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ProJo: RI Rental property prices tumble

By Lynn Arditi
Journal Staff Writer
01:00 AM EST on Tuesday, February 26, 2008

Once the darlings of investors, multifamily houses in Rhode Island are now being stripped, boarded and their prices slashed, in some cases, to levels not seen since the late 1990s.

The median price of a multifamily house in the state last year fell 10.5 percent, to $255,000, compared with $285,000 in 2006, according to the Rhode Island Association of Realtors.

The last time the median price for multifamily houses in the state declined was in 1997.

During the last decade, prices of multifamily houses rose more than 200 percent, helping to fuel investor interest in the properties for condominium conversions and rental apartments.

Now, as real estate prices fall and mortgage defaults rise, some of the same properties that once looked like promising investments just two years ago are now in foreclosure. And banks are selling these multifamily houses for just a fraction of what their last owners paid.

Consider the two-family house at 206 Hanover St., in Providence’s West End. Built in 1900, the house has 2,540 square feet and hardwood floors, dormered windows and a side porch. In December 2005, the property was sold for $189,000.

But six months later, the mortgage holder defaulted and the house was put up for auction.

Now, the house is empty and boarded, its copper stripped by vandals. Last August, a fire that officials said appeared to have started in rubbish piled behind the house did more damage.

The property owner, Aegis Mortgage Co., has since hired a real estate company to market the house. The asking price is $40,000.

“We valued it at what the land would be if it was torn down,” said the property’s real estate agent, Mike Pereira, of Prudential Gammons Realty, LLC. “The copper may cost $20,000 to replace, but the [property’s] value drops $50,000 to $70,000 because you can’t get standard financing on” a boarded-up house. “So now it’s going to appeal to investors only.”

Foreclosed homes such as the one on Hanover Street are pulling down general property values.

In Providence, the median price of a multifamily house last year plunged 39 percent, to $168,950, compared with $277,575 in 2006, the Association of Realtors reported.

“You have homes that have lost value over 50 percent,” Pereira said, “but it’s mainly due to property damage after foreclosure.”

The rising supply of houses on the market is also dragging down prices. Sales of multifamily houses last year fell 27.3 percent, to 1,254, compared with 1,725 in 2006, according to the Realtors.

It would take an estimated 17 months to sell all of the 1,782 multifamily houses on the market in the state as of the end of last year, according to the Providence Journal’s analysis of the Realtors’ data. That’s compared with a 10-month supply in 2006, and a 6-month supply in 2005.

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