Jay Parsons

With his confirmation by the Senate today, Scott Turner becomes the FIRST U.S. Secretary of Housing and Urban Development (HUD) to come into the job with actual experience producing housing supply on the private side.

... and also the 2nd former NFL player to hold the office.

His comments align with commentary I heard at NMHC's Annual Meeting last week about how some larger investment groups have redlined the city/county of L.A. for new development and acquisitions due to hostile environment there.

Also should note that EQR prefaced that comment by emphasizing their commitment to supporting residents and employees impacted by wildfires there, including contributing to relief efforts etc., and supporting anti-gouging price laws etc.

On earnings call today, the CEO of EQR (one of the nation's largest apartment owners) called out L.A.'s heavy-handed approach to apartment owners as a deterrent to new housing construction.

"If you want to encourage housing production you have to send the right signals."

Takeaways from NMHC's Annual Meeting Here are 21 things I took away from the multifamily investment industry's biggest event

For those interested in a more thorough recap, I wrote more details in my newsletter:
jayparsons.beehiiv.com/p/takeaways-...

10) Still big focus on occupancy and retention and resident experience. Vacant units = zero cashflow. Continued momentum on various tech to give residents and prospects on-demand service and faster solutions to basic processes/requests.

9) Lots of bullishness on 5-year outlook for Sun Belt as supply drops off but demand expected to remain strong. One panel listed DFW as only U.S. market favored to outperform in both 3- and 5-year outlooks.

... Some coastal cities (LA, SF, OAK, NYC, DC's Maryland suburbs) have been redlined by many institutions that previously favored gateway cities, for both development & acquisitions. "Gateway adjacent" markets (i.e. Orange County, Northern New Jersey) and politically stable suburbs remain favored.

8) Regulatory risk is MUCH bigger variable than ever. Some groups are even trying to figure out how to model future regulatory risk that could torpedo pro formas and exit strategies as occurred in places like St. Paul, MN, and Montgomery County, MD....

7) Banks are getting back in the game on construction loans. They're not looking to gain exposure, just to maintain it. As current projects finish and refinance to permanent debt, banks have little in the pipeline so are competing again on terms (but nothing crazy).

6) Some capital is looking at new development again, but don't expect a big flurry of new starts. Few projects pencil out. What does is typically lower-cost suburban garden, "cookie cutter" product. Challenge to build to today's market rents without subsidies, so big focus on construction costs.

5) More value-add strategies, but with very narrow buy box focused on higher-income suburbs in good school districts etc. (Few apartment renters have school-age kids, but school quality tends to be correlated with favored demand drivers.)

4) More broadly: There remains a gap between what institutional capital is targeting and what distress exists (older assets in less desirable submarkets, often with economic occupancy and cap ex challenges).

Because there’s little of it on the market, and the discounts aren’t that big (especially in suburbs) unless you’re buying in less-favored, high-risk markets like Los Angeles or Oakland.

... few deals pencil out with higher debt costs unless prices fall, and sellers are holding firm on prices.

3) Lots of groups raised capital targeting newer assets below replacement cost, and that strategy looks good on paper, but it’s proven (so far) very difficult to execute at any scale. Why?...

... completions are now trending downhill and should be below average by next year.

2) But deal flow is stagnant because of rates. It appeared 3-4 months ago that we could see sales volumes rebound as treasury yields dipped into 3s, but now we're back in mid-4s. This creates a math problem b/c ...

Multifamily's biggest investor event, NMHC Annual Meeting, wraps up today. Here are some takeaways:

1) Lots of short-term uncertainty due to rates, but mid/long-term bullishness with strong demand and falling supply. A 50-year peak in supply is currently pushing rents negative, but...

(Note these are apartment-style BTR communities -- typically platted multifamily, not the "excess inventory" homebuilder SFR homes in new subdivisions.)

Great chart from John Burns showing that more than HALF of the existing build-to-rent units were built in just the last two years.

It's a good reminder that we're still in the early innings of build-to-rent.

Good reminder that while interest rates are NOT well correlated with cap rates, they do have a tremendous impact on deal flow. Higher rates = fewer workable deals.

Any optimism for rebounding sales volumes is now on hold again. We could still see it in 2025, but probably not in the next few months.

As a result:

-- The apartment sales volume survey index came in at a four-quarter low.

-- The equity financing survey index came in at a five-quarter low.

-- The debt financing survey index came in at a six-quarter low.

It was rates, obviously. At the end of Q3 last year, the 10-year Treasury yields were back into the 3s. Today, they're in the upper 4s again.

What a difference 3 months make. This NMHC survey perfectly captures the mood swing among apartment executives.

Back in October, bullishness was at a 2-year high.

Here in January, optimism has been put on hold again.

What changed? Not supply, demand, rents or the economy.

Final numbers for 2024: Multifamily builders started 254,100 fewer units than they completed.

That's the second-biggest deficit on record, behind only 1974.

And multifamily starts in 2024 totaled lowest since 2013.

Yet another clear indicator that new apartment supply will plunge by 2026.

The rental housing business might be the most fragmented industry in the United States. Even the biggest owners are rounding errors in terms of market share.

No company comes close to owning even 1% of U.S. apartments or single-family rentals.

For anyone concerned about junk fees and hidden costs driving up rents, try to plan/entitle/permit/build/operate a new apartment property in a large U.S. city.

Miami is a tough market to analyze for housing bc there are so many unique variables with retirees, foreign investors/part-time residents, and of course landlocked.

States that actually build housing = more housing available = comparatively better affordability.

it's still a pretty small niche. certainly seeing more of it, but the vast majority of empty office buildings are not well suited for conversion to residential due to locations, floor plate sizes, costs, etc.

big questions for sure. i do think rent growth will re-accelerate, though nowhere near the peaks of what we saw in 2021-22. i would also think demand moderates, too. Tough/unlikely to maintain absorption numbers like that.