I recently read a very interesting article regarding the oncoming wave of rental housing for various demographics within the United States. The multifamily market has substantially grown since 2008 due to the increased number of financially distressed household within the housing market. Newly formed households have steered clear of the concept of homeownership (which I disagree with) and have focused on the flexibility of renting. This has created a unique opportunity within the multifamily arena and likewise spurred a distinct upswing in multifamily asset valuation over other real estate “food groups.” Freddie Mac’s Multifamily SVP David Brickman stated, “It’s an exciting time to be in this growing sector where it is projected that $1 trillion in capital and 10 million additional apartment units are needed in the next 10 years.” That’s an incredible number considering the financial hurdles that the real estate cycle is currently facing. More than 40 million households are now renting and this number will be consistently growing until job growth occurs in a sustained fashion throughout the US. With the drop in the U.S. homeownership rate and an emphasis on a demographic shift of 20-34 years olds looking for more rental communities, multifamily is a very interesting place to be.
In San Diego, I have personally seen ground up development for numerous apartment communities where all other developments are still at a stand still. The recent poll from Fannie Mae states that average asking rents will have an annualized increase of 4% with vacancy rates staying fairly stable in most markets, with a possible decline of vacancy rates to 6.25% across the United States by year end. An interesting twist to these statistics is that states with the largest rental growth area the states where property values took huge upswings during the boom era. Obviously the loss in equity in the households has resulted in a lack of confidence in homeownership and an increased demand for rentals. I still believe in the American Dream and the concept that purchasing a home, as a long-term investment, is a key aspect in household wealth creation. The multifamily buzz has created cap-rate compression across the United States and is even more pronounced within core markets. Legacy will be exploring multi-family plays in secondary states such as Arizona, where I believe multi-family can still be purchased at relatively large discounts to primary markets such as Los Angeles and San Diego. Either way, it is good to hear that some stability and confidence has occurred in the commercial realm, which will only spill over to other real estate investment vehicles.