The National Multihousing Conference (NMHC) is an amazing, focused, informative, crazy, hyper-scheduled opportunity for those in attendance to literally be in the FLOW of the multihousing world. Going in, you don’t know what to expect; going out, you know what to do and why!
Here are my five biggest takeaways from this year’s conference:
- Buyers, Funds, Investors, REIT’s…are BULLISH on multihousing in 2017!Post-election, there has been a pause in activity, but the consensus is that 2017 is going to be a big year in multihousing! Syndicators and funds are going to suppress investor expectations on returns, but on a relative basis there is a path to success in 2017 vs. alternative investments. Certainly the “risk vs. reward” at this point trends toward the positive with little downside in multihousing investment in 2017. There is optimism with the change in administration that pro-growth fiscal policy is out there, which would extend the current cycle a few more years.
- Affordable Housing is the ELEPHANT IN THE ROOM. I envision a literal elephant standing in my hotel room as I write this, as it cannot be ignored! During the last few years, in basically every market, developers have built nothing but high-quality upper-end units (I joke PENTHOUSES), leaving the majority of the population fighting over historic apartment stock that is more affordable. Growing demand and unchanging to diminishing supply (in that sector) has moved rents up in the B and C space dramatically.
- Value-add is THE BUZZWORD. While some investors joked that they were tired of hearing “value-add” because everything is a value-add (one fund mentioned they saw a brand new deal marketed that said “value-add” because it didn’t use granite countertops!), value-add is the game in 2017. As affordable housing has seen increased demand, and Class A has jumped to a level of its own through the “amenities arms race”, we have developed a large gap and huge demand. Investors have moved, with GREAT success, to rehabbing B and C properties out of the era they were built, but keeping them “more affordable” than the Class A space. With the vast majority of apartments in the nation aging, this sector will see the most activity in 2017! (May I just add that this will put MORE pressure on the need for affordable housing as noted in #2!)
- LIHTC and Tax Credits have been affected negatively by the election!Developers of tax credit and LIHTC (Low Income Housing and Tax Credit) properties have seen their world frozen. With the expectation of the Trump Administration lowering taxes, it has made the secondary market for tax credit buying less interested in buying those tax credits. Developers and value-add buyers looking to use the capital from selling the tax credits are finding their margins gone and the secondary market waiting to figure out what the tax credits are actually worth. Until then, look for a pause in LIHTC developments, as present tax credit demand has been reduced. (Again – may I note that this will also put even MORE pressure on affordable housing!)
- There is unprecedented CAPITAL for multihousing in 2017!We met with dozens of funds, REITs, syndicators, high net worth individuals/groups, and more who all have more capital to deploy than there are deals available! 2017 is turning out to be an extremely dynamic year as rising interest rates have put pressure on Class A projects (because we’ve seen softening in Class A rents and occupancies), but B and C value-add deals can already absorb a lot of the initial increase. The truly UNPRECEDENTED capital that has been raised to buy apartments in 2017 makes sense – the multihousing market has experienced so much success and positive demographic trends over the last few years, combined with the vast majority of supply being “penthouses”, that there really is little to no downside. Investors seeing the success and wanting to “get in” have skyrocketed. I met with five funds alone that have raised between $1 and $2 billion to invest in US multihousing in 2017! I literally counted over $10 BILLION in active money to invest. I just want to help 1/10 of that money get into Utah! Demand for Wasatch Front multihousing is at an all-time high, yet is tempered by both future and existing investor frustration over lack of deliverable product. As a result, buyers are looking in other markets such as Albuquerque, Colorado Springs, etc. It is my continuing goal to bring them to Utah!
Wants & Needs Coming Out of NMHC 2017:
- Immediate 1031 buyer need – up to $35,000,000
- Multiple buyers looking for large portfolio plays
- Value-add 1960s, 70s, 80s, 90s, & 2000s apartment stock
- Core plus single assets and investment grade portfolios
- Multi-light value-add
- I was grateful to discover that one of the funds I met with is very interested in preserving the existing market-rate affordable stock throughout the country. I am hoping to complete some deals with them in the state of Utah. As I addressed in the NAIOP Symposium and as was discussed extensively at NMHC, with so much interest in value-add opportunities to reposition and re-tenant properties, I am indeed grateful to have discovered a fund interested in light renovations, but also sustaining the existing rental stock by repositioning well-preserved communities with modest rent increases, yet maintaining affordability within that specific demographic.
- The buying interest in Salt Lake City is unprecedented with as much abundant capital as ever! Plan on me connecting with you on the phone over the next 30-60 days to see if I can help you capitalize on this interest!
2017 is the year to perform value-add to your aged apartment portfolio. It may be the last year to refinance and make debt strategy implementation for the next cycle. 2017 will see reduced profits for developers of Class A deals, as 60% of the deals under contract have been re-traded for the rise in interest rates with limited opportunity for increased rents to offset pricing like B’s and C’s. 2017 volume is expected to be down and 2017 portfolio sales might see an increase.
I am grateful to be in the FLOW. My goal is to help this WAVE of CAPITAL move into the Utah market, and while challenges certainly exist (finding reasons for sellers to sell, alternative investments to 1031 exchange into, etc.), I cannot ignore the opportunity we have in 2017!