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Multifamily Market Shows Signs of Improvement

According to the National Multifamily Housing Council’s Quarterly Survey of Apartment Market Conditions for April 2021, the multifamily market is showing signs of improvement.

“We are finally seeing improvement in most markets around the country,” noted NMHC Chief Economist Mark Obrinsky. “While gateway metros are still generally facing lower occupancy and rent levels compared to a year ago, conditions now appear to be on an upward trajectory. On the other hand, many Sun Belt markets continue to see substantial rent growth and strength in fundamentals.”

The survey includes responses from over 100 CEO and other senior executives of apartment-related firms across the nation and tracks four indexes including Market Tightness, Sales Volume, Equity Financing, and Debt Financing. Results of the survey include:

  • The Market Tightness Index increased from 43 to 81, indicating tighter market conditions for the first time in six quarters. Two-thirds (67 percent) of respondents reported tighter market conditions than three months prior, compared to only 5 percent who reported looser conditions. Twenty-eight percent of respondents felt that conditions were no different from last quarter.
  • The Sales Volume Index increased from 53 to 77, marking the highest index level since October 2010. More than half (60 percent) of respondents reported higher sales volume than three months prior, while 31 percent deemed volume unchanged. Just 7 percent of respondents indicated lower sales volume from the previous quarter.
  • The Equity Financing Index increased from 58 to 68. While 42 percent of respondents reported that equity financing was more available than in the three months prior, a similar share of respondents (39 percent) believed equity financing conditions were unchanged during the same period. A smaller portion (6 percent) of respondents indicated equity financing was less available.
  • The Debt Financing Index decreased from 49 to 44. As the only index below the breakeven level, 23 percent of respondents reported better conditions for debt financing compared to three months prior, while 35 percent felt that financing conditions were worse. An additional 34 percent of respondents signaled that conditions were unchanged in the debt market.

Respondents were also asked if they were afforded any rent relief funding in their areas of operation. Almost half, 47 percent, reported successful accessing funds in at least some of their areas of operation, and only five percent in all areas of operations. About 25 percent of respondents claim they have not received any rent relief funding at this point. 16 percent of respondents reported receiving relief funding from local government or charitable organizations despite receiving zero federal funding. The last 11 percent of respondents signaled that they do not plan on accessing any federal rent relief.

Click here for the NMHC Quarterly Survey of Apartment Market Conditions for April 2021

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Gathering Accurate Submarket Data

When property managers are analyzing the performance of their communities and the surrounding competition, it is absolutely vital to collect accurate data. But the value of submarket data varies from metric to metric. So, how do you know what information to value the most?

Metro market reports provided by industry leaders in research offers undeniable value in terms of summarizing how a market is performing. But any manager relying on submarket information provided by such reports would be acting as a major disservice to the property they manage. Ultimately,  the surefire way of understanding how your property is performing in its specific submarket is to analyze the performance of the competing properties in the immediate surrounding areas. And the only way to understand how your competition is performing is by conducting market surveys.

Metro reports are great for providing a snapshot summary of the overall economic and housing trend in any given market. This is great information for managers when making strategic, market-wide decisions, predicting where/when certain locations might become more desirable in the future, and how to position in order to capitalize on unexpected opportunities. However, the most indicative information comes from strong submarket analysis and knowing what to do or how to apply the information in a productive manner.

The reason metro market reports are not a good source of submarket data is due to how the surveys are produced and conducted. For the most part, only a handful of properties are directly contacted by the researchers. The amount of time, money, and effort it would take for researchers to contact every property in a certain state would be immense and overwhelming. So the picture of a market’s performance has to be painted with a broader brush. Consequently, the submarket data suffers and the information can become misleading.

So, if metro reports are only good for a more general snapshot of a market’s performance, how does one understand performance on a submarket level? In the end, market surveys are the most effective way of gaining specific information about a submarket and how a manager’s property compares.

However, market surveys come with their own hurdles while gathering pertinent information. Onsite employees are often already stretched too thin to obtain accurate information or they are not always trained in knowing what to look or ask for. Other property managers can refuse to provide metrics on their community’s performance or might even give false information.

One way to combat uncooperative operators is simply building a relationship on a personal level. Property managers in the same submarket working together can result in a better product for all through healthy competition, so sometimes a rising tide raises all ships.

Another effective method is using a secret shopper. Sending someone to shop apartments at a competing complex who knows what questions to ask and what information to look for can provide invaluable data that can be difficult to accurately obtain using other methods. While an operator might resist providing occupancy numbers or upcoming amenities to a competing manager, they could be much more likely to divulge that information to a prospective tenant.


