Few people know this, but I got a minor in comparative religion in college. I’ve always been fascinated by the way the world’s faiths can unite and separate, create communities and destroy them. One of my classes was called “Sin in the Judeo-Christian World,” in which we discussed the Capital Vices—lust, gluttony, greed, sloth, wrath, envy, and pride—and their personification in the pagan, Jewish, and Christian realms. I loved that class (I know; I’m a geek). But it was a fascinating exploration of the virtues and vices that have shaped our collective morality in modern society. Fast forward more than a decade, and, sadly, I now have a hard time even recalling the list of Seven Deadly Sins without a cheat sheet (thank you, Wikipedia).
That’s the thing with time—it can make us forget even the most important of guidelines and influencers. In fact, I would argue that nowhere is our collective memory so short as in real estate. For some reason, our ravenous industry—particularly on the development side—has a tendency to forget what happened “the last time around” when the prospect of raw, ripe land is dangled in front of us. And multifamily firms are no exception to this rule. Whether builders or buyers or operators, those in the apartment sector seem to suffer from temporary lobotomies when times turn good.
The truth of the matter is that multifamily is facing an unprecedented opportunity in the marketplace right now. People are renting in droves; rents are rising with no cap in site; banks and life companies are plunging back into the lending pool alongside the GSEs; there is huge and growing demand for new development as the nation’s apartment stock dwindles. And yet, lest we’ve already forgotten, a mere 24 months ago, we were in the middle of one of the worst recessions this country has ever seen. Many economists would say that we’re still not out of it, facing jobless growth and at risk of falling into a double-dip recession.
Despite this, multifamily players are plugging merrily along, snapping up portfolios, putting shovel to dirt, and pushing double-digit rent increases across the board. (My own apartment community in San Francisco issued me a whopping—and absurd—24 percent year-over-year increase in its renewal letter last week.)
Some of this exuberance is necessary and justified. After all, in many places rents still haven’t reached their pre-recession peaks. But more and more, I’m seeing instances of asset acquisitions or development plans where logic and reason have given way to a hunger that points to something more sinister: greed. Yes, one of those deadly sins; perhaps the most dangerous. That insatiable desire for more that has plagued multifamily in every previous recession—more value, more units, more revenue, more residents, more groundbreakings—is starting to appear again right now, in the fall of 2011.
That’s why this month, we have pulled together the Seven Deadly Sins of real estate—those mistakes that we as an industry should take care not to repeat if we want to actually enjoy the boom years and sustain our momentum. (The story, jointly crafted by senior editors Les Shaver and Chris Wood, can be read by clicking here.)
Yes, I believe 2012 and 2013 will be banner years for multifamily. But I also believe that we are on a precarious ledge, and if we do not move forward carefully, thoughtfully, and with a hefty dose of temperance, patience, charity, and humility, we may find ourselves in an overbuilt, overburdened hell all over again.
