Marcus & Millichap Multifamily Webinar: Overview, Challenges and Optimism

Affordability, talent and the economy were the main topics discussed at the recent Marcus & Millichap Multifamily Investment Forecast webinar. The panel, moderated by Marcus & Millichap’s John Sebree, agreed that the economic forecast remains somewhat murky, while affordability continues to be an issue when it comes to housing, in general, and multifamily, in particular. Furthermore, obtaining and retaining talent continue to be challenges for those in the multifamily sector.

Both Brendt Rusten (Dominium Apartments) and Bob Nicolls (Monarch Investment and Management Group) indicated that human resources issues are a concern. “Staffing is our biggest deal, and we spend a lot of time on it,” Rusten said. He added that Dominium Apartments has eight full-time recruiters on staff to address the need, with current employees encouraged to suggest referrals, as well. And compensation — “down to footwear and outer wear for guys working in the field during the winter,” Rusten said — is also important.

As for Monarch, employee engagement tops the list. “That’s critical to our organization,” Nicolls said. “Not just finding new people, but keeping the existing staff.”

On the affordability side, Nicolls and Rusten pointed out a problem when it comes to development, namely that it’s impossible to build Class B and C housing without subsidies. Adding to the problem, Rusten went on to say, is that municipal fees raise costs, while construction prices and labor shortages are additional factors to consider when it comes to construction and/or renovation. And, “another piece of the puzzle is the obsolesce of some of the stock,” Nicholls observed. “Value-add (investors/developers) come in, take a B or C product, puts money into it, then raise the rents.”

And, from the economic point of view, Marcus & Millichap’s John Chang brought up the “R” word — recession. There are questions about this, particularly as it pertains to the yield curve, which has been inverted. But Chang acknowledged the yield curve led to false positive, in other words, no recession in the past. “We won’t know, for another year, if we have something hanging over our head,” he said.

Chang went on to say that demographics, combined with steady job creation, is leading to more household formations and “the pace of construction isn’t keeping pace with formation.” This, in turn, is putting downward pressure on vacancy rates. And, when it comes to millennials — what Chang dubbed the “driving force in the renter world” — the question is whether that cohort will “move into a traditional home-buying sequence, or will push that back a little, as they did with marriage,” Chang said. “That is a key demo trend we need to keep track of.”

Finally, with the 2020 crystal ball not presenting a crystal forecast, Chang acknowledged optimism about the apartment sector, which will likely experience low vacancy rates. “Multifamily continues to perform extremely well, and we are continuing to see high rent growth,” Chang explained. The amount of capital continues to outpace the opportunity we see coming on the market . . . multifamily is still a preferred asset class.”

Pictured (L-R): John Sebree (Marcus & Millichap); Bob Nicolls (Monarch Investment and Management Group); Brendt Rusten (Dominium Apartments); John Chang (Marcus & Millichap)

For comments, questions or concerns, please contact Amy Sorter