RealShare Apartments Capital Markets Panel
The apartment sector continues to see an influx of capital activity due to healthy property operations and potential demographic-driven upsides. While primary markets accounted for the majority of dollar volume and deals, secondary and tertiary locations also showed large gains in investment.
At RealShare Apartments last week, we heard experts on the best strategies to find yield, how they're structuring deals and their thoughts on the direction of interest rates and overall housing cycle, and about how their strategies are evolving with the competitive market conditions.
Moderated by Marc Renard, vice chairman of the capital markets group at Cushman & Wakefield, he asked panelists if real estate has performed better than expected and how there has been a mentality to take some chips off the table, perhaps at the wrong time. Bob Hart, founder, CEO and president of TruAmerica Multifamily, said that “a lot of people have achieved results in a short period of time,” and panelist Brett T. Kahn, executive director of J.P. Morgan Asset Management of Global Real Assets – Americas, said that “It isn't always a bearish sign to take some chips off the table.”
Chris Graham, managing director of the Real Estate Group at Blackstone, added that real estate is a great investment that yields decent solid returns. “I think there will be a shift in pension fund core money going back into the space.”
When asked about the performance of urban markets versus suburban assets, Kahn said that it is important to keep in mind that suburban isn't a one size fits all. “Micro-location demographics within suburban markets play a critical piece,” he added. “Most of the major suburban markets have outperformed their urban counterparts.”
But he continued that there is opportunity and money to be made in both spaces. “Brochure friendly assets will gravitate to urban core as a result,” he said, noting that urban core feels a bit overheated. “We have been gun shy at buying in at peak pricing. For some that have been neglected, we think the playing field is pretty good… If you have a long-term mission, the surburban story makes sense.”
When asked about tech drivers as a catalyst to rent growth in certain markets like Seattle and Northern California for example, sources said that it is a cyclical market. Tim Hennessey, managing director of PGIM Real Estate, said that in Northern California, there are a lot of political pressures where you have this outsized affordability requirement that can effectively shut down developments. “If you make your way around the Peninsula, there are ballot initiatives.” As far as adding supply to these markets, Hennessey said that tech companies are expanding and are increasing their footprints. “Their need for housing is so big they are taking housing into their own hands.”
According to Hart, the biggest threat to urban growth is a lack of public policy that is leading to ballot initiatives. “That could really stifle new development,” he said. “That is something the industry as a whole needs to think about in terms of public policy.”
When discussing the negative rent growth in San Francisco, Kahn said that if you look across the West Coast portfolios, aside from San Francisco, the growth is there. “It is a deceleration from the last couple of years, but all things considered, we feel good.”
Kahn continued that occupancy rates dipped, but fundamentals looks good. Retention rates are also good, he said. “It is remarkable we are retaining as many as we are,” he said. “We have been able to push up new leases up 5%.”
Stay tuned for more coverage from the RealShare Apartments event.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
