Multifamily Maintains Its Swagger

WASHINGTON, DC—A company with 110,008 apartments would rank high in the National Multifamily Housing Council's annual NMHC Top 50, released Wednesday, and in fact the largest REIT in the roster, Equity Residential, owns slightly more than that figure. Yet 110,008 is the total number of units sold off in 2014 by 20 of the 50 leading multifamily owners, says Mark Obrinsky, SVP of research and chief economist at NMHC.

Even Hunt Cos., which retained the top spot, shed 8,844 apartments last year. That still leaves the El Paso, TX-based owner with 244,451 units and a lead of more than 100,000 apartments on the second largest owner, Boston Capital, which cut 13,581 units from its portfolio. Last year's third-ranked firm, AIG Affordable Housing, slipped to fifth place after dropping a net 14,417 units, NMHC says.

At the same time, the ranks of top 50 managers, led by Greystone Real Estate Partners with 393,079 units, set some new records last year. The mean and median portfolios of managers in that group hit new highs, as did the combined portfolios of the top 50. At 2,941,939 units, the tally set an all-time high as well as 3% increase over the previous year.

Also reaching a high not seen in nearly 20 years was the gap between the combined portfolios of NMHC 50 Managers and NMHC 50 Owners. The largest difference since 1998 at 154,270 units, it underscored the growth of managerial portfolios.

Such growth does not occur in a vacuum, of course. “While one might expect the apartment industry expansion to have reached its peak, we are seeing the opposite,” says Obrinsky. “Renter growth remains at historic highs and for the fourth time in the last five years, we saw an increase of more than one million new renters.”

Over the past decade, in fact, the number of renters increased by more than eight million, the highest such figure on record dating back to the 1960s. Meanwhile, says NMHC's report, the homeownership rate dipped further, ending the year at 63.9%, the lowest level in 20 years.

“Many of these new renters moved into small multifamily or single-family homes, in part because there weren't more apartments available,” according to NMHC's Top 50 report. “New construction did increase to meet this demand.”

Starts of larger multifamily homes of five or more units rose to 344,000, the highest level since 1988. The amount also falls right in the middle of the range NMHC estimates is needed each year just to keep up with new demand, as well as to replace units lost due to destruction and deterioration. Completions, which have recently lagged starts by an average of 18 months, increased to 253,500 last year, just below their level in 2009.

The ramping up of building didn't result in an apartment glut. “Evidence of tight markets was widespread,” according to NMHC. “Absorptions of investment-grade apartments rose by 51% to 251,745, the most since 2010” and the second highest level since 2000. This absorption most likely would have been higher if more apartments had been delivered in the past year.

The national occupancy rate edged up even further to 95.4%, 330 basis points higher than the low point seen in '09. “Even as new construction ramped up, same-store rents actually accelerated over the course of the year, finishing 2014 at an average 4.6% higher than in 4Q 2013,” the report states.

Looking ahead, a semiannual Urban Land Institute forecast released Wednesday found that a consensus of 43 real estate economists and analysts predicted a tapering in rent growth in the next few years. The ULI forecast also projected that multifamily vacancy would rise from its current 4.6% to 5.3% by the end of 2017, a number that's still below the 20-year average of 5.4%.