Sam Chandan's State of Multifamily
We’re deep into the multifamily recovery, and significant amounts of inventory have come online around the country. (There's a decent chance that you're living in it right now.) But most markets continue to outperform expectations, Dr. Sam Chandan tells us.
The New York-based economist, just tapped as partner and chief strategy officer at Capri Capital Partners, says Q2 saw strong rent growth. His research firm, Chandan Economics, tracks multifamily with associated mortgages, and even those properties saw income growth that exceeded predictions, he says. Supply in most markets is not yet overwhelming compared to historic norms. In Capri’s hometown of Chicago, the surge of new properties is highly amenitized and focused on the urban core. While Chicago’s rent growth over the last couple of quarters trailed national numbers, that hasn’t deterred investors (just look at cap rates and debt yields), Sam says. He cautions on pricing for hotly contested apartment properties and the debt market, where the mortgage data show apartment lenders of all stripes taking significantly greater risk.
As the housing market stabilizes and we see more multifamily groundbreakings, rent growth will likely slow (DC is already struggling, and several markets and submarkets are overshooting on supply), particularly in the absence of strong wage growth for middle-income renters, Sam says. We are more than eight years past the beginning of the housing downturn, but today's higher housing prices are still not matched by sharply increasing home sales volume, he points out. The re-balancing is occurring at a snail’s pace, which means rental demand isn’t slowing despite affordability concerns as rents creep up.
Just back from more than a week of hiking in Tibet, Sam has noticed the microunit trend in high density markets. He doesn’t see it becoming the norm, but he says young households are clearly ready to make a trade-off. Given this environment of high rents and slow wage growth, Millennial renters are prioritizing a highly urban and transit-oriented location, with top-notch common amenities, over unit size.