4. Tax Equalization Board reconvenes

06/20/2007 WED 10:03 FAX 701 293 8837 Demara and Turman ~003/012 QUARTERLY REPORT ON APARTMENT VACANCIES FOR TIlE FARGO-MOORHEAD METROPOLITAN AREA Appraisal Services Inc. conducted a survey of apartment owners and managers havingwrlts located in Fargo, West Fargo, Moorhead and Dilworth, as of March I, 2007. I appreciate the willingness of the 70 respondents that were a part of this survey. The overall vacancy factor was 8.16% for 22,575 units surveyed. The survey results are summarized below. Units Percent VaCant Average Annual Vacancy Area. Surveyed 3/07 3/06 3/05 3/0. 2006 2005 2004 2003 S Fgo Area 1 ,4,465 5.8 5.6 10.0 8.3 6.2 8.5 9.9 7.4 5 Fgo Area 2 2,159 6.8 7.4 5.8 7.8 6.8 6.6 7.7 8.1 5 Fga Area 3 1,689 9.7 6.8 ' 6.8 6.8 7.6 5.9 6.2 5.3 5 Fgo Area 4 4,395 7.4 8.3 9.3 8.6 7.7 9.3 8.5 6.9 .5 FgoArea 5 1,682 i2.5 11.5 10.4 10.6 9.1 13.5 9.7 11.7 N,. .Eargo_ Ull ...6...6 1.2 U... '~' '~: U '-u U- Total Fargo 17,601 7.5 7.5 8.3 7.8 7.3 8.2 8:2 6.8 Moorhead 2,848 ' 7.7 7.0 7.4 7.4 8.6 7.1 6.9 7.0 West Fargo 1,921 15.0 17.4 11.3 7.0 17.3 14.9 6.8 4.3 Dilworth W .lU M 2a.J ~ 5...1 .1.U .s...2 j.! Total 22,575 8.2 8.0 8.5 7.7 8.2 8.5 8.0 6.7 .See attached map for area location. ,This survey measures physical vacancy and does not consider rental incentives, delinquencies and lost rent from skips, which are also part of the true vacancy picture. Rental incentives are commonplace as a result of the elevated vacanCy conditions. The total economic vacancy condition, which includes the impact of the physical vacancy, the financial impact 'of rental incentives and the impact of tenants that vacate prior to lease expiration~ is greater than the reported physical vacancy condition related herein. Actual local apartment income and expense statements that I have analyzed over the last year indicate that the rental loss associated with incentives and lost revenues may be 1.5 to three percent of the vacancy picture. The 2006 anmJq)ized physical vacancy condition for the metro area was 8.2 perce;nt. The recent survey reflects little change, indicating that supply still exceeds demand, even though the rate of new construction has slowed. It will take some time for the rental market to absorb the excess supply, indicating that incentives and elevated vacancies will continue to be a part of the market. ' The apartment vacancy rates have remained elevated as a result of overbuilding in the metro area. This is most apparent on the ,south edge of Fargo and West Fargo where the vacancy factors are 12.5 percent and 15.0 percent, r~vely. South Fargo Area 5 is the location of most new construction, resulting in the vacancy condition. reIating the initial absorption of new properties. The West Fargo vacancy rate is similarly elevated because of the aIilOUnt of new construction and initial absorption. The West Fargo vacancy rate may overstate the vacancy factor for apartment units that are more centrally located or' 'located on the periphery 'of the regional and community retail center. The units in these areas have more normal occupancy levels as a result of greater demand. The Dilworth vacancy rate is impacted by the small size of the sample.