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Q1-2014_web

Q1-2014_web

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Published by B. Merkur

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Published by: B. Merkur on Jun 11, 2014
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06/11/2014

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BRASS ENTERPRISES INC.INVESTMENT REPORT FIRST QUARTER OF 2014
 
Thankfully, the strengthening of the US economy has had a positive effect on our US real estate holdings. In Q1-2014, we focused on improving the performance of our US residential portfolio, and at the same time scouring the marketplace for more quality properties.
GROWING DEMAND PUSHES RENTS HIGHER
We have been finding across our U.S. portfolio that rents are climbing and vacancies are dropping. The Wall Street  Journal of April 1, 2014 points out that average rental rates across 79 U.S. metro areas increased 0.6% during the first quarter. Although that is slightly slower than the 0.8% rise in last year’s fourth quarter, rents were up a hefty 3.2% from a year earlier and have risen 13% since rents began their upward climb in 2009. As vacancy levels fall, rents appear to  be poised for further growth, according to REIS (a real estate research firm). There are several factors contributing to the increase of rents and decreasing vacancy rates:
1) Rising demand for apartments:
 The steady rise of employment enables more and more young people to afford households of their own.
2) Expensive home ownership:
 The cost of home ownership has increased dramatically during the past year, as prices have rebounded and interest rates have risen from record lows.These are good times for U.S. landlords. With demand for apartments surging, rents are projected to rise for a fifth straight year. Demand for rental housing has grown, as the U.S. economy has strengthened since the end of the Great Recession nearly five years ago. Overall, higher demand and rising rents will produce more income for owners.
TEXAS ECONOMY: STRONG, GETTING STRONGER
Texas and NY are now the only two states to have restored all of the jobs lost since the onset of the recession in 2007. The Texas economy has recovered much more robustly and has moved on into a period of substantial expansion. Unemployment in Texas is down to 5.7%, about a point lower than the national average. Between 2007 and 2011, Texas lost 400k jobs, but has since added more than a million.
AUSTIN BOOM
The boom in the Austin region employment slowed slightly in 2013, but only because there were fewer workers left to employ (REIS). The unemployment rate in Austin has dropped
Executive Summary: Q1-2014  
 
6065707580859095100
     %
 
     O    c    c    u    p     i    e     d
CAMELOT
 
OCCUPANCY
 
Apartments in high demand:
Overall, these are good times for U.S. landlords. With demand for apartments surging, rents are projected to rise for a fifth straight year.
Riding the Faster Horse:
For the fourth year in a row, Austin has appeared at the top of Forbes’ list of the country’s fastest growing cities.
 
to a low 4.5%The availability of jobs in Metro Austin has not gone unnoticed in the rest of the county. For the fourth year in a row, Austin has landed at the top of Forbes’ list of the country’s fastest growing cities. Forbes noted that Austin had a 2.5% estimated population growth in 2013, the highest of all geographic regions in the country. The report also points to Austin’s economy, which grew 5.9% last year.According to Moody’s Economy.com, the population is forecast to carry on growing by about 50k people (about 2.6%) per year through 2018. The Austin apartment market benefited from low and stable vacancy and strong rent gains in 2013. As new apartment units come into the market in 2014, the vacancy rate is expected to increase to 4.9% by year-end 2014. REIS predicts strong demand to absorb the new units coming into the market in 2014, although the new units will obviously temper rental increases to some extent.
FORT LAUDERDALE
There have been advances in employment in Fort Lauderdale. Nevertheless, the recession was so severe that the recent gains still leave local employment greatly in arrears of prerecession levels (REIS Report). Further gains are predicted as the recovery continues. The recent strength evinced by the country’s major economic pillars (Tourism, Trade, Construction) bode well for a continuing expansion and recovery of the region’s economy. The apartment market remains tight, resulting in low vacancy rates and strong rental growth. Vacancy is projected to continue to diminish, expected to end the year below 4%. An average rent growth of about 3% is expected for the year.
LANDMARK PURCHASE
Brass Enterprises is pleased to announce the completed purchase of another 293 suites in Austin, Texas.In the fall of 2013, Brass Enterprises viewed the Landmark project. The asking price was $136k/door – too steep, we felt, but worth negotiating over. In December, the deal, having  been under contract at over $130/door, failed to close and came back to us at our original offer of $120k/door.During an intensive due diligence period, we negotiated a further reduction in price to just over $117k/door. Closing was originally set for and was executed on May 9, 2014. We are excited to now have 293 more suites to add to our existing portfolio in Austin, Texas – 583 suites, purchased July 2013.Since the Landmark property is a brand new build, our current focus is on occupancy, filling the building to capacity. The second tier goal is to push rents higher upon renewals.We worked hard with our management team to ensure a successful transition upon closing. We are very pleased with the progress so far.
 
Fort Lauderdale:
Further gains are predicted as the recovery continues.
Landmark Closing:
293 more suites to add to our existing portfolio in Austin, Texas.

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