Hello!
While optimism for apartment owners continues to increase for 2021, there are new headwinds on the horizon, particularly in the current Washington State legislative session. Read on for more updates on the Eastern Washington market and as always, send me a reply with any thoughts or questions.
Overall Market
The state-level legislative session is beginning to wrap up. Here are 3 key updates that will impact your real estate holdings:
- SB 5160. Prevents landlords from terminating a lease or seeking repayment from unpaid rent during COVID for 6 months after the public health emergency is over. This is a clear signal that landlords should not expect “life as normal” after the pandemic is over. Legislators are making it clear there will be long-term restrictions on landlords beyond any emergency situation. Filed April 16, effective July 25.
- SB 5096. Washington state capital gains tax of 7%. While this bill does not impact real estate sales today, it opens up the floodgates for years ahead. If I had to guess, I’d say capital gains tax on real estate is just around the corner in the next 2 to 4 years. Combine this with federal proposals and now may be the lowest capital gains tax rate you will ever see on your real estate. Passed legislature, headed to the governor for signature.
- HB 1236. Requires leases automatically renew to month-to-month leases unless the landlord provides notice 60 days before the end of the lease. Tenants still only have to provide 20 days-notice. Passed legislature, headed to the governor for signature.
- SB 5139. Rent control. No rental increase for 6 months after health emergency over. Rent increase limited to 3% over CPI for the following 6 months. This bill has a long way to go before ever being passed, but this is another clear signal that landlord restrictions will not end with COVID. In Senate committee.
At the federal level, there are numerous proposed changes on the table. No firm details have been shared since the campaign trail, but I will keep you updated. As of today, early proposals include a 43.4% top capital gains tax (up from 20% today) and the elimination of the step-up in basis upon the passing of an owner.
My Deals
- This section is moving to a weekly update that will include every multifamily property (5+ units) on the market in Eastern Washington (Spokane, Tri-Cities, Yakima, Walla Walla, etc.).
- Want to make sure you’re on that list? Subscribe here or reply to this email.
Multifamily
- Interest rates are rising, anywhere from +65bps to +90bps from January 2021. Ultimately, this will decrease property values in the marketplace. This impact may be seen 6 months from now but could also impact deals in-progress.
- While underwriting multiple deals this month, investors are seeing a direct impact to cashflow due to the interest rate increases. This changed the offer prices we were receiving and submitting. Don’t think this has an impact on your property values? Might be time to reconsider.
- Breaking down vacancy in the Tri-Cities. Richland: 2.8% // Kennewick: 3.5% // Pasco: 9.7%. The difference in vacancy between the cities is striking. The drivers of this are nuanced, want to discuss further? Give me a call – 509.221.9354
Development
- Across the nation and here in Eastern WA, investors are looking to smaller, low-rise projects.
- Did you know there are 11 development sites and 1,135 units under construction/proposed in the Tri-Cities? That’s a 9.9% expansion of inventory. For example, take a look at this project that just began moving dirt around.
- Regardless of what type of property you own, this will have an impact on vacancy and rental rates. Want to make sure you’re in the know on each project, block by block? Reach out to learn more.
- Are you interested in pursuing your next development here in Eastern WA? I recently sourced 10 acres of raw land off-market for a local developer. There are other opportunities available that require seamless coordination and quick-moving development teams. Call me or reply to this email today to learn more.
Nearly every month there appear to be competing trends in the market. (For example, tenant-friendly legislation and a 9.9% expansion of inventory under construction.) Do you have a trusted advisor on your team helping you navigate these changing market conditions? Call me today for more information and ultimately what the impact will be on your portfolio and goals for the next 5 years.
Best,
Mason Fiascone
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