More than 2,100 multifamily executives gathered in Orlando last week for the 2020 Apartment Strategies Outlook Conference, a data and insights-focused event preceding our members-only Annual Meeting.
With an eye toward the next 12 to 18 months, the conference focused on how multifamily leaders are responding to complex market dynamics with respect to capital accumulation, development strategies and growing revenue and NOI. Here are some of the top takeaways.
Multifamily Investment Outlook Remains Strong for 2020
Mark D. Gibson, CEO, Capital Markets, for the Americas at JLL kicked off the conference, outlining 11 themes for 2020.
Chief among them was that, despite some moderating economic growth prospects, the year ahead looks quite positive for multifamily. Investors are upping their allocations for CRE and the investor pool is increasingly diverse, meaning debt and equity remain plentiful. However, with so much capital in the market, pricing remains under scrutiny, hold periods are extending and investors are taking more targeted approaches.
Apartment Demand to Drive Lots of New Construction in 2020
Capital is not the only thing buoying the outlook for multifamily in the next 12 to 24 months.
There’s an equivalent of a “demographic jet stream” driving apartment demand well into the future; at the same time, today’s apartment residents are “stickier,” not only renting for longer but staying in their units longer. All this adds up to the expectation of a lot of construction activity in the year ahead with some spillover into 2021. “It’s going to feel like everywhere is being built in 2020,” said RealPage’s Carl Whitaker.
Abundance and Diversity of Capital Suggest Upside Risk for 2020 and Beyond
Risks to the industry are cropping up everywhere, according to leading multifamily executives from Gables Residential, Green Street Advisors and Marcus & Millichap. Labor shortage, technological advancements and vulnerabilities, changes to the GSEs’ lending, sustainability challenges and more have the potential to disrupt the industry. But even with a recession and the spread of rent control topping the list of industry risks, leading executives saw some silver linings, mostly in the growing depth and diversity of multifamily’s capital sources.
“We will have another recession at some point. No one can predict a downturn,” said Marcus & Millichap President and CEO Hessam Nadji. “But the most successful people will continue to buy and sell through it. I think we are at the cusp of seeing more capital coming into multifamily.”
And increasingly it’s looking like a lot of that capital will be coming from overseas, which is a good thing for today’s affordability challenges. “Foreign investors care less about rent control because they have lived with it in many of their countries for years,” explained Gables Residential President and CEO Sue Ansel.
Debt and Equity Markets Remain Very Liquid
The availability of debt remains a hallmark of this cycle. According to a panel of capital market experts, available debt for the industry has doubled since 2015—an amazing growth story that reflects the sector’s strong fundamentals. With this tremendous liquidity, most executives remain bullish on the lending market.
Similarly, there continues to be strong demand for multifamily from the equity investor standpoint. Many see the sector as relatively low risk, but with more attractive returns than bonds. Moreover, demographic trends are favorable, and supply is largely in check. Finally, foreign capital continues to flow into the industry from a number of sources that were not nearly as significant only a few years ago.
"Build to Core" Takes on New Meaning in a More Complicated Development Environment
Development has become significantly more complicated as uncertainty around costs—materials, regulatory requirements, infrastructure, property taxes and more—has grown. Developers are having to strike a balance between where residents want to live and where their capital partners want to invest, often having to compromise on yields or target alternative market segments.
Build to core has evolved in the process; whereas “it used to be the highest-end urban product you can build, now it’s a return profile,” commented one panelist. Similarly, where the core resident has traditionally been “singles, mingles and jingles,” developers are now looking closer at older renters.
Branded Multifamily Is the Next Big Thing
Consumers today view their living space differently. Real estate is now a consumer good, one that residents see as a reflection of their personal brand. As communities are being purposefully designed, planned and built for new living models and experiences like homesharing, traditional multifamily firms need to be prepared to decide if and how they want to participate with the goal of creating new value for their assets.
The word from the panel was, “In three to five years you are going to see branded multifamily. It’s going to be a lot like the hotel landscape and that brand is going to mean something in terms of the consumer.”
Second Annual Women’s Event Draws 450+ Executives, Features Two Soccer Legends
NMHC’s second annual Women’s Event kicked off the week’s events. More than 450 multifamily executives attended the event, which included a roundtable discussion on capital and investment trends, a panel on corporate board leadership and high-level networking. The highlight of the event was NMHC Officers Sue Ansel of Gables Residential and Julie Smith of The Bozzuto Group interviewing Abby Wambach, World Cup champion and two-time Olympic gold medalist, bestselling author and inclusion advocate and Jill Ellis, coach of the 2019 and 2015 World Cup champion U.S. Women’s National Soccer Team.