Multifamily finance professionals are growing increasingly optimistic, budgeting for continued growth in 2012 as the industry plots its course through the early stages of a strong recovery.

About 44 percent of multifamily firms are increasing their acquisition appetites, while nearly 38 percent plan to start more development projects over this coming year, according to a survey of 138 senior-level multifamily finance professionals conducted by Apartment Finance Today.

Underscoring that trend, about 24 percent of respondents plan to add headcount, and more than 26 percent of firms plan to enter new geographic markets in 2012.

“We’re looking at 2011 to 2013 as some of the best years multifamily will probably have ever seen,” says David Gardner, CFO of Rochester, N.Y.–based REIT Home Properties. “It’s the old story of limited new supply and more demand—people moving out for homeownership purposes is the lowest we’ve ever seen. I think we all have a couple of good years ahead of ourselves.”

Capital Markets
Home Properties, which specializes in acquiring older, undermanaged properties for significant rehabs, still sees a lot of opportunity in that space over the coming year. In fact, 38 percent of survey respondents envision more value-add opportunities, and nearly 50 percent expect more distressed properties to hit the market in 2012.

Last year, Home acquired nine properties for $339 million. “It was a unique opportunity—interest rates were as low as we ever saw, so we were able to match up some great funding for those,” says Gardner. “And we’re continuing to have a fairly big appetite. A lot of people don’t like the heavy lifting associated with a significant upgrading effort, but that will continue to be where we see the most opportunities.”

Indeed, the industry’s optimism is buoyed by today’s ultra-low interest rates and the ever-improving capital markets. Last year, only 16 percent of survey respondents borrowed from either life insurance companies or conduit lenders. But more than twice that amount, 39 percent, expect to tap CMBS or life company debt over the next year.

The availability of equity has also improved. Nearly 60 percent of respondents believe that equity capital is more available now than it was a year ago, and 64 percent expect the market to stay just as healthy, or even improve, in 2012.

“We’ve been doing as much if not more life company long-term debt than agency debt—they’re definitely competitive again,” says Jay Hiemenz, CFO of Phoenix-based Alliance Residential. “We’ve been doing a lot of five- to seven-year mini-perms with commercial banks, too. In fact, we probably use more balance-sheet lenders than securitized lenders.”

Geography Is Destiny
Like many multifamily firms, Highlands Ranch, Colo.–based REIT UDR is pursuing an urban-growth strategy. The company has been the industry’s biggest spender over the past year, acquiring more than $1.6 billion in assets, most of which are in New York City and Boston, two new markets for the firm. Meanwhile, the company is disposing of assets in secondary markets like Virginia Beach and the Inland Empire region of California.

“You’re going to see us lighten up in some of the suburbs and recycle the portfolio into more of the urban centers,” says David Messenger, UDR’s CFO.

UDR’s focus on urban cores signals a larger trend. About 53 percent of survey respondents say city-center population growth is the main demographic trend informing their investment strategy.

But many companies are still finding ample opportunities in distressed markets such as Las Vegas, Phoenix, and South Florida. In fact, multifamily finance professionals once again chose South Florida (28 percent) as the distressed market with the most upside, ahead of Phoenix (16 percent) and Atlanta (14 percent) in this year’s survey.

Alliance Residential, for one, continues to unearth some deep discounts, particularly in Las Vegas. In April, the company spent $3 million on an unfinished condominium project called The Pueblos in North Las Vegas, a deep discount when you consider that the outstanding balance on the construction loan at the time of foreclosure was $8.7 million.

In May, Alliance picked up a nonperforming note on the brand-new, 524-unit Fountains at Flamingo in Las Vegas for just $89,000 a door. If that same asset were being sold in Phoenix—another market in which Alliance is active—it probably would’ve gone for $115,000 a door, the company estimates. “Out of the box, we’re yielding 8 percent on that acquisition,” says Hiemenz. “And I can’t do that much of anywhere else.”

Supplementing NOI
Though the focus for many firms over the past few years has been on slashing costs, revenue-generation strategies are now clearly the emphasis as the industry enters another growth cycle.

The top NOI booster in this year’s survey was passing utility costs on to residents, with about 42 percent of respondents signing on.

Charleston, S.C.–based Greystar, which manages nearly 190,000 units across the nation, moved to one vendor, National Water & Power, to standardize and maximize its water-rebilling efforts over the past year. “We’ve taken our rebill recovery from 67 percent to 85 percent,” says Derek Ramsey, CFO of Greystar. “It was a needle-mover for us and the properties we manage.”

Revenue management software also continues to gain traction—it was the second-most-popular NOI-boosting strategy in this year’s survey, at 23 percent. Greensboro, N.C.–based Bell Partners started rolling out Yieldstar in 2008 and expects to have it implemented in about 175 communities by year's end.

“It really helped us during the downturn. Our strategy was to push occupancy to help offset rent declines,” says John Tomlinson, CFO of Bell. “Now, clearly, the focus is on maximizing rents.”

Indeed, the focus today for just about every multifamily firm is on growth—only 7 percent of survey respondents report having no growth plans for 2012.