Multifamily Fundamentals Are Still Fairly Strong Say Panelists

The GlobeSt. Multifamily national conference kicked off with standing room only, complete with a new agenda at a new venue as some of the most influential dealmakers in multifamily came together to discuss the state of the industry.

LOS ANGELES—The GlobeSt. Multifamily national conference kicked off this morning with a state of the industry panel that brought together the most influential dealmakers in the U.S. multifamily real estate market. The panelists discussed key trends, major market shifts, the impacts of inflation on the multifamily sector, the road to economic recovery, and their expectations for another record year in multifamily.

Moderated by John Sebree, SVP and national director of multifamily at Marcus & Millichap, the panel kicked things off by making one thing clear: while many are trying to figure out if we are in a recession yet or not, fundamentals in multifamily are “still fairly strong.”

Still, it is undeniable that the sector is facing some headwinds.

According to panelist Robert LaFever, managing director of development at Greystar, the company is still actively pursuing deals and are studying macro locations, he said, but is being “much more selective.”

Chad Sanderson, senior principal of business development and acquisitions at the Bascom Group, advised that the industry needs to “buckle up, because there will be pain, but you have to do what you have to do.” He also said it has never been more important than ever to study the characteristics of a particular deal because there are so many moving pieces. “A lot of things coming out on the market right now are just not trading. There are times when you can have a macro approach to markets…you have to be mindful of supply, are there specific sectors that have higher unemployment. If those things are in check, then you are looking at the specific deal… Just getting a loan right now has changed so dramatically and that is driving your underwriting.”

Sanderson added that you have to think about your strategy, think about how to mitigate risk with uncertainty and figure out how to manage your investment portfolio. “Everyone had their thoughts of how things were going to unfold. One camp said that inflation and rates will come back down but then inflation took off even further.”

Next year, the environment should stabilize, especially as interest rates are expected to level off, said panelist Jeff Adler, VP of Yardi Matrix and industry principal of self-storage at Yardi. On the rental front, panelist Adler also recently told GlobeSt.com that “Suburbs in major gateway metros and migration market favorites have seen greater rent growth since the start of the pandemic, but that the direction going forward is more balanced.”

He says that there has been a recovery in the downtown areas back to pre-pandemic levels (except for San Francisco, although rents have rebounded from their previous lows). The spread between urban and suburban living (monthly rental rates) has narrowed, as well as the spread Between Gateway and Sunbelt cities, “although it still exists,” Adler says.

We have seen an incredible shift of people to these tertiary markets, added Sanderson. “I think inflation really caught a lot of people by surprise,” added Sanderson. “We are in this new paradigm where everyone’s mood has really changed.”

We are not going back to the way things were in terms of return to office and renter profile, explained Adler. In terms of demand, it has started to tail down, as the absorption-to-completion ratio in 2022 is a sharp reversal from the strong levels of household formation a year ago. “Many of these renter suburbs belong to the Miami, Washington, D.C., and Los Angeles metros… Suburban living has been rewritten throughout the past decade.”

Kitty Wallace senior executive VP at Collier's, says that while there have been many people leaving the state of California, they are now coming back. “Los Angeles, New York, and San Francisco, have always been top markets but during Covid, they went to bottom markets,” she said. “I look at my international investors, and they might take a lower market return with less risk to be where they want to be…while we have seen movement out of state, many have come back.” She added that “We had unfortunate legislation here in California that impeded our growth during the beginning of Covid, but some of that is coming back because it is where people want to be. We are working with about 15%-20% of buyers now as compared to before.”

 

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