At the beginning of Wednesday’s 2012 NMHC Apartment Strategies/Finance Conference, the council’s chief economist, Mark Obrinsky, set the stage for the day’s discussion when he some noted some hesitation with the economy after a strong winter.
“There seem to be a few doubts sneaking into the discussion,” he said.
The panelists at yesterday’s conference overwhelmingly remained steadfast in their belief that the apartment industry is due for a nice run over the next few years, although it may be difficult to keep pushing rent increases as a number of markets like Washington, D.C., New York, Boston, San Francisco, Minneapolis, Miami, Philadelphia and Detroit pushed past pre-recession rent levels.
Here were four surprises from the day:
Small Construction Lenders Open Up: There was a time when apartment construction was only happening in the gateway markets. Tom Booher, executive vice president at PNC Real Estate, says that’s no longer the case. He’s losing smaller loans in cities like Indianapolis, Toledo, Ohio, Cincinnati and Columbus, to lenders offering 80 to 85 percent loan to cost and trending rents.Booher noted that a lot of life companies are also looking at the construction debt market.
Developers Push Starts Ahead of Construction Cost Increases: While debt is opening up, equity still seems stingy. That said, the panelists at the “On Recovery is in the Rearview Mirror – Development Returns in 2012” session did have some concerns outside of funding. For Clyde Holland, CEO of The Holland Partner Group, and Jay Jacobson, a director at Wood Partners, the concern is rising construction costs. That’s why both men front loaded their pipelines—to get units out of the ground before costs rose. “That’s the 1,000-pound gorilla in the room,” Jacobson said. “What happens with construction costs?”
Higher Rents May Do the Same Thing to Millennials that the Recession Did: When twenty-somethings doubled and moved home in 2008 and 2009, it was because they lost their jobs. It's beginning again. There’s already migration from A’s to B’s among customers who can’t stomach the rent increases. Panelists yesterday said that rents inching up could also push Gen-Y-ers back to these familiar places. “There are a lot of renters moving from A to the rehabbed B,” said Mathhew Lawton, executive managing director at HFF. “That’s why value add is back in play.”
It’s the Women Renting Your Apartments: The story of the 25-to-34 year old cohort tells apartment owners a great deal. Citing data from Fannie Mae, Jay Lybik, vice president of research, said that almost 35 percent of females in this demographic have college degrees. Conversely, more than 18 percent of those males moved home. “It was the boys that came back [home],” he said. That leaves the women renting your apartments.