The multifamily industry isn’t immune to the nation’s economic uncertainty. While fundamentals remain strong, challenges are looming, according to leading CEOs at the annual Multifamily Executive Conference at the end of September.
“There’s been a very strong wind helping us, and that’s going to go away. Get prepared for the storm. Get focused on operations, outstanding customer service, and resident retention,” Waterton chairman and CEO David Schwartz told the audience. “The Fed is going to slow this economy down. That’s going to affect every business, and we’re not excluded.”
Robert Hart, president and CEO of TruAmerica Multifamily, provided similar advice. “Focus on operations, work deals as hard as you can, and stay extremely focused on the bottom line,” he said.
In addition, Percival Vaz, founder and CEO of the AMCAL group of companies, said it’s a good time to conserve cash. “There are more opportunities coming in the next six to nine months with deals getting canceled and in distressed markets,” he added.
The three executives discussed some of the challenges they currently are seeing.
“We are reaching a temporary inflection point to leverage deals,” said Hart, whose firm has over 55,000 multifamily units under management. “It’s going to be challenging.”
Schwartz added that he is monitoring cap rates. “When you get the confluence of rising cap rates and lower rent growth, it’s going to get ugly,” he said.
AMCAL focuses about 80% of its work on affordable housing, with the remainder split between Class A multifamily and student housing. “On the affordable side, there’s an infinite demand, which we won’t fill in our lifetimes,” says Vaz. He told the audience that the asset class is a safe bet, even though it can be extremely challenging.
Costs—from land to construction—continue to go up, and regulations are also adding to the expenses. Vaz said more subsidies are needed to help combat these challenges.
The speakers also addressed the metros where they are seeing opportunities.
Schwartz took an opportunistic view, citing urban gateways like San Francisco and Seattle, which were latecomers to the post-pandemic rent growth boom and are seeing people return.
For Hart, he said he looks for MSAs with legs in the Southwest and Southeast, adding that he thinks Boston is a great market, Seattle has the benefits of being a 24-hour city with tremendous job growth, and Central Florida is affordable and a good draw for both the young and old.
Vaz added that the Lone Star State has some opportunities for his firm, specifically in Dallas and Austin. “You can get things done in half the time in Texas for half the cost,” he said.