If you are a service provider it is hard to use any of these findings to chart a course. When speaking with firms looking to enter the market (and there are many these days due to the bold headlines) I always try to caution against following these broad strokes and look at the day to day business of owners, operators and developers.
Core market fundamentals haven't changed much since we were bumping up against a 70% homeownership rate in 2005. I would assert that this is the most attractive attribute of multifamily housing: steady growth and sound fundamentals.
New construction will always be somewhat constrained, renovation will be a steady and growing activity, fragmentation of the market allows for huge operational efficiency spreads and investors will continue to view this market as a relatively stable performer. We read about the REITs daily but they control a small percentage of the market activity whether the news is good or bad.
So I encourage providers to come and consider the market opportunity, but remember that multifamily is not the new, new thing. There is no easy money and showing up doesn't deliver the payoff. There is plenty of room for providers committed to understanding and serving the market for the long haul.
Enough of my opinions, here is a viewpoint from the former editor of MFE, Alison Rice. She still does project work for Hanley Wood and represents clients in the multifamily industry. She sends me many of these headlines and I asked for her take on them.
Q: What do you make of all the multifamily housing headlines in the business press?
AR: Because no one can write about foreclosures and the subprime situation all the time. Plus, the crash in the single-family market has reminded people that renting is a perfectly acceptable and, in some cases, financially wiser, choice than homeownership, especially if buying that house requires overextending oneself financially and agreeing to a too-good-to-be-true mortgage that you don’t really understand. At the same time, there have been some big changes among top multifamily players (i.e., Archstone merging with Tishman and UDR moving upscale) that could affect both the composition and the priorities of the industry, so real estate reporters are watching to see what happens.
Q: Are current clients, and other industry players, truly spending more energy on refining operations these days?
AR: I think they have to, because the shadow market of condo and single-family home rentals has proved much larger than anyone expected. Apartment firms truly need to live up to the expectations they set with their residents, because renters today have their pick of living situations.
Q: Where do you see opportunities for service providers under current conditions?
AR: This is a sad observation to make, but given the volume of foreclosures, I see business opportunity for apartment firms and vendors who can serve families looking for a rental apartment, either because they lost their own home or their landlord lost the house that they rented. I see other opportunities in the broken condo arena, where apartment companies are getting deals on failed condos and reverting them to rentals. These deals are complicated and always vary from property to property, so I would think a service provider who could streamline any or all of the process for their multifamily clients (perhaps by finishing a renovation, communicating with individual unit owners, or re-educating the market about this again-rental property) would offer value.
Other thoughts out there?
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