What Multifamily Developers Need to Know About Economy

Commercial real estate experts share thoughts on the economy at the RealShare Apartments East conference.

MIAMI—America’s economic growth came in at 1% in the fourth quarter of 2015, but could a recession hit in 2016? Are multifamily developers setting themselves up for stalled projects or major concessions with new construction? How do the Baby Boomers fit into the equation? During a RealShare Apartments East panel called “Economic Update: The Boomer Wars,” Brian Bailey , senior financial policy analyst for commercial real estate at Federal Reserve Bank of Atlanta , moderated a discussion between two leading experts with differing opinions. The panel featured KC Conway , senior vice president of SunTrust Bank , and Greg Willett , chief economist at RealPag e. “We see some fairly minor slow down in the economy in 2016-2017,” Willet said, pointing to slower job growth. “What’s important is what kind of jobs we are producing and what is the nature of the slowdown. The net number comes down primarily because a bunch of Baby Boomers are reaching retirement age. We are still adding jobs for the Millennials at roughly the same pace we have in past years. That group is heavily renters and keeps the multifamily market strong.” Conway didn’t exactly agree. In fact, he’s not optimistic. He said the market is seeing what he calls downshifting. Although he wouldn’t go so far as to say the R-word (recession), he insisted the downshift is much more concerning than many people are willing to admit. “The GDP is declining,” Conway said. “There’s a tremendous downshift in the GDP. It’s not just an energy story. What people are forgetting is that the energy story includes all the piping and equipment that’s going into fracking …  If the Fed raises interest rates, jobs GDP goes down. If the GDP goes down, job goes down.” Willet, though, is pointing back to the Baby Boomer market. The oldest in that generation are turning 70 this year. “You look at the economy as a whole and it’s driven by consumer spending,” Willet said. “People our age point are at the top of the food chain in terms of current earning power. If you and I open our 401k statements and freak out and stop spending that changes the world in a big way. I don’t think we’re at the edge of the cliff. I think we are just going to pull it back a bit.” Stay tuned for part two of this article, in which Willet and Conway debate the expectation for multifamily rent growth in 2016. For more RealShare Apartments East coverage, read: How Volatile Is The Multifamily Lending Market? and CRE Gurus Get Inside The Multifamily Capital Stack .