View From the Top: Multifamily Forecast is Sunny
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MIAMI—When it comes to multifamily investment, the East Coast markets are still at the top of investors’ wish lists. At least, that’s what the speakers on the Industry Leaders panel related during the RealShare Apartments East 2013 conference, held before 400 people at the Hyatt Regency Hotel here on Tuesday.
Robert Given, a vice chairman at CBRE, shared that a lot of the firm’s institutional clients have moved toward the coastlines. Some of the larger REITs, he said, will continue to divest from slower markets such as Atlanta, and “there’s some hesitancy about some markets like Washington, DC and some areas of Florida, because of the slowdown there. But there’s continuing pockets of activity along the East Coast.”
Beech Street Capital president and CEO Grace Huebscher pointed out that rent growth numbers in those markets are backing up Givens’ observations. Rental rates in the Mid-Atlantic are growing at around 2% range, whereas other areas along the East Coast are in the 3%-to-4% range.
Still, Beech Street finances a lot of family owners in the DC-Baltimore metro markets, which Huebscher describes as “bifurcated. Institutional players like Equity Residential are looking at high-end product, but there’s also demand for B and C product. It’s a market that might go through some tough times in the short term, but we like to lend there.”
Alliance Residential COO Brad Cribbins noted that there’s still a tremendous opportunity to rehabilitate and redevelop product in Washington, DC market.
On the other hand, said Given, “Atlanta has always been a late recovery market.” He’s starting to see some acquisition activity there now, with a lot of core buyers looking at that market now. In terms of secondary markets overall, “we’ve seen a lot of institutional players become more interested in those markets around the fourth quarter, but they want to do it in a big way. We’ve seen a lot of portfolio deals occurring with institutional guys and operating partners.”
Yet Huebscher countered that as a lender, “I’ve always been very cautious about markets like Atlanta. We tend to focus on players that are experienced there. There’s volatility in that market.”
The attention areas like DC attracted earlier in this cycle was warranted, commented Jeff Day, Berkeley Point Capital’s CEO. “Coming out of the downturn people were focused on high-quality projects in high-barrier-to-entry markets,” he stated. “There was even some concern that all the new development would hinder rent growth.”
Speaking of Miami in particular, the executives related that while development has been high, the market can handle it. “If you look at just multifamily product, we peaked at about 175,000 market-rate units in South Florida in 2004,” pointed out Given. “We diverted about 35,000 of those off into condos in the last cycle. From 2005-2010 we built about 6,500 units. If you look at what’s expected to be delivered between 2010 and 2015, we will be just barely over the previous peak in 2004. We will have grown supply by about a quarter, while population growth is on track to surpass that.”
What’s more, he added, “In 2012 we sold more condos in South Florida than at any other time in history, with previous peak at 2005-2006 era,”
No matter the market, there are some trends that are universal when it comes to development. Cribbins said much of what’s getting built is midrise downtown/urban buildings. “What’s drawing people to that particular building type is mobility,” he said. “The 25- to 35-year old group is redefining how long they want to be tied down to a home. But it’s also the quality and amenities this age group looks for.”
Yet Jeff Day mentioned that one interesting observation about the East Coast is that it’s estimated that up to 70% of the rental housing demand on the seaboard will come from the above-age-50 cohort.
The multifamily market’s fundamentals are also attracting a plethora of capital. Doug Bibby, president of the National Multi Housing Council and moderator of the panel, stated that the market needs more involvement by private capital. Huebscher related that as rates start to rise, it’ll likely spur life companies to be more competitive. “We view banks as competition as well, and there are pockets of competition from CMBS depending on the market, such as New York City,” she said. “I think in 2014, when the agencies don’t mind losing some market share, CMBS could step in and take a share of that.”
As the types of development coming to market start to shift, particularly in Florida, life companies will start to be more interested in placing capital into the product type, said Given. “From a CMBS standpoint,” he continued, “because people are getting pushed out of the primary markets, you’re seeing more secondary markets open up. I think the CMBS guys are a little more competitive now.
Day indicated that when the market is coming out of a bottom like this, there tend to be a few constraining factors for the CMBS space. Still, with #28 billion in CBRE coming to market in the first quarter, “everything is pointing to a resurgence of CMBS.”
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