The multifamily engine may be finally showing signs of deceleration. (It's been a while. The last time anyone could say that, cave drawings were an amenity.)
Make no mistake,
yesterday at our 4th Annual
Atlanta Multifamily Summit, all the panelists said apartment fundamentals are above expectations. But at least one—AMLI Residential Partners CEO
Greg Mutz sees a caution flag. Heading into 2014, "there's no question there will be
more pressure" as more units come online and construction costs continue to rise. Greg says same-store rent growth
was 7% in 2012 and will be
5% this year. By 2014, AMLI's shooting for
up to 4.25% rent growth. "We're trying to be
realistic in '14."
Post Properties'
Dave Stockert echoed some of those concerns to our audience of
400 at the Grand Hyatt Buckhead, where same-store rent revenue growth went from
7% in 2012 and will clock in about 4.5% this year. "As a public company, that creates a little
consternation in the market because 4.5% revenue growth is still good by historical standards, but when you're coming off of 7%, it looks like a
pretty material slowing." (Our layman's terms: Picking up 4.5 women at a bar is great...unless the previous night you picked up 7—or if the other half of that woman is her boyfriend.)
Nonetheless, all our apartment owner/developer panelists say both
leasing velocity and
rent growth are above pro forma expectations. And while there may be some slowing, this
multifamily boom cycle still has quite a ways to go. "I feel better about
where we are today than with respect to supply than I said where we were nine months ago," says Gables Residential CEO
Sue Ansel. (Don't feel bad. Nine months ago, we told our son he could get a Porsche when the US government ceases to exist. We all make mistakes.)
Greg (right, with CohnReznick's
Jonathan Bartlett, who moderated, Dave, and Sue) says to remember that apartments are still a commodity, and at some point there will be
oversupply: "Corn's corn. And when you grow row to row, and you got too much corn there's no question you got oversupply, and
there's no question it's coming." Probably not in 2014, but "somewhere out there we'll overdo it and
rents will soften." Even so, rent growth may soften to 3.5%, which even at that level, most apartment developers will cover underwriting. "I happen to believe we're in a
fairly decent longer-term stretch."