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Emerging Opportunities During COVID-19

As the COVID-19 pandemic continues longer than any of us may have predicted, the real estate landscape continues to shift. Some housing trends increase in prominence and some come to a grinding halt, all while new, emerging opportunities for growth present themselves. One door opens as others close, so to speak.  For example, the millennial-led migration from cities to suburbs has only gained momentum. Conversely, multifamily developers and managers have shifted strategies to attract new residents by promoting health and wellness movements rather than property amenities.

“Times of great change always present significant opportunities,” said Urban Land Institute (ULI) Global CEO W. Ed Walter during the recent ULI virtual fall conference. “In the near term, our suburbs will benefit from new growth spurred by shifting demographics and changes to living and working patterns resulting from the COVID-19 crisis.”

Earlier this month ULI published its Emerging Trends in Real Estate 2021 report, referencing insight from over 1,500 leaders in the real estate industry. Some of the following trends are on the rise during the COVID-19 pandemic:

  1. Smaller office footprints
    • Online meeting services such as Zoom and GoToMeeting have made working from home (WFH) easier and more efficient than ever. Businesses are realizing they can cut costs by reducing their office footprint with employees working remotely. According to the report, over 90 percent of real estate professionals expect companies to adopt at least a part-time WFH policy.
  2. Suburban migration
    • As previously mentioned, suburban migration, especially among Millennials, was a popular trend before the pandemic. Now, the desire for low-density living is higher than ever. As a result, the south has seen a large influx of growth from movers longing for the greater housing affordability the region has to offer.
  3. Retail vacancy
    • Over 80 percent of ULI survey respondents believe the pandemic has only accelerated a shift in the retail sector that was already emerging due to online competition. For example, large department stores like Macy’s experienced disastrous sales in March after closing stores for almost two weeks and reportedly losing the “majority” of its sales.
  4. State/local fiscal issues
    • The loss of revenue across the board is expected to cause a wake of fiscal challenges for state and local communities over the next few years. Real taxes, the main source of revenue for local governments, will likely fall due to a drop as hotels and retail centers lose value. Furthermore, pandemic concerns create a snowball effect by encouraging consumers to shop online even more while actively avoiding spending money in-person at retail stores, restaurants, or other local businesses.
  5. Safety and sanitation concerns
    • If anything positive has resulted from COVID-19 it is health, safety, and sanitation practices. Businesses around the world are (re)enforcing sanitation practices by requiring customers to wear facemasks, providing free hand sanitizer at common contact locations in-store, limiting maximum occupancy, and implementing social distancing efforts where a line or queue may form.

Click here for the ULI Emerging Trends in Real Estate 2021 report

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Rent Control Battle in California and Beyond

“Certainly there is a housing shortage, so we need to be building housing, but what we are also seeking to address is the crisis of displacement…We’re seeing vulnerable communities — people of color, elderly folks, people with disabilities, single parents, low-income people and the middle class — being pushed out of California and becoming homeless.”

One of the hottest items on California’s November voting ballot is a rent control initiative called Proposition 10. The proposal intends to repeal a 23-year-old state law that tightly limits all forms of rent control within California. The desire for rent control in California has coincided with the rising cost of living throughout the state.

According to The Sacramento Bee, the nonpartisan Legislative Analyst’s Office (LAO) reports “Soaring housing costs have led to a net loss of 1 million citizens who have fled California from 2007 to 2016…and homelessness is higher here than any other place in the nation.”

Despite the widespread support from community groups like the AIDS Healthcare Foundation, California Teachers Association, California Nurses Association, and many others, the latest poll by the Public Policy Institute of California reports,

“A whopping 60 percent of likely voters say they will vote against Proposition 10, a measure on the Nov. 6 statewide ballot that would repeal the state Costa-Hawkins Rental Housing Act, which strictly limits rent control in cities across California. Repeal would restore broad authority to cities to enact any rent control law they choose.”

According to the LAO’s analysis of Proposition 10, the proposed repeals could result in more harm than good. LAO analysts warned of declined new rental construction, removal of units from the market, and the value of housing possibly dropping. Any of these factors would directly affect local government property tax revenue, which equates to ~$60 billion every year.  Furthermore, enacting new rent control laws would require millions of dollars per year to enforce, and result in a decline in income tax revenue, especially from the newly-affected property owners and investors.

