While the apartment industry is cyclical when it comes down to fundamentals like occupancy and rent growth, there are some things that come along and fundamentally change how the industry works. Here are three such game-changers to emerge over the last two decades:
TechnologyAccess to business management technology has evolved and allows
mid-sized companies to become more competitive over the last decade, says David
“I think the industry has grown up so much in the last 10 or 15 years,” he says. “And you see all these companies that can do everything under the sun now.”
Woodward, CEO of CompassRock Real Estate, says about 15 years ago the largest companies had the upper hand because they had money to invest in being competitive.
“They were big enough to invest dollars internally so they could kind of create ways to differentiate themselves from their competitors with things that were innovative,” he says.
Albert Berriz, CEO of Ann Arbor, Mich.-based McKinley, says technology has also forced the industry to become more customer-oriented because of online ratings and reviews.
“You’re constantly being judged,” he says.
Meanwhile, smartphones and applications have also given
customers the power to be in constant contact with a company for everything
from paying rent to making complaints.
Size of Management FirmsThe
size of third-party management companies continues to grow. Over the last 11 months, Greystar acquired Riverstone, creating one massive manager with a portfolio of more than 391,000 units.
“We’ve seen these top-tier companies merge together before for one reason or another,” says Kelly Falk, managing director of Drucker & Falk. “What’s new now is the numbers---this was big.”
And Greystar wasn't alone: this year's NMHC 50 list of the nation's top managers reached an all-time high--the combined portfolios hit 2,941,939 apartments, 3% more than last year. Diana Pittro, executive vice president of Chicago-based RMK Management, agrees that companies have been inflated over the years leading to a less diversified field.
“The mom and pop management companies have decreased,” she says. “They’re still alive and well in many parts of the country, and they do a great job, but I think the number of them has decreased. There used to be a lot more … but they’ve been bought by the mid-level companies.”
Access to CapitalBerriz says there are more people working and developing in
today’s apartment industry than ever before because there’s so much access to
“I think it’s a negative, but I think it’s a reality,” he says. “There are a lot of people in the business that don’t know what they’re doing, but they have access to money, so they’re in it.”
As a result, Berriz has noticed a flood of transaction activity in the multifamily space—particularly owners who are new to the sector. Transactions are revving up in large markets like Chicago, Pittro says, as RMK Management had three properties sell in Chicagoland over the last six months.
“I hadn’t sold three properties in the last three years,” she says. “The market is driving a huge influx of activity.”
Additionally, the abundance of funding is also driving development activity. “Properties are selling at higher rates in this area,” Pittro says. “And people are coming into town and are not Midwest buyers and these properties are changing hands. Our market has a lot going on. Everybody is in love with Chicago this week and that's OK with me.”