MULTIFAMILY EXECUTIVE’S sister publication APARTMENT FINANCE TODAY recently conducted its annual CFO Strategies Survey to tap the top financial minds behind some of the industry’s largest transactions to find out where the biggest opportunities were this year, and where they will be found next year. The results are in, and a consensus has emerged on several key performance indicators in the market.
For one, 2011 was marked by a mad dash to bring new units to undersupplied markets. This year has proven to be much the same, as finance professionals continue to be bullish on fundamentals moving forward.
But many companies plan on charging into 2013 with even more accelerated efforts than this year, the survey revealed. And the recovery has been broad: Most respondents say there is no longer such a thing as a distressed market in the multifamily industry. Ernie Freedman, CFO of Denver-based REIT Aimco, agrees that “distress” is a term that rarely applies to the multifamily industry anymore. He says the bust in single-family ownership levels has led to an almost across-the-board burst for the apartment industry.
“Four years ago, when the world kind of blew up on us, everyone thought there would be some level of distress because of debt coming due, financing coming due, and a lot of the CMBS debt that was done five to 10 years ago coming due—and we just haven’t seen it,” says Freedman. “The capital markets have remained open, and lenders have been able to work with folks. In only very rare circumstances have people gotten themselves in a little bit of trouble and had to sell an asset.”
According to the 190 financial executives surveyed, about 39 percent said they plan to enter new markets in 2013, compared with just 5 percent who plan to exit markets. And much of that expansion will be done through new construction—about 40 percent of respondents said they would start new developments in 2013, up from 38 percent last year.
And the survey also revealed that the most popular sources of debt are national and regional banks, which are used by 33 percent of participants. Just behind the banks are Fannie Mae (23 percent) and Freddie Mac (17 percent). But in terms of construction debt, the improving banking sector continues to eat into the Federal Housing Administration’s (FHA’s) massive, and clearly unsustainable, market share: Just 17 percent of respondents plan to use an FHA new-construction loan next year, down from 24 percent last year.
Additionally, the survey revealed that 41 percent of respondents cite passing utility costs on to residents as the leading strategy for supplementing NOI. Other leading strategies included using revenue management software (19 percent) and reselling cable and Internet (17 percent).
NOTE: For the full results, check out the September issue of APARTMENT FINANCE TODAY.