Echo Boomers Lead Urbanization of America

IRVINE, CA-The multifamily market continues to evolve as the pool of renters shifts and changes. GlobeSt.com recently spoke with Kevin Kaberna, senior managing director of investments for locally based Greystar, regarding those shifts and changes and what's coming down the pike for multifamily.

GlobeSt.com: What emerging trends are you noticing in the multifamily market?

Kevin Kaberna: With the emergence of the largest renter cohort in US history comes an evolution of apartment product that caters to their needs and wants. We anticipate the Echo Boomers will continue to drive the urbanization of America with a preference for living in a work-play location with close proximity to employment, restaurants and entertainment. The location has clearly become a top amenity of any apartment community.

Technology will become an even more important factor as the apartment renter now is technology driven with regards to housing options, leasing and payments. The need to integrate technology into their housing experience will become even more paramount going forward. Another result of this trend is a more knowledgeable renter; that is, they know their options, and they know the price of their options. An increase in market efficiency places even more importance on landlords' ability to set themselves apart through best-in-class service, an attribute that Greystar sees as a key advantage given the operational platform and expertise.

GlobeSt.com: What are the biggest challenges that multifamily owners are facing now and in the near future?

Kaberna: The most straightforward way to assess risk in the apartment space is to decide whether or not greater danger lies on the demand side or the supply side of the equation. At this point, we don't see disruption to the industry coming from the demand side. Attractive demographic trends and a recovering employment landscape, particularly for renter-aged households, should continue to drive strong household formations and demand for apartments.

As many headlines suggest, the biggest risk to the industry comes in the form of new supply. As we look out over the near to medium term, we do expect some impact to performance differentiated by market; however, we don't at this time foresee an oversupply issue particularly given development headwinds in the form of increasing costs and financing constraints. Over the long term, supply risk will be dependent on whether or not capital providers can maintain and provide discipline so developers do not oversaturate the market.

GlobeSt.com: How long do you believe multifamily properties can continue to be so highly desired by investors?

Kaberna: The US multifamily allocation has become a necessary component of any institutional portfolio driven by strong, consistent performance and long-term tailwinds. Unlike office and industrial, multifamily stays occupied and does not require uneven capital expenditures, making cash flows significantly more predictable. The aging of the Echo Boomers into prime rental age, coupled with a clear preference for the flexibility renting provides, should continue to fuel sustainable demand for apartment communities in the future. This secular trend should continue to drive growth above inflation while providing proven downside protection as evidenced during the global financial crises.

When adjusted for risk, multifamily provides an attractive alternative to other asset classes. As long as these characteristics are intact, we don't see any paradigm shift in the near term. While investors may eventually shift tactical allocations into more cyclically geared asset classes, US multifamily certainly has proven its place within portfolio is undeniable.

GlobeSt.com: Given the high price of land and its scarcity, particularly in California, is adaptive reuse of other properties into apartment buildings likely to be a big trend?

Kaberna: Actually, it's the opposite in many areas, particularly downtown L.A. where most of the buildings that were best suited for residential conversion have already been transformed. Generally, adaptive reuse-type projects are more expensive because they are riskier and more time-consuming to build out. They often require specialized contractors with expertise installing plumbing, electrical and mechanical infrastructure in vintage buildings. This was easier to justify when these buildings were vacant and had little value. Now, with the rise in property values and construction costs, adaptive reuse projects have been increasingly difficult to pencil to suitable returns.