Jay Hiemenz is hopeful that the first markets into the recession are now, finally, making their way out.

The Alliance Residential CFO is keeping a close eye on specific markets that may have room for growth. Phoenix-based Alliance is using a green movement to attract potential residents while employing aggressive research and development and marketing tools to keep NOI in the black.

The company, which owns and operates market rate, affordable and student housing units, has seen a wide spectrum of improvement across the board with markets that were hit hardest by the recession making a comeback behind the hot primary metro areas.

Atlanta and Phoenix have been on Hiemenz's radar as improving markets to watch this year. He expects them to continue a strong recovery throughout the second part of the year.

Atlanta is starting to gain momentum while Phoenix is seeing positives in both job growth and rent growth.

“It’s almost like the ones that have improved over the last year haven’t bounced back all the way yet,” Hiemenz said.

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Residents in the 24 to 35 year-old age range are fueling the demand for rental housing, as the improving employment market creates opportunities for Millenials to venture out into the housing market. However, they’re not eager to buy homes since the job market is fluid and many of the recession’s graduates are transient, creating the perfect driving factor for an even better 2014 than 2013.

“The unemployment in that key renter segment is down,” Hiemenz said. “That’s creating demand that really wasn’t in the market in the last few years.”

There are still markets that are playing catch up and working toward a more stable economy. Vegas is one key market where Hiemenz has pulled the reins in a bit tighter as the local market struggles. However, completely pulling out of the market isn’t an option since there are still good opportunities to do projects that don’t involve bringing new units online, he said.

“I don’t see us doing development in Vegas next year because the market is still in recovery,” he said. “But we have been doing acquisition there in anticipation of a recovery.”

Austin was big on many developers lists and was built when demand was booming. Forecasters said Austin was one of the largest markets for potential renters but is walking a fine line between being in balance and being overbuilt. However, Hiemenz, is keeping a watchful eye on it without sounding the alarms.

“I don’t think, yet, it’s at risk,” Hiemenz said. “But it does have a big pipeline and it has a big demand.”

Hiemenz believes it’s firmly a seller’s market now, and that, as interest rates rise, today's aggressive cap rates may be as low as they're going to get for some time.

“Most of the things are achieving their target valuations that we had hoped,” he said.

Hiemenz was one of about 100 multifamily finance professionals who responded to Apartment Finance Today’s annual CFO Survey.

About 47 percent of those surveyed responded that they expect cap rates to rise next year.

Hiemenz agreed that cap rates will rise and added that interest rates may also grow by about 25 basis points over the next year.

Rent Growth Abounds
As far as rent growth, Hiemenz expects to continue pushing rents in markets across the board by varying degrees. For the first half of this year, Alliance’s team saw roughly a 6 percent increase across their portfolio, Hiemenz said.

In the next year, he expects to see it continue by about 4 percent. Some markets are able to withstand a larger boost than others, he said.

“In Vegas, I’d say you’re looking at rent growth in the 1 to 2 percent range and then it goes all the way up to where we’ve seen areas like Seattle that still have almost double digit rent growth,” he said.

Other notable markets include California, where rent is still climbing and Texas with rents expected to increase by about 5 percent.

“I don’t see any market that is going backwards,” he said. “We’re still really good above inflation for rent growth.”

And as Alliance plans to acquire units in new markets, they also have a plan to capitalize the markets where they’re already a leader by focusing on more communities that haven’t been shown as much love in the downturn but can fuel the demand for success.

“There are a lot of suburban locations that may not have been enough capital demand for but there’s probably good renter demand for,” he said. “I think the best opportunities for us on the development side include broadening our base to look moreso at suburban locations that might have been looked over in the early part of the cycle.”

Lindsay Machak is an assistant editor for Multifamily Executive. Connect with her on Twitter @LMachak.

This is the second section of the Apartment Finance Today annual CFO survey. Read the first article here.