Wide Range of Factors Influencing Apartments
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CALABASAS, CA—Think of a macroeconomic trend—any trend. You name it, it will have some bearing on the multifamily asset class in the near and mid-term. That was one takeaway from an hour-long webinar hosted by Marcus & Millichap in which participants John Chang, the company's first VP of Research Services and Bennett Neuman, SVP of Acquisitions at The Laramar Group, shared their thoughts.
Another takeaway was this: no matter how many data points there are to consider, and how much economic and market noise there is surrounding this asset class, it is clearly a strong performer destined to do well for years to come, precisely because of many of these trends.
Following are some excerpts from webinar, which was held Tuesday afternoon on July 15.
The Economy and Employment
Needless to say some markets are performing far better than others jobwise. In some cities, such as Houston, there are now more jobs than there were prior to the recession. On the other hand, cities such as Phoenix and Chicago are trying to recover their positions from the peak. For multifamily this means rates are easier to raise in these cities.
A, B and C Quality Apartments
But those rising rates usually apply at the higher end of the spectrum. Even in "hot" markets, renters that tend to gravitate to C quality apartment buildings are still struggling and less able to support a rent increase. That said, participants in the webinar said they see good rent growth across the entire spectrum of apartments.
It's pretty significant despite their relatively low levels of earnings. Those with an education are finding jobs and able to pay rent at some of the higher-priced buildings developed with them in mind. They also exhibit a strong preference for urban locations and, in general, think differently about their living space.
The Housing Market
They are also skittish about home ownership even if the mortgage requirements were to loosen and valuations were to increase. Assuming those favorable conditions are in place, though, the high levels of student loan debt this generation is carrying would likely continue to keep Millennials' home ownership at low levels. The housing market has clearly recovered at least in part from the recession but home sales are down on a year over year basis. Investors are behind much of the home buying activity, as are foreign investors in single-family homes.
The problem for most multifamily investors is not raising capital but finding product. Some investors, such as Laramar Group, are focusing on the long-term which leads them to invest in primary and preferred markets. Other investors are eyeing additional yield, which takes them further out into suburban markets and secondary cities. It is a trade off of course: invest in urban areas where product has very low cap rates because this where the jobs are pouring in, or go further out, attain higher yields but struggle with such issues as vacancy and limited ability to raise rents. For investors navigating this choice the best advice webinar participants offer is to drill down into local and micro-local markets and get to know every block and building to find the best deal.
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