SAN FRANCISCO-While near-term uncertainty in the multifamilysector pervaded conversations during the eighth annual PCBCMultifamily Trends conference on Wednesday, the industry remainsconfident in the long-term prospects of the asset class, fueled bystrong demographics and continued investor interest in core, urbaninfill properties.

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“This is the worst, most pervasive recession…I have everexperienced in my career,” explained Geoffrey Stack, chairman ofthe event, and managing director and principal of Irvine, CA-basedSares-Regis Group. During a panel at the Moscone Center in downtownSan Francisco entitled, “When and What to Buy, Build or Sell –Experience Talks,” moderated by ALM’s Michael Desiato, Stack saidhe has witnessed five downturns throughout his career.

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Unlike past recessions, the latest downturn was a financialmarkets meltdown that impacted the global economy, explained AsiehMansour, chief economist and strategist for San Francisco-basedRREEF, during her economic forecast. “The massive credit crunch isnot only impacting the real estate asset class, but every assetclass,” noting the capital-intensive nature of the CREindustry.

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“The credit crunch is easing, at least in the US,” said Mansour.“There is some good news out there, despite what’s happening withthe sovereign debt crisis in Europe.” Businesses have startedhiring again, although not at the pace hoped for given the volumeof job losses in the US. The US manufacturing sector is “on thetear” and worker productivity levels remain at an all-time high.“It’s fair to say we have turned the corner,” she said. However,Mansour expressed concern over the inability of small businesses inthe United States to receive loans for operations due tostill-tight lending requirements.

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“Consumer spending has rebounded but will not propel growth,”said Hessam Nadji, managing director, research services in theWalnut Creek, CA office of Marcus & Millichap, “Corporatespending has to lead this recovery and companies are hoarding cashbecause confidence is still shaky.”

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Consumer confidence is trending positive, he added but CorporateAmerica is still hoarding cash due to a lack of confidence in theeconomy and capital markets.

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Apartment fundamentals improved modestly in several majormarkets across the US during the first half of 2010, Nadji added.“Renter household growth projections are strong for the 2011-2015period,” he said, “and multifamily permitting remains stillincredibly low,” particularly in high-barrier-to-entry urbanmarkets.

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“Rental starts have fallen off the table,” said Clyde Holland,CEO of Holland Partners Group in Vancouver, WA, during a panel hemoderated entitled, “Capital Markets and Apartment InvestmentStrategy.” The paucity of new multifamily starts has set apost-World War II low. “We see this setting up a repaid recovery inmany (western) markets from a rental-growth perspective.”

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The top three markets, which Holland selected based on metricsfor demand from Gen Yers and prospects for economic growth, areWashington, DC, Seattle and Denver.

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Approximately 2.2 million people aged 18 to 34 currently livingwith their parents during college will fuel demand for apartments,Nadji noted. “Pent-up demand is starting to get released into themarket.”

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So far this year, effective rent growth has increased on average2%, said Ronald Johnsey, president of Dallas-based Axiometrics. Inthe past two quarters, there have been low lease turnover rates andfewer move-outs to single-family homes. The Northern Californiamarkets of San Jose, the East Bay and San Francisco remain amongthe strongest. In San Jose, Johnsey expects effective rent growthof 14.5% by year-end 2010, an unprecedented figure in the currenteconomic environment.

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True momentum, however, in rental growth and occupancies willtake shape in 2012, explained Johnsey.

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Despite this positive news, uncertainty plagues these short-termfundamental gains. “I’ve never seen so many issues impact yourforecast,” Johnsey said of Mansour’s forecast. He cited the GulfCoast oil spill, sovereign debt crisis, terror attacks and possiblefluctuations in oil prices.

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Political uncertainty is also a concern among those in themultifamily industry. “The taxation situation is too intense todevelop” in this economy, said J. Bradley Forrester, president andCEO of the ConAm Group in San Diego. “Uncertainty is killing usright now.”

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Approved and pending Federal legislation will place a strain onthe industry, said Douglas Bibby, president of the National MultiHousing Council of Washington, DC. The affect of the carriedinterest-rate tax, a pending energy bill and the future of theGSEs, will have significant implications on the future of theindustry. Republicans generally favor dissolving Fannie Mae andFreddie Mac, which could have dire consequences on the industry ifthey gain control of the US House of Representatives next year,Bibby shared.

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Additional concerns surround sustained job growth in the US.College graduates will incur an average of $40,000 in debt in 2010,and they face incredible obstacles when attempting to enter theworkforce, said Nadji.

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“We need (to create) jobs that will employ college kids,” saidJohnsey, noting that those positions are most likely to open up inthe government sector. Expect to see growth in the health andeducation, manufacturing and financial services sectors as well,noted Mansour.

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Recent graduates saddled with debt and struggling to find workin this economy generally relocate to urban areas, even without ajob, noted Robert Gray, senior managing director of RockwoodCapital LLC of San Francisco, during a capital markets andinvestment strategy panel. “Students prefer urban core areas,” Graynoted.

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In fact, urban core properties outperform suburban assets on a10-year basis, citing a chart his firm created tracking rent growthfrom 2000-2010, according to Johnsey. All of the owners anddevelopers speaking at this year’s conference, said they will onlytarget markets with high barriers to entry. “We don’t spend lots oftime in low barrier-to-entry markets,” explained Gray. His firm,Rockwood, for instance, is currently looking at a land acquisitionin one of the West Coast markets with the highest barriers toentry: San Francisco.

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Brian McAuliffe, managing director, acquisitions for RREEF inChicago, echoed that when placing equity in projects, hisinstitution identifies class A markets and class A properties, atrend that will likely continue, especially among REITs andinstitutions, in the coming years.

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Natalie Dolce

Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.