Apartment Rents Have Another 24 Months of High Growth

“We have never seen anything like this,” said Jerry Fink, managing partner of the Bascom Group, about rent growth over the last 12 months. Fink spoke this week on the Investment Landscape: How Multifamily is Driving Economic Recovery panel at the GlobeSt.com Multifamily conference in Los Angeles this week. The discussion included Jeff Adler, VP of Yardi Matrix; David Harrington, EVP and managing director at Matthews Real Estate Investment Services; Brian Tranetzki, principal and head of multifamily at Taylor Street Advisors and Loryn D. Arkow, partner at law firm Stroock.

Fink said that the firm has seen high double-digit rent growth, in the 15% to 20% range, and even higher in some select markets. Harrington noted growth numbers reaching 26% in high growth cities like Phoenix. The investment professionals are bullish on continued rent growth, but Adler said that the growth won’t continue at this pace, calling it unsustainable.

Adler, however, is bullish on continued strong rent growth. Her expects another 18 to 24 months of high growth, noting that it won’t be in the 20% range, but it will be substantial. Adler also noted that inflation has not yet worked into rents yet, which could help to boost growth. “It’s a great time to be in multifamily,” said Adler on the panel.

While rents are growing rapidly, expenses are rising. There have been increased maintenance costs, tax rates and regulatory challenges that are putting pressure on operations expenses. For now, Fink says that the higher expense costs aren’t really part of the equation, saying that rent growth is the bigger factor. Harrington added that while there has been an increase in operating expenses during underwriting on acquisition deals, he doesn’t know that it’s necessary. “I have heard people talk about the need to increase underwriting assumptions on costs for maintenance, but I don’t know that I have seen it in practice,” he said.

Adler also added that costs can be offset with technology, which is driving a fundamental rethinking of operating model and mitigating some expenses on the operating side.

Overall, increasing rents is the focus for multifamily owners, and it is driving deals and making things pencil. He said, “Revenue is growing so fast and high today that increasing expenses don’t mean much.”