I attended the CBRE Multi-Housing Conference this week, which was well attended by over 800 investment professionals from CBRE, along with many of their clients and partners. The event, with Pierce-Eislen as the principal sponsor, was much more focused this year on investment research and market results than in prior years. This probably more than anything else was due to a shift in interests from the clients that attended the meeting. During a number of the sessions, there continued to be both a cautious optimism among the participants as well as a recognition that we’re in a separate phase of the multifamily cycle. It was very interesting to me that the individual city analysis was looked at three different ways, something you don’t get to see very often.
First, Gleb Nechayev (CBRE economic advisors), Ray Torto (CBRE global chief economist and expert sailor) and Dan Fasulo (executive managing partner and soon to be newlywed, Real Capital Analytics) all presented a mostly global view of the economy with some detail on how the trends might affect multifamily. It was cautious because of some slowdowns and an unknown fed policy.
Then, there were discussions in different panels by a number of very thoughtful presenters including Jim Costello (CBRE) and Chris Adkins (LaSalle Investment Management) on cap rate trends. Ordinarily cap rate analysis is a cure for insomnia, except in this instance they showed what current levels of cap rates are and what investors needed to achieve in order to provide the returns their capital demanded. It was a sobering look at how competitive the markets really are. It also demonstrated that current underwriting assumptions might be too aggressive.
The third set of presentations by Ron Brock Sr. (Pierce-Eislen) and Brian McAuliffe (CBRE) went over market segments and demonstrated that now, perhaps more than ever, understanding the segmentation of renters between those by choice, workforce and mid-level is the difference between having pricing power or seeing a hole develop in your underwriting. Apartment markets are not all growing at the same rate, and as a matter of fact, many of the top 10 markets, or sexy six or whatever cute name you can use are now showing demonstrated weakness in pricing power. The fundamental message at the conference is this, that we’ve hit major growth strides in rent increases nationally, but selectively it will be slower going into 2013/2014.
Jack Kern is the research editor of Multi-housing News and Commercial Property Executive and frequently heads to Chicago for Cubs games. He does get regularly beaten up by White Sox fans each time he wears that ball cap.