From cap rates and a flight to yield to where investors are coming from and a crisis of affordability, here are five things we learned this morning at our 2016 Atlanta Multifamily Forum.
1. RENT GROWTH IS SLOWING
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Not just in Atlanta, but across the country, top-line apartment rent growth is slowing down. “We can't sustain this level of growth. 6%, 7%. Things are tremendous,” says Axiometrics' Jay Denton. “Just be aware at some point, we'll ease back to 3% to 4% rent growth.” CFLane's Brooks Castellaw echoed that, saying even in hot submarkets like Midtown or Buckhead, there's little chance every new development will hit the coveted $2.50/SF to $2.75/SF range. Most will be around $2.10/SF.
2. INVESTORS ARE HUNGRY FOR SECONDARY MARKETS
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Forget gateway cities. Investors are flocking to small American markets in a chase for better returns, says Colliers International's Will Mathews. “There's a flight to value-add,” he says. The most desirable apartment buys tend to be those between $20M and $50M in a market with strong demographics. “If you have value-add product that is well-located, that is really where the capital wants to be,” he says.
3. AFFORDABILITY WILL BE HUGE TOPIC
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Many of our panelists say housing affordability—especially apartment rents in urban centers—will be an even more pressing topic in the coming months. “You look around any of these cities, including Atlanta, gentrification is simply pushing out many of the people who were renting,” says AMLI Residential's Phil Tague (right). RADCO's Peter Fitzgerald (left) says housing affordability is already a crisis in some cities, but will rise to a national topic in the next five years. Integral's Vicki Lundy Wilbon (center) says cities need to consider solutions such as inclusionary zoning clauses or public/private partnerships.
4. FOREIGN INVESTORS FLOODING TERTIARY MARKETS
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In the quest for capital preservation, even smaller cities like Mobile are seeing investors from overseas buying apartments. Our panelists say money is coming from the West Coast, Israel and Middle Eastern sources, especially Bahrain. “They're buying it for the cash returns,” says Institutional Property Advisors' Brian Murdy. “They're looking at it as a way to eliminate currency risk. They win by just not losing.” Brooks says his firm is even eyeing markets like Houston, where investors have fled since the collapse of energy markets more than a year ago. That's because caps in Atlanta between Class-A to C deals is 4.5% to 6.5%, as tight a spread as he's ever seen here.
5. STILL LOTS OF MILLENNIALS LEFT TO RENT TO
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Phil (here with AGG's Andrew Siegel, our moderator) was quick to point out that there are still plenty of Millennials living in their parents' basements. And that could continue feed the demand for apartments for the foreseeable future. “We're just praying that the parents kick them out and guarantee their leases,” he quips. Peter says apartments in suburbia have been getting activity from families who still see suburban schools as better than urban public schools. “I think that public schools still really matter a lot,” he says.
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