SAN DIEGO—For a product type that has been the number one pickof investors for many months, there are two trends emerging thatare likely to reshape the multifamily industry once more.

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Old To Young

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The first is a generational shift from old to young.

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There was a tremendous amount of multifamily housing built inthe late 1960s and early 1970s to accommodate the Baby Boomers whenthey first entered the housing market as renters. Manyapartment investors built their portfolios at that time.

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Today, these apartment investors are passing these portfolios onto their adult children, fueling an increasing need for investoreducation and increased portfolio management.

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The fact is, real estate investments are inherently illiquid,and long term investments require an understanding of how citiesgrow and change over time. Multifamily investment advisors mustview demographic trends and examine neighborhoods not as staticentities, but as ever-changing environments.

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For example, Voit is working with a client in San Diego whoinherited a number of contiguous older buildings in an exceptionallocation. The property, which was originally acquired by asophisticated investor/developer, was poised for redevelopment, asthe surrounding area had substantially improved since itspurchase.

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The new owner, however, was not interested in developing theproperty, and was uncertain of the most profitable way to proceedwith the investment.

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The Voit team advised her that the market for infill developmentsites was just beginning to rebound from the recession, andrecommended that she hold the property for one year to realize itsrebounding value.

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The client agreed and, after holding the property for anadditional year, Voit assisted her in completing a 1031 exchangefor a well-located, well-constructed and well-designed apartmentcomplex that only required cosmetic upgrades in order to repositionthe asset in the rental market.

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Today, the asset is generating a generous cash flow.

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As a new generation of investors inherits properties andportfolios, an increased focus on education will be necessary toensure that these investors can best leverage the dynamics of themarkets in which they are investing.

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Gen Y Finally EntersThe Rental Pool

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The second trend reshaping the multifamily market is a directresult of improved market fundamentals. Increased job growth overthe past 12 months is contributing to a shift in the behavior ofGeneration Y renters, who are beginning to make a more pronouncedimpact on the rental market. This activity will certainlyaffect multifamily investors and owners over the next three to fiveyears.

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As employment numbers rise, many Gen Y renters are finallymoving out of their parents' homes and establishing households,often for the first time.

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In addition, these renters are demonstrating an eclectic tastein the variety of neighborhoods in which they are choosing tolive. The fact is, 20 years ago there was a targeted focus oncoastal locations and newer suburban communities. Today'srenters, however, have a more adventurous spirit, and are morewilling to pioneer edgier neighborhoods than their generationalpredecessors.

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Two factors driving these tastes are higher transportation costsand a desire to have services and activities in closer physicalproximity to housing. The latter is being driven by abehavioral propensity to spend more on lifestyle, rather than savefor a down payment.

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The mentality of Generation Y renters is likely to continue tofocus on this more adventurous style of living, and is alreadycontributing to a change in the way new apartment properties arebeing developed.

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For investors, this means that properties in close proximity tolocal transportation nodes and services will deliver deeper valuein the years ahead.

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Overall, as the multifamily market continues to shift into itsnext iteration, it is important for commercial and investment realestate professionals to focus on the big picture for theirclients. By focusing on the dynamics of each market, asopposed relying solely on past and current asset performance,commercial and investment real estate advisors will be able toguide clients not only to their next investment, but to anunderstanding of how these investments will grow and change overtime.

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Robert Vallera is a SVP and apartment investment specialistin Voit Real Estate Services' San Diego office. Contact him at[email protected].The views expressed in this column are the author's own.

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