What Could Cause Apt. REITs to Be More Active?

Wagner says households are renting for longer periods of time as Millennials marry and have children later in life, but recent data points to a potential plateau in the age of first marriage.

NEWPORT BEACH, CA—If Fannie Mae and Freddie Mac were to pull back or exit the multifamily-lending space, apartment REITs could see their cost-of-capital advantage grow, an incentive for them to increase their participation, Green Street Advisors analyst Conor Wagner told attendees at the company’s latest webinar Tuesday, “What’s in Store for Apartments in 2017 and Beyond?” The webinar focused on how the apartment sector’s fundamentals look for this year and into the future.

Managing director Dave Bragg began by talking about real estate asset values in general, saying that the firm’s Commercial Property Price Index indicates that the US property market has enjoyed a robust recovery, with asset values at 27% above the prior peak. However, asset-value growth has slowed over the last several years, with apartment values only up 1%. He said transaction activity will probably slow over the next 12 months, evidenced by the slow start to the year. Slowdown in asset-value growth can be attributed to the flattening out of cap rates. Some primary markets that are late in their real estate cycles are seeing slowing job growth, while widening of the spread between class-A and -B cap rates has been observed in many markets.