These are good times for the apartment industry, no doubt. But good times can turn on a dime.
While fears of overbuilding are now coming to the surface, government regulation, the resurgence of the single-family market, and a sputtering economic recovery are just some of the factors that may rain on multifamily's parade.
So, what is the biggest threat to the multifamily industry's momentum, and why? We put that question to three of the industry's top CEOs.
Rick Graf, CEO of Pinnacle, says a lot of professionals are using the term “overbuilding” to instill fear in the industry. However, the level of new starts is less than alarming when taking into consideration the last 10 to 15 years of actual rate of delivery, he noted.
“There are some markets in which the dynamics are better than others,” Graf says. The key to absorption is jobs. In markets like Seattle, Austin, and Houston, there has been substantial job growth to support the new starts. The high tech influence of the Bay Area, coupled with the lengthy entitlement process has created a very solid market condition.”
Tom Toomey, CEO of UDR, is closely watching how government regulation and intervention is posing questions to the long-term health of the market.
Earlier this year, the federal government ordered the government sponsored enterprises, or GSEs, to reduce their volume by 10 percent while the Bipartisan Policy Center called for the eventual elimination of the government agencies.
President Obama’s speech last week in Phoenix focused on the health of the housing market and touched on GSE reform.
Toomey says intervention and regulation may alter how the market works.
“While free markets are self-correcting, increased banking regulation and the potential for the reorganization or elimination of the GSE’s will have a significant influence on home prices, multifamily asset values and the growth of the overall economy,” Toomey says. “Our view is that better communication from elected officials in regards to future policy changes is needed in order to provide businesses with a more certain business environment under which to operate.”
Ed Pettinella, of Home Properties, is cautioning officials about an economic slowdown but noted the industry is currently in a sweet spot with low risk of hard times in the near term.
“Almost all of the real estate focused economists currently feel comfortable that GDP will continue to improve and employment, although still weak, should continue to improve, which will add more support for a strong performance in the sector over the next few years,” he says.
Graf, Toomey, and Pettinella are three of the six CEOs who will be on the CEO Power Panel at the Multifamily Executive Conference, which which runs Sept. 9-11 at the Bellagio in Las Vegas. The other three CEOs will be Bill Bayless, American Campus Communities, Eric Bolton, of MAA and Walt Smith from Riverstone Residential Group.
To register for the conference visit www.mfeconference.com.
Lindsay Machak is an assistant editor for Multifamily Executive. Connect with her on Twitter @LMachak.