Do Multifamily Investors Face a Less Certain Market?

SAN DIEGO—The multifamily market cycle continues onward, but investors face less certainty in the market. So said panelists at Tuesday’s 2019 NMHC Apartment Strategies Outlook Conference here in San Diego.

As for how investors are eying this shift and what the influence of both supply constraints and deliveries is having on investment fundamentals, panelists on the investment panel say that there hear a lot about the statistics regionally, but at the end of the day, it is key to stay focused on underwriting on each individual asset. According to Steven DeFrancis, chief executive officer of Cortland, said that “If you have a lot of demand growth, you should be able to find a way to still do well.”

Helen Garrahy, senior vice president at Heitman, pointed out that at this time last year, she was worried about supply and is the same way this year. “Supply continues to be a concern,” she said. “We are encouraged by fundamentals, but we are cautious. As we approach the 2019 and 2020, we are anticipating that the downturn will come. We still plan to invest this year.”

At this time last year, Robert Hart, president and CEO of TruAmerica Multifamily LLC, said he was business as usual, but like anything, he said, there is always short winds of caution depending on what is happening at the Federal level.

“Those in this business for the long term, stayed in the game and adjusted their capital returns,” Hart said. “When you look at the demand equation, the model still works. If you do your job right in this business, you can create the value and keep calm and carry on. Until that equation flips, then it won’t work, but right now, it works.”

According to DeFrancis, on the demand side, things look really good. On supply, it is very specific to each individual market. “You just need to be very selective in what you are buying and what location you are building. Underwrite and execute.”

Hart added that his company tries to take a very targeted approach to the market and the deals he looks at. “You have to shop not only for good value but you also have to do your job right and look at the markets and stay in your box. The fundamentals are steady as you go and we have been able to work around fluctuations.”

On the value-add side, Garrahy is seeing that the returns have really diminished. “Three or four years ago, the lift was dependable and it is now hard to bet in an asset or market that is so opaque.”

As for the risks, while tariffs were noted earlier in the day as a concern, Hart said that the issue for the US is trained and qualified labor force to keep pace with modernization of housing that is going on. “In some respects, the American labor pool and our immigration policies can be a bigger issue on business.”

Check back in the next day or so for more from the 2019 NMHC Apartment Strategies Outlook Conference