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Multifamily Market Growth Stable

November 20, 2013 Leave a comment Go to comments

Experts recently discussed the stability and sustainability of the multifamily real estate market on the “Commercial Real Estate Show,” agreeing that the market will continue to grow at a moderate pace. Millennials who are entering the job market that seek mobility are expected to keep rents tight while many voiced the opinion that there is no fear of overbuilding in the sector. The experts noted that growth is slowing, but moderation is also a good sign that things will continue to improve rather than bubbling and crashing. For more on this continue reading the following article from National Real Estate Investor

The multifamily market, the so-called darling of  commercial real estate, isn’t losing that title any time soon. The third  quarter demonstrated once again how stable the sector is, as occupancy  held steady and rents continued to rise, albeit at a more normal pace.

Those were a few of the points made during the most recent episode of  the “Commercial Real Estate Show.” My guests and I discussed the factors  affecting the sector, property-level performance expectations and investment strategies for this point in the cycle.

Millennials enter the job market

The continuously improving economy and job market are sustaining the  multifamily market’s success. “The people who are getting jobs are the  young professionals that typically rent an apartment instead of buying a  house,” said Ernie Eden, vice president of Bull Realty’s Apartment  Group.

“Demographics are the key  factor driving the multifamily market,” said Jay Parsons, national  market analysis manager for Real Page Inc. “The Gen Y Millennial renters  will eventually buy homes, but not until later. They are getting  married later and prefer the mobility that living in a rental gives.”

A large pipeline of upcoming college graduates will soon be looking for  apartments as well, Parsons added. “Apartment demand should be strong  during the next decade due to strong demographics.”

More normal occupancy and rent growth

The multifamily market is on pace for a similar year to 2012 in terms  of absorption and rental rates, Parsons said. In the third quarter,  47,000 units were absorbed nationwide for a year-to-date total of  163,000, he added. Rent grew by 1.1 percent quarter-over-quarter for  total rent growth of 3.2 percent year-to-date.

“We are getting back to a more stable multifamily market,” Parsons  said. “We are going from a peak market to a more normal growth pattern.”  While class-A properties lead the way coming out of the recession,  class-B properties are experiencing an uptick in rents as well, he  added.

“Class-B properties, more  specifically our suburban portfolio, seem to have really accelerated  rent growth,” said Mike Altman, chief investment officer of Cortland  Partners. “Those markets have had less new construction, so demand that’s incrementally coming to the suburbs is pushing rents upward.”

The class-B and -C properties are where many investors see upside at  this point in the cycle. “Demand at the top end [class-A] is now full  and has started shifting toward the B and C properties. That’s led to  bigger rent growth in the middle and lower tiers of the market,” Parsons  said

Overbuilding? Not a fear here

While some fear overbuilding, Parsons said construction has essentially  flat-lined, and the overall current level is sustainable. The only  overbuilding concerns are relegated to specific markets,  even then only slowing absorption in those areas. “The problem is that  real estate is a ‘follow-the-leader’ business,” he said. “Everyone is  going into hot urban, core submarkets right now and targeting Gen Y  renters, so everyone is building the same thing.”

Some companies, like Cortland Partners, prefer to develop in secondary  markets to obtain what they believe is a sufficient return for the added  risk. “We are going into markets like Lake Charles, La.; Savannah, Ga.;  Fort Worth, Texas; and Birmingham, Ala., where we know we can create a  yield that is 250 basis points greater than the cap rate in the market,  which is a sufficient return,” Altman said.

Time to buy?

“This is a great time to buy apartments,” Eden said. “We are seeing people all over the country express interest in investing  in apartments, even if they haven’t before. Interest rates are  historically low. Buyers can purchase properties with cash and still  have time to reposition and refinance while interest rates are low.”

Class-B properties with a value-add component are at the top of the  list for investors, Eden added. In fact, Cortland Partners, which  prefers class-B assets with a value-add component, has been very active  in 2013, acquiring 22 properties year-to-date, Altman added. “We started  the year with 9,600 units and think we could acquire as many as 10,000  new units by the end of 2013, doubling our portfolio in size in one  year,” Altman said.

Apartments are  still the leading sector in commercial real estate. Based on the  discussions on the show about the future of the sector, multifamily is  still a safe bet. For more tips, strategies and market projections  including cap rate expectations, you’re invited to listen to the  apartment show at CREshow.com.

Michael  Bull, CCIM, is the host of the nationally syndicated Commercial Real  Estate Show and founder of Bull Realty Inc., a U.S. commercial real  estate sales and advisory firm headquartered in Atlanta. You’re invited  to connect with Michael on Twitter and LinkedIn.

Reprint from Nuwireinvestor.com

Categories: multifamily, Uncategorized
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