the Fresno market has experienced the level of apartment construction going on today, says Robin Kane, senior vice president of The Mogharebi Group.
“So, get out and negotiate. And don’t take the first offer.” — Robin Kane, senior VP, The Mogharebi Group
The thousands of mostly high-end units planned for the next four years come as builders have been trying to take advantage of Fresno’s record rent increases and tight housing market.
But as the post-pandemic rental frenzy returns to normal, Kane said, tenants may find themselves in a position to get better deals.
“I think it’s a good time to be a renter,” Kane said. “This is the time to get out and negotiate your best deal.”
Projected Construction Cut by Half but Still Strong
In 2021, developers planned for 45 projects across the city, bringing more than 5,000 units to Fresno over three years.
Following the Federal Reserve’s aggressive interest rate hikes in 2022, borrowing costs increased and developers canned projects, resulting in only about half of those units slated to come to Fresno.
More recently, the Fed sent private warnings to regional banks to be more scrutinizing about lending, according to Bloomberg News. Regional banks are the primary lenders for real estate investments.
“A vast majority of those never got off the drawing board,” Kane said. “So a lot of the anticipated surge that we were expecting didn’t occur.”
But even the 2,590 units in Fresno and Clovis planned or under construction have not been seen in the past 20 to 30 years, Kane said.
North Fresno to See Most Construction
Considering the cost to develop, a vast majority of new apartment construction has either been luxury or affordable, Kane said.
The Row, The Rousseau, Brookside Villas, and Rock Ranch all opened north of Herndon in recent years.
Adding what will total 500 luxury units to north Fresno, The Lark apartment complex will be the elephant in the room for managers trying to find tenants.
The complex began leasing in July 2022 and, over the next 18-24 months, will add another 240 units, according to a development representative.
Since the pandemic, property managers have been able to set a price and renters would pay it. Rents increased at double-digit rates, with Fresno leading the way.
But people have been tightening their belts looking to save money, Kane said.
And, with more properties coming online, renters can shop around. For property owners, that means being more competitive than they have been in recent years.
“They’re going to have a do a lease that’s very aggressive and it’s going to put pressure on all the other projects,” Kane said.
Tenants Might Not Get Lower Monthly Rates, but They Could Get Freebies
Prospective tenants should be going to landlords asking for any discounts they can get, Kane said. That could mean getting half of a month free.
“A couple of years ago, the manager would look at it like, ‘you’re an idiot,’ right? Today, I guarantee you nine out of ten will offer something,” Kane said.
Landlords may be hesitant to drop a monthly rate, but a renter could get $500 off the first month’s rent.
Landlords are more keen to keep existing tenants as well, Kane said. That could mean avoiding raising rents by the maximum 10% allowed in California.
Investors Leaning Away from Multi-Family Purchases
Forbes reported in April that investors have shied away from apartment purchases. Rents have plateaued while the cost of borrowing has skyrocketed.
Multi-family investment plummeted 74% nationally in the first quarter of 2023 to $14 billion. The last time the U.S. experienced that kind of a drop was the first quarter of 2009 in the height of the Great Recession.
Decreases in sales could keep rent increases at bay, as new owners typically increase monthly rents when they take over a property.
“Fewer sales could help stabilize rent prices,” Forbes reported.
Since the beginning of the year, there have been 26 apartment complex transactions totaling $114 million in Fresno, Madera, and Tulare counties, Kane said.
In 2022, there were 114 transactions totaling $452.6 million. Over eight months in 2022, that means a 65.8% drop in the number of sales and a 62.2% decline in dollar amount compared to 2023.
Kane said the pendulum has not swung all the way over to the tenant’s side yet, as Fresno could still handle more apartments, but it’s headed in that direction.
“So, get out and negotiate,” Kane said. “And don’t take the first offer.”