In the aftermath of the passage of Oregon Rent Control SB 608, Zoe York, MAI Appraiser with Duncan & Brown, takes a look at the impact of market trends and rent control on multifamily property cap rates and market value in Lane County, Oregon. Change takes time and it is dictated by the market.
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Timeline for Valuation Changes in Lane County
Anytime there is a fluctuation in the market, change is not immediate. There were a lot of questions in mid-2008 like these: What’s going to happen to values? What’s going to happen to cap rates when interest rates go up? Is my value going to go down? What should I expect? Should I sell right now? Should I worry about drastic changes in my valuation?
In reality, our market adjusts at a pretty slow pace. It takes about six to nine months for the market to even adjust to a change like this. Then it takes another few months, sometimes six to nine months, to really deserve that change. Whether it is rising interest rates, a change in broader economics, or rent control, nothing happens immediately. This is going to be something that we’re going to observe over time. Unfortunately, we’re in this shifting market already. It will be difficult to isolate the rent control variable alone because we might have changes in the market.
There might be changes in value that are more a part of natural cycles of change in value that occur parallel with rent control, not just because of rent control. That’s important to understand, that you’re not going to see a dramatic drop in your value just because the math said that that could happen. This is going to be market-dictated. It’s also going to be dictated by whether a bunch of people put their properties on the market and the market becomes over-saturated with properties for sale. That will impact values. Do interest rates also go up at the same? That will impact value.
It’s important to take things in stride and understand that this is not going to be an immediate change. It’s all about investor perception. The important thing is that when you look at trends of the less than 5 percent per year increases in rent and your cap on rent as a result of rent control, that’s not that substantial. There are a lot of questions in the market, however, asking, “What happens if they lower that? What happens if it’s 7 percent and it goes to 4 percent?” Or you can think of a lot of other dramatic circumstances. But that’s where the issue of perception comes in.
The math might show that you can increase your rents just fine year by year and not ever be impacted by rent control. But if the general perception is that this property type has a higher risk and people don’t necessarily want to invest in it compared to an alternative investment, that will impact these gross rental multipliers (GRMs). That will impact the values overall, but it will take some time.
Impact of Rent Control in Eugene Springfield
“Regarding the immediate impacts of rent control, I believe if your properties are rented at market right now or if your properties are rented within 10 percent of market, I don’t see any really drastic immediate impact to your values.”—Zoe York
That doesn’t say over the long term as perceptions change that there won’t be an impact, but I see the most dramatic impacts to value in the immediate short-term being properties that are 10 percent or more below market because now you can’t catch up. If you’re planning on holding long term, you can still catch up year after year, but if you’re 10 percent or more below market, that’s where we’re going to see change of the greatest magnitude. That is important to know when you’re looking at your portfolio and what your options might be.
If you need assistance with appraisal services, visit www.duncanbrown.com.
If you want more information about rent control and residential multifamily properties in Lane County, Oregon, visit Pacwest Commercial Real Estate’s Oregon Rent Control Central.
Disclaimer
Due to the complex nature of these changes, Landlords should contact an attorney with any questions or clarification of Oregon Rent Control SB 608.
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