Boston Area rents are down? Says who?

This article provided by BusinessWeek has Boston tenth on the list of cities with falling rents. Here's the quote:

• Rank: 10th most 'rent damaged' city


• Rent drop: -2.8%


• Q4 2008 rent change: -2.4%


• Q4 2007 rent change: 0.5%


• Effective rent: $1,634.20

The Boston area, home of Harvard University, MIT, and Boston University as well as some of the nation's finest hospitals, is seeing damage to its financial sector. Thousands of financial-services layoffs have been announced, including major cuts at Boston-based State Street and Fidelity investments. The unemployment rate climbed to 5.0% in November 2008 compared to 3.6% in November 2007. The apartment vacancy rate jumped to 6.0% in the fourth quarter last year from 4.7% in the same period in 2007. Landlords on average are giving 1.3 weeks of rent concessions.

As you'll recall, or can read by scrolling down, yesterday we commented on a Globe story showing that rents were up 4.2 percent. Um. Yeah. As my friends used say in High School, "I HATE THIS! SOMEONE IS LYING!"

There are various theories as to what is really going on here. I'll list them in no particular order (and yet, I'm going to number them. Go figure.)

1. The Goldman Hypothesis: Nobody knows anything (Goldman said this about Hollywood. I'm generalizing it to Real Estate.)


2. Rents at the top of the food chain, luxury rents and rents for larger units, are falling as people trade downwards due to economic hard times. This survey is skewed towards this type of unit.


3. The universe is intrinsically unknowable. Everything is Roshomon.

Theories 1 and 3 are essentially the same, created so I could use a numbered list. So let's home in on number two. Who did the survey that Business Week quotes?

Axiometrics. Who are they? A data services provider to the REIT market? What is a REIT? Ah, now we get to it...a REIT is a Real Estate Investment Trust. From Wikipedia:

A Real Estate Investment Trust or REIT (pronounced /ˈriːt/) is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes. In return, REITs are required to distribute 90% of their income, which may be taxable in the hands of the investors. The REIT structure was designed to provide a similar structure for investment in real estate asmutual funds provide for investment in stocks.

So! The same geniuses who brought us the sub-prime fiasco—the free-market pioneers on Wall-Street who are currently slurping up public money so fast they've put Regan's mythical welfare queens to shame—also figured out a way to collateralize apartments!

As Kurtz put it, "The horror! The horror!"

We'll keep digging into it. What is interesting to me is that Axiometrics wants its investors to think that rents are going down. Why? Well, if you had to explain to a Board of Directors how you lost a zillion dollars in rental real estate, with rents going up in the Boston area, the Axiometrics data would be a comfort, wouldn't it? That Globe article sure wouldn't win you any friends!

The one thing I'm sure of? Nobody in a REIT was investing in affordable housing. Let's do a search on that.

Yeah, I'm right.

I knew they weren't going to be throwing any roses at us in Iraq, too. I'm kinda psychic, I guess.