The annual RealShare Apartments conference is a benchmark in many ways for the multifamily sector. Several members of the GRS Group team were there to take part in the conference and learn more about this very important commercial real estate sector as well as offer support to clients. Jeff Coyne, a business development director at the firm told us his thoughts about this recent conference that took place in Los Angeles.
What were your overall impressions of the conference?
The conference was excellent. For the first time, they went to two days and spread panels across both days. This led to more in-depth discussions and gave us more networking and deal making time. Attendance was at a pre-recession high, and the overall tenor of the conference was that, with only a few exceptions, the short term horizon for multifamily is as good as it has been in years. Many expect the momentum to continue for at least a few more years.
Are you having different requests from clients in the multifamily sector than you did earlier in the year?
There aren’t a lot of differences. Both Fannie Mae and Freddie Mac have continued to dominate the space. HUD deals are still being done for those looking for long term money at historically low rates. Life insurance companies have a bigger appetite for multifamily and are picking up the choice deals (low leverage, excellent sponsorship) with aggressive pricing and terms. And CMBS shops are getting into the mix as well for assets that can’t find a home in other arenas. One of the bigger changes, however, is bridge lending on asset repositions. There was a strong presence of bridge lenders at the conference interested in putting money into underperforming or neglected assets to capitalize on the multifamily boom. We are working with many of these lenders now, and they are definitely open for business when the right deals come across their desk.
I was surprised to see that there is new capital entering the market, seeing that it’s been hot for so long. Who are these investors?
The bridge companies I mentioned earlier, but there is a lot of foreign capital flowing into the top tier markets. Housing is still outpacing affordability for a lot of Americans. When you can’t afford a house or qualify for a loan (Ben Bernanke?) then one of your best options is multifamily housing. As home investment slows with fundamental and demographic changes, and as pricing for single family homes continues to rise, many Americans are simply priced out. This opens the door to foreign and domestic investment. Values are rising, rates are still very low, and America is the safest of safe harbors. Foreign investors with money to invest are coming, and will continue to come, until the fundamentals and demographics shift away of multifamily’s favor.
Are we seeing investment in secondary markets in a big way?
In a big way, I am not sure. That’s a little subjective. But I can say that money will chase yield and if the “good” deals migrate away from core and into secondary and tertiary markets, the money will follow. It is certainly starting to happen, markets that used to be considered secondary are booming and places like Denver, Houston and Seattle are now looked at as core markets. We are certainly seeing a lot of agency, life company and CMBS deals in areas we did not see as little as six months ago. Anecdotally, I would agree with you.
What is your view of the housing market, and how will that impact the apartment sector?
That’s probably a question for a sociologist and not me. Lots of people say millennial don’t want to own a home. I have been there. Being young and having money many people want to live in the cool, hip environment with their peers. I spent years in San Francisco when I was young and single, and owning a house was the farthest thing from my mind as well. I say this, because I am not sure a blanket statement like Millennials don’t want homes is accurate. Time, maturity. marriage and kids always change that equation – they certainly did for me.
If housing is affordable, lending is available, and timing is right for a Millennial, I can see them start to buy and live in homes. Apartment living isn’t glamorous with a few kids. Yards, park space, ease of access to necessities, etc., begin to trump having a great time. Plus, housing is still going to be most Americans’ largest investment and source of wealth. I don’t see millennial’s avoiding those things as they age and mature, but that’s just my guess. Regardless, with Baby Boomers downsizing and Millennials currently uninterested in single family, I think we’ve got years until that shifts. Multifamily isn’t going anywhere any time soon, as I see it.