BOCA RATON, FL—Barring an economic meltdown—or continued stagnancy—2012 is on track to be a great year for multifamily. That was one of the points speakers agreed upon at the National Multi Housing Council’s 2012 Apartment Strategies Conference yesterday. The conference immediately preceded NMHC’s Annual Meeting, which drew over 2,100 attendees to the Boca Raton Resort & Club here.
In the opening session moderated by Mark Obrinsky, NMHC’s vice president of research, Jay Lybik, vice president of market research for Equity Residential, and Ron Witten, president of Witten Advisors, discussed what’s next for apartment recovery.
The decline in the homeownership rate has benefited the sector, but not to a great extent. These days, it’s demographics and household formation that are driving demand for apartments. And even if the for-sale housing market improves, the ownership rate likely won’t hit the 69% peak again but rather, stay in the 64% to 65% range. Additionally, young adults—especially single women—are putting off marriage and home purchases in favor of renting.
Still, without economic growth, demographics only go so far. The good news, the speakers noted, is that 60% of the job growth that’s occurred in the past two years has been among 20- to 34-year-olds. And while jobs are growing, incomes aren’t; one speaker noted that whereas the average 30-something male earned $40,000 in the 1970s, today he’s more likely to earn $35,000. Add to that student loan debt—averaging $25,000 for recent grads—and the pressure on young adults intensifies. That may make it more difficult for them to pay high rents, but it also means they won’t be able to purchase a new home, either.
The other market positive is its supply. Some 120,000 units are lost every year because they are obsolete or were converted, and due to minimal new deliveries for the past two years, total inventory has actually decreased. According to the analysts on the panel, the industry needs to produce 250,000 to 300,000 units to meet the demand.
Developers may start chipping away at that number in the near future, according to speakers on the financing panel, who observed that there’s pressure building up among commercial banks to get back into construction lending for apartments. The session, moderated by CBRE Capital Markets president Brian Stoffers, featured Scott Anderson, senior director and head of multifamily real estate asset management for TIAA-CREF; McKinley CEO Albert Berriz; Brad Blash, chief business officer forCrossbeam Holdings; NorthMarq Capital CEO Ed Padilla; and Michael Tompkins, managing partner for TriBridge Residential.
Yet while they may be more inclined to lend, Blash said banks will be very selective with markets and borrowers, and won’t rush into secondary or tertiary markets. He indicated that Crossbeam is looking at “smart” secondary markets with healthy household formation, such as Nashville, Portland, OR and Raleigh, NC. Berriz, meanwhile, said McKinley favors tertiary markets like Augusta, GA; Columbia, SC; and Norfolk, VA, which have strong education or military industries.
The panelists stressed that the Fannie and Freddie are critical to the apartment market, where they’re actually seeing great success; since their takeover, the GSEs’ multifamily programs each made about $1 billion. However, issues at each institution’s leadership remain a concern.