It is important to consider how these restrictive laws and proposals affect citizens, property owners and investors, and a state’s overall economy. And while Proposition 10 is exclusive to California, and rent control laws vary from state to state, the negatives effects outlined in the LAO analysis showcases how impactful the ongoing battle of rent control is from a real estate professional, owner, or investor standpoint.

Click here to learn more about Proposition 10 and rent control.

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An Expert’s Opinion

Yesterday we discussed some useful research tools commercial real estate professionals can take advantage of to gain insight on their targeted market. We highlighted Yardi Systems as one of the industry leaders in real estate investment and property management software by providing detailed analyses pertaining to market characteristics such as demographics, median incomes, and other important micro and macro indicators.

Today we will be listening to a recent interview provided by Multifamily 5, a podcast hosted by the Dallas-based multifamily broker, Mark Allen, aimed at interviewing real estate investors, brokers, and other industry pundits to learn some of their keys to success.

In this particular podcast, the leader of the Yardi Matrix team, Jeff Adler, discusses his top six markets that are poised for success in the near future, how the real estate industry interacts with Yardi Matrix software, the benefits of class B, value-add properties, future economic cycles, and much more.

Click here to hear Adler’s expert opinion on his top six markets and how to use Yardi software programs to gain a better understanding of your desired market.

Helpful Research Tools

Accurately assessing the real estate industry takes much more than a good hunch. Gaining a full understanding of a market takes years worth of knowledge and experience, solid relationships with other industry professionals, and continuous research to stay updated on current and future trends.

Fortunately, with so many useful tools, software programs, and other analytical technologies readily available, making well-informed, successful real estate decisions is more achievable than ever before.

For example, Yardi Systems, an industry leader in real estate investment and property management software, provides valuable research to real estate professionals in markets such as multifamily, single family, senior, military, and many other housing categories. Yardi also offers business solutions to other real estate market segments such as retail, self-storage, office, and industrial property types.

Click here for more information on Yardi multifamily research and business solutions: Yardi Matrix  

Aside from Yardi, there are numerous corporations such as CBRE, CoStar, and REIS who provide industry reports and research insights to assist asset managers and owners in making the most informed real estate decisions possible.

Check out tomorrow’s blog post for an in-depth interview between DFW-based multifamily broker, Mark Allen, and Jeff Adler, Vice President of Yardi Matrix Products. Discussions include Adler’s top six markets to keep an eye on and how industry professionals can benefit from Yardi Matrix Products.

The Advantages of Online Property Management Services

Recent technological advances have made online property management tools less expensive and easier to use, even for smaller portfolio owners and managers. Online portals and other software programs make the renting process easier for all parties involved. As a result, online services are no longer viewed a bonus for tenants, but more so an expectation.

Having the ability to pay rent online is arguably the best perk of online property management services. Paying rent online offers multiple benefits for renters. For example, tenants don’t have to take the time to hand-deliver their monthly rent check, setting up automatic online payments ensures their rent is paid on time, and it eliminates the possibility of a tangible rent payment being stolen, lost, or misplaced.

Owners and managers see similar advantages when tenants pay rent online. In a recent article for Multi-Housing News, Ray Szabo, residential and commercial property manager with Santa Barbara Real Estate & Investment, stated:

“Having an online payment system eliminates the opportunity for a myriad of excuses that residents have for why they weren’t able to pay their rent on time, such as issues with the mail, running out of checks and so on.”

But making and receiving rent payments is not the only benefit of online property management services. An invaluable resource of online property portals is the ability to centralize maintenance management. Tenants can issue maintenance requests in the touch of the button, schedule preferred repair times, and track when the request was issued and completed. 

On the other hand, the maintenance team has an organized system to promptly and efficiently maintain the well-being of the property. Furthermore, maintenance workers are held more accountable with the online portal documenting the maintenance progress throughout the property.

Online rent payments and maintenance management are only two of the many benefits of online property management services. If property owners and managers correctly utilize such services, managing the property and communicating with the property’s community should become more stable and effective.

Trump’s Affect on Multifamily, or Lack Thereof?

Since stepping into the political realm, Donald Trump has been one of the most polarizing figures in the world. And after being elected president, the real estate industry started holding its breath to see how Trump and his administration would impact the economy. Some were cautiously hopeful for business-friendly policies while others had their reserves about approval rates and beliefs.

Fast forward to today. Six months have passed since Trump entered the Oval Office and the economy has had some time to adjust to new leadership. But how have those adjustments affected the multifamily sector, if at all?

