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Big Cities Hold Keys for Apartment REITs
Connect Apartments is coming up on June 26th in Los Angeles. Here’s a link to find out more about the conference and register.
Apartment owners have enjoyed market conditions that have largely smiled on them since the end of the last recession. A host of market dynamics are aligned to support that investment strategy – ranging from strong employment conditions, to an economy that favored renting rather than owning.
A new report by Morningstar indicates they “expect multifamily REITs with greater exposure to the more challenging markets in and around New York City and Washington to see slower rent growth and possibly higher vacancies during the next year or two.” Yet, Morningstar does not anticipate any meaningful deterioration in their ability to generate solid net operating income and meet their financial obligations.
Key report findings:
– Five major metros have an outsize influence on the portfolio performance of four of the largest multifamily REITs. The cities and surrounding areas of New York City, Washington, DC, Boston, Los Angeles, and San Francisco collectively contribute 90% or more to the net operating income of AvalonBay Communities, Inc. and Equity Residential, and more than 65% for UDR, Inc.
– Essex Property Trust, Inc. has portfolio holdings only on the Pacific Coast, though it does derive more than 80% of its net operating income from the Los Angeles and San Francisco Bay areas.
– Heightened deliveries of new apartments, in and around New York City and Washington, D.C., will drag on near-term rent growth this year and next.
– Exposure to better-performing Pacific Coast metros will serve to mitigate weaker markets.
– Regionally-diverse portfolios, solid balance sheets, and strong management teams will enable the affected REITs to comfortably weather relatively weaker market conditions.
For comments, questions or concerns, please contact Dennis Kaiser
