How scary have multifamily finance and operation fundamentals become as a result of the recession? Think Jason Voorhees scary. In the opening session of the 2009 Multifamily Trends Conference held today in conjunction with the Pacific Coast Builders Conference (PCBC) in San Francisco, Hessam Nadji, managing director of research services for Encino, Calif.-based Marcus and Millichap, used an image of the hockey-masked Camp Crystal Lake slasher from the Friday the 13th films to illustrate the state of credit markets.
“Capital markets are definitely still scary and characterized best by illiquidity,” agreed Matthew Anderson, a partner with Oakland, Calif.-based Foresight analytics, who joined Nadji and San Francisco-based Gruen Gruen + Associates’ principal economist Claude Gruen on a keynote panel addressing the multifamily economics overall. Anderson noted that mortgage flow into the multifamily space for 2009 is likely to net zero, with agency and small bank lending offset by debt calls from conduit lenders and life companies. That does not bode well for a multifamily industry expected to demand $250 billion in mortgages through 2015. “We definitely expect trouble ahead,” Anderson said.
Still, the panel painted a picture of brighter multifamily prospects in the near future, paradoxically driven by a recovery in the single-family home market. With housing affordability reaching lows not seen in decades, multifamily is likely to once again see a large proportion of move-outs occur due to flight to homeownership. “We are hearing more and more about renters buying homes again,” Nadji said. “But while single-family home affordability is a short-term challenge for multifamily, we think the long-term demographics look good.”
Those demographics hinge largely on the return of the Baby Boomer set to the apartment market, just as their children—the echo boomers or ‘Gen Y’ crowd—begin to enter the workforce and seek rental housing. The ability to cater to those customers will largely define both the near- and long-term multifamily success stories. “There is relatively little that we can do about this recovery,” Gruen said. “What we can do is program our industry and our business to recognize that we have got to look forward. When we come out of this recession, we are going to be facing an entirely new economy. All industries are going to have to reinvent themselves, and our focus is going to have to be on obtaining consumer satisfaction rather than obtaining loans and entitlements.”
The panel agreed that the broader economy—particularly employment—will continue to relegate the pace and characterize the face of multifamily recovery. “In this cycle, we will lose 7 million jobs,” Nadji said. “You might expect a snap back in employment, but that’s not the general outlook for 2010. For next year, most economists are expecting a 2 percent growth rate for the economy.” Gruen urged conference attendees to find positivity in the numbers, citing an estimated 27 million person population growth by 2029 and, surprisingly, the 340,000 jobs lost in May. “Why are 340,000 job losses good news? Because average job losses from January to April were 640,000.”