Many apartment owners are excitedly eyeing the year 2012 and beyond. The feeling is that the lack of any new construction, combined with burgeoning demand from Gen Yers, will create a climate of rising rents and shrinking vacancies—basically a landlord’s dream. But Stan Ross, chairman of the board of the USC Lusk Center for Real Estate, is putting the brakes on that kind of talk. Until employment grows, Ross doesn’t see this paradise. And there’s no guarantee that will happen anytime soon.
Here’s Ross' take on where the industry is now and where he expects it to be in a couple of years.
MFE: What are you seeing in the apartment market right now?
Ross: We’re getting some mixed feedback. We’ve seen some improvements in terms of rental rates, but occupancies were going down. The improvement is that there has been a tremendous amount of trades. We’ve seen trades at 5 percent and 5.5 percent cap rates. And multifamily is not the only asset class that is happening in.
MFE: Did this surprise you?
Ross: We were absolutely shocked. All of that money that was sitting on the sideline and looking for a home is starting to get aggressive.
MFE: Do you think this pent up demand will eventually result in development?
Ross: I think we will start to see development in 2010 and 2011. You’ll start to see it come back around.
MFE: A lot of people in the multifamily business are excited about 2011 and beyond with positive demographic trends led by Gen Y and a lack of demand. Do you share their optimism?
Ross: I’m not that bullish on jobs coming back soon. It’s all tied to jobs. The highest percentage of our unemployed is the young people. So many are moving back home. We also see groups of kids coming together and renting a house. You may see four or five move in together.