CHICAGO—Ten apartment markets that bear watching by investors,and each for different reasons. In Denver, for example, a keyfactor is the rapid job growth, while in Dallas it's the fast paceof new construction. One thing investors ought to keep an eye onfor each of the 10 markets—Austin, TX; Boston; Houston; KansasCity, MO; Las Vegas; Portland, OR; the Research Triangle in NorthCarolina; and Tucson, AZ as well as Dallas and Denver—is “theemployment rate as it relates to multifamilydevelopment,” Reid Bennett, Chicago-based nationalcouncil chair of multifamily properties for Sperry Van NessInternational, tells GlobeSt.com.

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In many of the MSAs which Bennett tracks on a monthly basis,“We're seeing an influx of jobs in many sectors, but we're alsoseeing a different effect” in many of them. Atlanta and Dallas, forexample, have comparable numbers in terms of brisk employmentgrowth, “but Dallas has 6,500 more apartment units that they'rebringing to market. It's interesting watching the employment rateas it relates to the number of units being brought to market.”

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With the uptick in employment a more recent phenomenon in manymarkets, the development process may not have caught up yet, giventhe time it takes to go through the permitting process and line upfinancing. That's coinciding, Bennett says, with “the perceptionamong the younger generations that renting is better,” even ifthey're in a position to opt for home ownership.

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Along with a long-term trend among 24- to 40-year-olds to preferrenting to owning, there are also collegians who graduated duringthe recession and were forced to live with their parents, anddivorcing spouses who couldn't afford separate apartments. With animproving economy, “That's all changing,” says Bennett.

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At the same time, though, “We are being very mindful of a numberof MSAs that are bringing a substantial amount of product to themarket.” In April, for example, 453 multifamilyconstruction permits were issued nationwide, a 22%year-over-year increase.

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Investors are keeping an eye on pricing, caprates and interest rates and the relationship among thethree. “In Chicago, some of the newer multifamily developments areasking $350 per square foot,” says bennett. “That's fine as long asinterest rates remain where they are for the foreseeable future.But as interest rates tick up, cap rates are going to follow.”

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Pricing is likely to remain strong for trophy assets in majormarkets. However, Bennett notes that investors have increasinglybegun to chase yields.

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“On deals in the major metros, you have anywhere from 25 to 40bids,” he says. “When that asset gets sold, that means anywherefrom 24 to 39 investors that didn't buy a deal.” That's drivingthem into secondary “and, in some cases, tertiary” markets to chaseyield. That's the case, Bennett says, even as the investors areaware that properties in markets outside the primary MSAs aren'tlikely to see as much appreciation.

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Bennett doesn't see cap rates compressing further in theapartment sector. Darling that it may be as an asset class, “in themultifamily world, we're always watching that pendulum. And whileright now a lot of the younger generations see renting as a betteralternative,. eventually the pendulum will swing back to where homeownership becomes more attractive.”

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.