“We have had to let things go,” Greg Campbell, senior managing director at TruAmerica Multifamily, said on the Money at Play: Investment Strategies for 2018, 2017 and Beyond, panel at RealShare Apartments. “It was much better in 2015 and 2016.” The panel, moderated by Marc D. Renard, vice chairman of global capital markets group at Cushman & Wakefield, included Kevin Kaberna, senior managing director at Greystar Real Estate Partners; John Kennedy, managing director of the western region at Barings Real Estate Advisers; and Chris Hunt, senior director of acquisitions at New York Life Investors.
Kaberna added that the limited opportunities have driven up pricing, and, as a result, they won't get caught in a bidding war. “We won't win,” he said, adding that their partners appreciate the firm's conservative approach. Kennedy agreed that it is difficult to be a buyer in this market. “As a buyer, it is hard to compete,” he said. “We aren't buying a lot of core apartments, because the returns aren't there.” One major challenge is buyers putting large non-refundable deposits on properties. Kennedy says that adds an extra layer of competition.
In general, off-market deals are preferred because of the competition, but there is risk with off-market deals because pricing can also be driven up. All of the investors on the panel agreed that they prefer brokers “under whisper” the price tag in an off-market transaction, but Hunt said that the always underwrite above the quote. “An under whisper is not that credible,” he said. “I think it is good guidance, but we tend to write to the higher end of that.” Kennedy added, “Most of us have a sense of how much something will trade.”
Everyone seemed to be finding opportunities in different areas. Campbell's company focuses on workforce housing, explaining that it is where 80% of renters want to live—so the demand is high—and no one is building new class-B housing. Kaberna says that there is the most liquidity in urban assets over the long-term. “We are fans of the suburban markets, but you need to be careful because those spreads will compress,” he said. “Ultimately the urban markets tend to be more liquid. Right now it is safer to be in the urban markets.” However, Kennedy's firm is focusing on what he calls near-suburban markets, which are markets that are close to urban cores. “I think a great opportunity is in the near-suburban markets that don't have a lot of development competition. You are going to find these opportunities where people are moving away from the urban core, but don't want to live way out in the suburbs.” He added that only time will tell if those markets will outperform overtime.
Looking ahead, the panelists said that they would continue to remain conservative and look for quality assets that would withstand another downturn. “We are continuing to measure risk and make assessments,” said Hunt. Multifamily will remain a preferred asset class in the future, especially as investors look for stable ways to place capital. “Multifamily is a great alternative to fixed income, because you can buy at a 4 or 5 cap and that compares very favorable to a 2% bond,” said Kennedy. Demand to be a renter by choice and a shift away from homeownership are also ensuring future activity in the market. “I think it these factors that bode well for multifamily.”
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Kelsi Maree Borland
