While we're closing out another record-breaking year, we're looking ahead to one that will be a little bit slower, but by all means healthy and stable.

To get an idea of how the industry is preparing to handle the maturing cycle, we asked five executives across the country to share their thoughts on current market conditions. Here, they reveal what surprised them this past year, what indicators they're watching now, and what has them excited about the year ahead.

+Ella Shaw Neyland +Ric Campo +Jim Butz +Brad Cribbins +Mike Schall
Joe McKendry


The president of Steadfast Apartment REIT says 2017 is looking strong for continued growth.

On a scale of 1 to 10, how positive do you feel about the market for 2017 (10 being filled to the brim with positivity)?
When you look at the real estate market in totality, I would rank it an 8.5 for 2017. First, debt capital—except for new construction—will still be available and at interest rates that will continue to be low by historical standards. I don’t anticipate any significant increase by the Fed until the economy is on a more sustainable path of recovery.

Second, [both domestic and foreign] investors are still finding value in a real, tangible asset such as real estate.

Finally, real estate fundamentals are strong based on the amount of real equity in the capital stack, as well as the fact that it’s increasingly more expensive to build. That’s very different from the last cycle. Therefore, existing real estate is even more desirable.

What markets still have potential for more rent growth?
In the apartment world, demand is driven by job growth and population growth; people are moving to cities where businesses are also moving. The one big difference I’ve seen is that the baby boomer generation only moved when they had a job. Millennials are picking a city they want to live in, such as Denver, Austin [Texas], or Dallas. They move there; then, they look for a job. They place a lot of emphasis on experiences and quality of life. They work to live. Baby boomers were viewed as living to work.

Do you think cap rates will continue to compress or start to expand?
There’s really been very little movement in cap rates across the board for a while. Any future movements will be principally because of a change in investors’ return expectations more so than interest rates.

Do you see any changes in the equity markets?
There’s every reason to believe that equity markets will remain strong. There’s so much dry powder sitting on the sidelines that will finally find a home.

Also, many large institutional investors saw their overall returns drop this year, but in most cases their real estate allocations were the shining light in their portfolio.

FIRPTA should drive more foreign equity, as well as the fact that real estate now has its own index.

The third quarter showed rent growth is starting to slow down and level out. Are you changing your business strategy to tackle that?
Rent growth for luxury apartments clearly is slowing and declining in many markets as the market tries to absorb a large number of new deliveries.

Roughly 82% of all new construction recently has been luxury. Plus, there are fewer and fewer renters who can afford the high monthly rents, much less increases. But the demand for moderate-income rent communities is actually exceeding supply.

Most new household formation annually has been choosing rental housing, which explains the ever-decreasing homeownership rate, which now sits at 62.9%, the lowest since the Census Bureau started tracking it. But although wages ticked up slightly recently, most people make less than they did before the Great Recession.

What demographic trends are you keeping an eye on?
Every generation is embracing apartment living. The millennials are getting married later and having children later, or not buying homes.

And the On-Demand Economy is allowing older Americans to age in place in rental housing. They don’t have to drive (Uber), they don’t have to shop for groceries (Amazon Fresh), they don’t need to run errands (Task Rabbit), and they don’t even need to walk their dog (Wag). We’re moving toward a world where people are either working or playing, which is great for apartment living

Next: Ric Campo, CEO of Camden Property Trust