“As always, we have to be careful about overbuilding. In addition, I am also concerned that while the economy is recovering, rents are rising higher than salaries, and that newer product will be priced above what people can afford. This also translates into the prices investors are paying for multifamily. In order to meet their returns at the prices they are paying for communities, rents will need to continue to grow at a healthy pace. If incomes don’t increase to meet the rent increases, we could see challenges in the market.”
Cindy Clare, CEO, Kettler Management
“There are several threats to the very positive market conditions. The first, and most obvious, is overbuilding. While many are concerned about overbuilding, the level of new starts is actually at our 10- to 15-year normal rate of delivery. The key to absorption is jobs. In markets like Seattle, Austin, and Houston, there’s been substantial job growth to support new starts. The second “buzz kill” could be rising interest rates. This, coupled with the impending restructuring of the agency lenders, could slow investor interest in the sector. However, it could also slow the growing return of renters to single-family homeownership.
The apartment market has recovered nicely, with solid demographics that favor it. This has largely been accomplished around the nation, with less than robust job creation. If the economy can create sustained job growth, we can continue to do well.”
• Rick Graf, president and CEO, Pinnacle
“The biggest threat to multifamily’s momentum around the country is a lack of job growth. We’ve seen real job growth in the core markets, and continued job growth will help ensure a healthy demand for the extensive supply of new product now hitting these markets. In suburban, secondary, and tertiary markets, the steady growth of full-time jobs will also prove critical; specifically, the types of jobs that pay wages capable of supporting increased rental rates at established properties.
The current multifamily properties being purchased and developed are assuming aggressive rental rate increases over the next five to seven years. For these deals to prove fruitful for their investors, substantial job growth will be needed in all markets for the low cap rates being paid. My guess is that there will be many winners, and, unfortunately, some losers, in this investment game.”
• Walt Smith, principal, Investors Capital Group
“The biggest threat to the multifamily market’s momentum could be an economic slowdown, but almost all real estate–focused economists currently feel comfortable that GDP will continue to improve and that employment, although still weak, should continue to improve, which will add more support for a strong performance in the sector over the next few years. The other potential, developing problem is oversupply, but I believe new starts will not be overwhelming, except in possibly a few major cities, during the next several years. Overall, the bottom line is, our industry currently is enjoying a rare sweet spot where the risk of big issues hitting us is very low over the near term.”
• Ed Pettinella, CEO, Home Properties