The real estate investment landscape is always evolving, as builders, investors, and developers know well, but with a new administration in place and new policies being implemented, these changes are taking place at a breakneck pace.
In a session at the 2017 MFE Conference in Las Vegas this past September, “What’s Impacting Investments: How to Avoid Risk and Maximize Potential,” four multifamily developers and acquisition professionals commented on the challenges and opportunities they’ve noticed both in their respective markets and across the industry.
Moderated by John Isakson, chief capital officer at Preferred Apartment Communities, the session began with a discussion of changes to capital-raising strategies in response to the waves of uncertainty shaking the economy. “Banks are really pulling back,” said David Hanchrow, CIO of Bristol Development Group. “The biggest challenge for us is the amount of equity we’re having to raise for each deal,” as banks that issued 75% loans a few years ago are now offering loans at 60% or 65%.
Given this trend, three panelists, including Hanchrow, said they’ve been pursuing relationships with smaller financial institutions. Kirk Motsenbocker, CFO of JPI/TDI, explained that “smaller regional banks are seeing an opportunity, with the big banks pulling back, to grab some market share.” Even though Fannie Mae and Freddie Mac have been the top choices for Blackfin Real Estate Investors, according to co-founder and managing partner Andy Buchanan, the acquisition company is beginning to look into boutique banks that are offering directly competitive interest rates and proceeds.
Scaling down on deals can also help, says Steadfast CIO Tim Middleton, which allows developers to differentiate themselves amid an “auction-esque” market. He pointed to a Chicago project, much smaller than other projects in Steadfast's portfolio, that performed exceptionally well for the company. Likewise, Blackfin's strategy for avoiding the auction mix is to “pick and choose to find a unique asset,” according to Buchanan.
Despite the adjustments these developers and investors have had to make in terms of financing, raising capital, and closing deals, each panelist expressed an optimistic outlook about the multifamily market going forward. The “industry tailwinds” are strong, said Motsenbocker, pointing out that certain demographic groups with a higher propensity to rent are making up a larger part of the market, while units remain in short supply. Hanchrow said he expects continued demand and rent growth over a three-year period.
“I don’t see any major shakeups or major changes in our strategy,” said Buchanan, “but you never know.” The GOP tax plan framework was revealed just before the MFE Conference, and its outcome remained uncertain. While awaiting more clarity on the tax policy and its potential impact on the multifamily sector, Middleton explained, “we’re operating business as usual.”