Recently, the National Apartment Association (NAA) issued anarticle examining how Trump has impacted the multifamily and real estate industry. A number of industry CEO’s such as Ric Campo of Camden Property Trust, Greg Mutz of AMLI Residential, and David Schwartz at Waterton chime in to tell how the political climate has affected their actions and the real estate market as a whole.

Click here to read the full article and gain insight on what the Trump election has meant to the real estate sector so far.

Apartment Demand Continues to Rise

Last week, Multifamily Executive published an article pertaining to the continuously rising demand for apartments across the country. Substantiated data provided by RealPage and Axiometrics indicate 2017’s second quarter meets less than half the current level of apartment demand.

Chief economist for RealPage, Greg Willett, accredits high apartment demand to strong job growth, limited loss of renters to home ownership, and attractive new apartment communities.

Click here for the full Multifamily Executive article and additional detailed statistics from RealPage and Axiometrics regarding apartment demand, occupany rates, and rent growth for the second quarter of 2017.

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Lowering Summertime Energy Costs

Summer is a fun time of the year, but it can also create a multitude of headaches for multifamily property owners.  For many regions of the country, the summertime heat can reach 100° Fahrenheit on a daily basis. As a result, residents consume an increased amount of energy to mitigate the heat.

Air conditioners constantly running, ceiling fans being left on,  personal auxiliary cooling devices, are just a few reasons for higher energy costs during the summer. Fortunately for property owners, there are proven steps to counteract some of the stifling energy bills that come along with summertime.

ProudGreenBuilding.com is a company focused on adopting high-performance strategies, systems and products for all types of buildings and multifamily homes. Furthermore, ProudGreenBuildings provides relevant digital information and knowledge needed to create dependable, efficient buildings. For example, the sustainability-focused company recently posted an article providing tips for lowering a multifamily property’s energy output.

Here are the three highlights of the article:

Quick and Easy Upgrades –Todd Feist, sustainability program manager at the Institute of Real Estate Management (IREM), said one of the easiest and most affordable things small-portfolio owners can do to make their properties more sustainable is upgrade the lighting.

“Inefficient lighting can take up a substantial part of a building’s energy profile, and upgrading to LED lighting is fairly simple and the return on investment is easy to measure and understand for a lot of people,” he said. Also, consider benchmarking, which Feist says is fundamental.

“You can’t manage what you don’t measure,” he said. The EPA created ENERGY STAR Portfolio Manager, a free energy management tool for owners looking to begin their journey toward sustainability.”

Timing Is Key – There are other common systems in multifamily buildings that consume a lot of energy, but they may not be as simple to upgrade for small-portfolio owners who have limited resources.

“Old HVAC systems are a drain on energy, but these can be a little more difficult to replace and the return on investment perhaps isn’t as apparent as upgraded lighting,” Feist said. “People usually want to use the HVAC to the end of its useful life, and then consider upgrading to a more efficient system at that point.”

It’s especially important to strategically time property improvements to not displace renters and disrupt inflows.

“A good time to complete upgrades is during lease turnover, when you can more easily swap out old equipment and fixtures for more sustainable options. If you have any big cosmetic or design renovations planned, this could also be a good time to make some energy-efficient upgrades,” he said.

Programs and Benefits – There has been an increase in state and federal programs promoting green energy in recent years, and it can be difficult to determine what you qualify for and which program is best suited for you. Since programs and tax benefits vary, Feist recommends checking out the DSIRE database, which is searchable by state.

Utilities companies are ramping up their offerings to promote energy efficiency by offering incentives. 

“A lot of times they will even go above that and offer walk-through’s and assessments of your property to identify opportunities for additional efficiency,” Feist said. “Depending on the program, the assessment could be free, and they’ll list out recommended upgrades and provide you with a quote.”

Financing companies have also increased their offerings to encourage sustainability. Well-known programs such as Fannie Mae’s Green Rewards program and Freddie Mac’s Green Advantage program are great options for small-balance owners improving existing properties.  Additionally, IREM created the Certified Sustainable Property program, a green-building certification that provides a framework for smaller owners and operators to get a handle on how to best make their properties energy efficient.

For small-balance multifamily owners, making sustainable, energy-efficient upgrades can require careful consideration.

“Owners and managers are being pulled in a million directions as it is, so it’s important to make upgrades that don’t require a huge shift in staff and resources,” Feist said. “Partner with providers that you trust, and don’t fall for improvements just for their flashiness. Make sure you have a thorough understanding of how all upgrades and improvements will benefit you and your residents.”

Click here for ProudGreenBuilding.com to learn more about energy efficiency and sustainable building strategies.