Hello Again To Major Metros?
Supply, jobs key for institutional investors eyeing multifamily according to panelists at the GlobeSt Multifamily conference.
Institutional capital flooded suburban markets as the pandemic shifted workers’ ideas about where they wanted to live, work, and play. But will it continue?
“I think it was a responsible trend,” said Douglas Schwartz of JP Morgan Asset Management at this week’s GlobeSt Multifamily conference in Los Angeles. “It’s smart for institutional money to follow the jobs. Now there’s a lot more supply in those markets so they’ll have a tougher time going forward, but it will even out in the next two or three years. At the end of the day, you have to go after growth, and the Southeast is growing a lot faster than the rest of the country.”
Cityview CEO Sean Burton cautions that “supply does matter,” noting that in many markets where developers swooped in during the onslaught of the pandemic, job growth may not keep pace to absorb those units. He says Cityview prefers major metro areas with strong job growth and jobs that pay good wages – and that includes California, a state that’s increasingly foregone by developers in favor of markets across the Sun Belt.
“There was a narrative about California that everyone was moving out because of taxes and regulations, and I don’t think the data actually shows that,” Burton said. “But it’s good for us that a lot of investors don’t want to be here. We believe California, despite our politics, has a lot of benefits and will continue over the long run to be a good place to be.”
Virtue Investments’ CIO Ritesh Patel agreed, noting that California’s combination of strong multifamily demand and weak supply makes it a solid choice for capital deployment.
“We are not so interested in high growth, high-supply markets,” he said.
Burton acknowledges that from a development standpoint rising costs are very much a concern: in Los Angeles, for example, costs have risen 1% a month for the past few years, which he calls “staggering.”
“On the debt front, it’s not just interest costs you’re thinking about, but also what are your proceeds going to be,” he said. “You have to make sure you have that additional equity for what you’re focused on.”