Can One Complex Accommodate All?

PALM SPRINGS, CA—Building apartment communities that satisfy both Millennials and Baby Boomers has its challenges, said speakers at NMHC's Apartment Strategies Outlook Conference here last week. Speakers on the “Putting it all into Perspective” panel made sense of the information that came out of the previous six panels at the conference and how it impacts the industry's bottom line.

Moderator Doug Bibby, president and CEO of the National Multifamily Housing Council, which hosted the conference, asked panelists if we're in a normal multifamily cycle or a new normal. Allina Boohoff, executive director of J.P. Morgan Asset Management, said “The new normal is new until it's not. It's the same as it was in '99 and '00 before the dotcom bust.”

Kris Mikkelsen, managing director of Engler Financial Group LLC, said there's comfort on the operational side that the 24- to 25-year-old cohort is strong, and Max Peek, SVP acquisitions for Waterton Residential, said the market is always cyclical. “Conference attendance is strong, which is an indicator that everybody's feeling good. Everything's becoming interconnected.”

Bibby asked if, since FHFA and HUD are trying to get more people buying houses, the multifamily sector needs more regulation. Ricardo Rivas, CIO of Allied Orion Group, said the government will continue to tinker, and the other panelists agreed that more regulation is not needed.

To that, Bibby asked if Millennials are going to be like their parents and buy houses, and Mikkelsen answered, “Their overall patterns will probably mirror their parents', but they're taking their time to meet the right person and start a family.

Boohoff pointed out that when Baby Boomers were coming of age, cities were not nearly as desirable places to live as they are today “When our parents had kids, there was urban decay. Now, they have great amenities. There's a reason why people are staying in the urban core.” Mikkelsen pointed out the rapid price appreciation in infill markets in Atlanta as an example of multifamily strength among Millennials there.

Peek added, “Millennials have different needs than their parents did. They value walkability, amenities and transportation. If you have that and you have good schools, they will come. It's the urbanization of urban markets and brining the city to the suburbs.”

The question arose of whether the cohabitation of Baby Boomers and Millennials in one apartment building is working, and Boohoff said, “The younger generation is not as respectful of the older generation that wants to enjoy peace and quiet—they want to party all weekend.”

Next came the question of overbuilding. “The number of projects with longer-term holds being built is greater than in the past,” said Mikkelsen. “There's not much being built that will be up for sale any time soon.”

Regarding competitive pricing, Rivas said, “We look at comps, not just cots. Otherwise it wouldn't make sense to do deals.” Boohoff added, “Everything is being traded at record numbers, and the tax assessors are getting very smart. Taxes are going up higher than NOI.” Mikkelsen said, “There's a level of sophistication that makes it difficult to get deals done.”

Boohoff also pointed out there is an unprecedented amount of money being invested in multifamily, including foreign capital, and Mikkelsen said, “There was an international capital flow into our market like never before in 2014. There's dependability of cash flow.”

Bibby also asked about the strength of the urban core vs. the suburbs, and Mikkelsen said, “There are deals in every market or submarket that are worth a look. It's difficult to make a broad brushstroke about markets.”