Apartments Will Continue With Modest Growth

By Natalie Dolce

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Nadji says companies won't
expand until at least 2013

ENCINO, CA- On a recent apartment webcast, 57% of participants predict that renter demand will get stronger in 2012, while 2% says it will be weaker, with 40% saying it will stay the same. The 2012 Apartment Market Outlook Video Webcast was put on by Marcus & Millichap Real Estate Investment Services, and was generally optimistic in the sector’s “continuation of modest growth in 2012.”

According to William Hughes, managing director of Marcus & Millichap Capital Corp., from a lenders standpoint, the improving apartment fundamentals have supported their level of confidence in the marketplace. “It has been easy to finance core assets all the way down to C assets across the board,” he said. “It becomes a little choppy as you move into tertiary and smaller assets, but even those are being financed by local and regional banks.”

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Capital supply, he said, will remain healthy, but not for every asset. Agency lenders will continue to be Fannie Mae and Freddie Mac, life companies, regional and local banks, debt funds, and CMBS, he says.

Hughes pointed out that debt and equity markets for the first half of the year will resemble the last half of 2011—pointing to the choppy domestic economy such as slowly improving employment numbers; inconsistent economic indices; and the election; as well as global influences like foreign sovereign debt and economic geopolitical uncertainty.

Hughes says that investor strategies will be: maturing overleveraged properties—extensions and recapitalizations; and refinancing. “It is a great time to take down fixed-rate financing,” he said.

When Hessam Nadji, managing director of research and advisory services at Marcus & Millichap, asked webcast participants if job growth does not improve over the next 12 months, will apartment demand contract, stay the same or get stronger, 64% said it would stay the same, 22% said it will continue to get stronger and 16% predicted that it would contract. According to Nadji, as also mentioned in another GlobeSt.com article, companies aren’t expanding or hiring aggressively, which is something he expects to see through 2012, “but companies aren’t panicking.”

Nadji pointed out that “The job creation trend is still below expectations, and the muted housing market will have a tremendous affect on consumer sentiment. Companies need to enter an expansion mode for us to see improvement, and that won’t happen until 2013.”

Another interesting participant question was whether or not interest rates in 2012 would be somewhat higher, be much higher or be about the same. Approximately 40% of participants said somewhat higher, with 58% saying “about the same,” while only 1% predicted “much higher.”

On the construction side of this cycle, Nadji said that developers are working to bring new product to the marketplace that will be delivered in 2013 and 2014. “At a macro level, we don’t see overbuilding,” he said.

Overall, the webcast echoed key points from a previously reported midyear webcast from the company. In that webcast, Nadji pointed out that lowest apartment vacancy markets include: New York; Minneapolis; San Jose, CA; Portland, OR; San Diego; San Francisco; Milwaukee; and Philadelphia. Higher vacancy markets mentioned include: Jacksonville, FL; Houston; Tucson; Atlanta; Phoenix, Las Vegas, and Columbus, OH.

Categories: West, Multifamily, Capital Markets, Marcus & Millichap, Los Angeles