The idea of a bifurcated market came up a lot at the Apartment Finance Today Conference, held April 2–3 in Las Vegas.

From an equity and debt perspective, the apartment industry is still a market of “haves” (core, coastal markets) and have nots (secondary and tertiary markets). That's also the case for the economy in general.

 “We're seeing a bifurcated economy right now, on a slow path but a lot better positioned today than it was a year ago,” said Mark Vitner, managing director of Wells Fargo Securities.  “My concern is fundamentals are improving, but income growth is so modest. From a markettightness standpoint, I don't know what ability there is to raise rents if there's no ability to generate income to pay those rents.”

Construction capital has focused on a “flight to safety,” noted Charles Halladay, a director at HFF. In Orange County, Calif., he sees 10 or more sources of debt available, while in tertiary markets, it's one or two lenders that have established relationships with borrowers.

Equity has also balked at secondary and tertiary markets, and as cap rates compress in the core, return expectations have changed.  Equity investors had their heart set on 17 to 20 percent,” said Bob Hart, president and CEO of KW Multifamily. “Now, they've compressed to the mid-teens.”


Ron Terwilliger's keynote address was more of an informal chat, as the former Trammell Crow Residential CEO (pictured) shared hard-learned lessons from a 40-year-plus career, including: â—— Put in a healthy amount of equity, about 25 percent, in each deal. “You may go through two or three cycles. Be careful how you leverage,” he said.

  • Stay away from quickly maturing construction loans. If a developer has to take fewer proceeds to get a five-year deal or three years with extension options, it should.
  • Use architects and subcontractors familiar with your financial appetite—and get the construction guys involved in the design. “One of the biggest mistakes is to [take on] something you can't aff ord,” Terwilliger said.
  • Remember that no matter how good your relationship with your equity partner, things can get contentious if the market turns. So the partnership agreement must be airtight.


A panel of industry experts suggested a number of ways to start maximizing NOI on a typical 100-unit property.

 Step one is raising rents 3 to 5 percent. “Don't despair if you don't have $10,000 to spend renovating per unit; there are other things you can do to get that increase,” said Matt Lester, founder of Princeton Enterprises. “Historically, it's been kitchens and baths that get the greatest return, but updating things like roofs and exteriors can distinguish you from the guy across the street.”

 Units also should be priced individually, based on demand. “If you have an apartment that overlooks the pool, you could put a premium on that,” said Cindy Clare, president of Kettler Management.

 And owners would also do best to maximize the use of inexpensive technology, like Craigslist, for which the cost is minimal and the audience is extremely targeted.