Industry Titans Talk Insights, Challenges, and Multifamily Optimism
According to the State of the Industry panel at the GlobeSt. Multifamily Fall Conference on Monday, there is no one worried about three years from now. Everyone is sort of waiting for that phone call saying that they have hit the bottom so they can jump back in, panelists say.
LOS ANGELES—The State of the Industry panel at the GlobeSt. Multifamily Fall Conference on Monday brought together the most influential dealmakers in the U.S. multifamily real estate market to cover key trends, major market shifts, the impacts of inflation on the multifamily sector and more.
Moderator John Sebree, Senior Vice President and National Director of Multifamily at Marcus & Millichap, took center stage with a question that had been on everyone’s mind. “Velocity has dropped off substantially, and there seems to be a lot of liquidity on the sidelines. What do we think it will take for some of this money to start getting back into the marketplace/?”
Jerome Fink, Managing Partner of The Bascom Group LLC, was quick to share his perspective. “The past year has been pretty devastating for our business,” he began. “There has been a huge increase in borrowing costs combined with flat or negative rent growth. Not only high interest rates, but the leverage is low. That is why prices are down across the market.”
Kurt Houtkooper, CEO of Hamilton Zanze, chimed in with a touch of optimism. “We are actively engaged with institutional partners and trying to push them off the sidelines,” he said. “I think they are waiting for the volatility in the bond market to settle down. But they do have capital and want to deploy it. On the private capital side, there isn’t much in the market right now. We aren’t seeing a lot of private capital that wants to be deployed immediately. They can find similar returns in other areas right now.”
According to panelist Kitty Wallace, Senior Executive Vice President at Colliers, “It is the institutional capital, and they are sitting on the sidelines. We have had to be creative on getting deals done. There is a lot of smart capital who is out there looking now and saying they are going to jump in.”
Larry Taylor, Founder and CEO of Christina, who focuses on specific in-demand markets in West Los Angeles, said that when a property becomes available on the West Side, there is high demand because “you aren’t going to get the opportunity to buy it again,” he said. According to Taylor, “For 50 years, none of the properties have sold for less than it was purchased for. In a market that is supposedly asleep, there was tons of competition. If you have the best real estate in the best location, people will be compelled to buy it. People are like sheep, and investors follow trends, and it is challenging to be able to say to investors, ‘Hey, it is a great time,’ but we are competing with other buyers who have capital. People might be on the sidelines in other locations, but they are never on the sidelines for the best when it becomes available.”
According to Sebree, “nobody is concerned about the market in three years.” He added that “Everyone is sort of waiting for that phone call saying that they have hit the bottom so they can jump back in.”
Switching gears, he asked about operations and said that “without a doubt, the property management aspect of the equation will be more important going forward than it has been in the past few years.”
Taylor mentioned that insurance costs, too, has been one of the more challenging aspects of existing assets. “We have also been focused on the after tax benefits of owning real estate, which is why we see incredible competition for assets even with the challenges. One thing I would also point out is all of these State laws cut into the ability to operate effectively but the challenges abate because in February, at least we will be able to raise rents 7% on our properties which is the first raise since 2019.”
Overall, the State of the Industry panel seemed optimistic about what the future will bring, and said that while an uncertain future still looms on the horizon, those determined to forge ahead will come out on top. Check back with GlobeSt.com for more from the Multifamily Fall Conference. And check out the below stories from the event that you might have missed.