In fact, industry observers are virtually unanimous that—despite tighter underwriting—access to capital will be an issue only for the smallest of operators. For the larger community of multifamily executives, continued success in the industry will require finding market opportunities, securing business niches, and tightly managing NOIs as the tide of vacancies and unit turnovers adjust to the subprime fallout. “Keep your hands on the controls, and continue to seek out the best market intelligence that you can,” McCabe says. “I look out and see land prices coming down, increased rental demand, and I think that right now is a good time to get my acquisition guys looking at deals.”
Even Michael Sichenzia—who promises his mortgage fraud days are behind him—is bullish on the multifamily real estate market. Despite the subprime meltdown, he can’t help but offer a tip gleaned from his years of looking for market weaknesses to exploit. “If you have an economy where hundreds of thousands of people are in foreclosure and dealing with credit issues, I know exactly where I would be,” he says. “In affordable housing.”
Greener Pastures
Entrenched homeowners begin to see a rental market with conditions more appealing than those on the ownership side of the fence. Citing an unpredictable real estate market, fluctuating interest rates, and the susceptibility to foreclosure, 65 percent of homeowners now look favorably upon renting over owning, according to a survey by Harris Interactive commissioned by the Washington, D.C.-based National Apartment Association. The survey of 2,118 U.S. homeowners—results of which were released by NAA on May 13—also found that, if forced to return to the rental market, homeowners ranked a loss in privacy (62 percent) well above the inability to build equity (54 percent).
NAA president Doug Culkin points to the mobility advantages of renting and a higher level of amenities offered by property owners as reasons for the changing attitudes. He also suspects that the meltdown in the subprime lending market is coloring homeowner opinion regarding their investments. “There were 54,000 bankruptcies this year in the sub-prime market,” Culkin says. “While I hate to think it is going to get worse, we are not seeing anything that indicates that that number is going down, shrinking, or even stabilizing.”
In an effort to help born-again renters returning to apartments via foreclosure, NAA and the National Multi Housing Council are collaborating and encouraging their members to find ways to address credit problems or assist consumers in finding apartment homes. “There are a lot of people out there who need help,” Culkin says. “We want to do all we can.”
And while the survey results support what is already considered a buoyant multifamily industry, Culkin cautioned that all markets—particularly in real estate—are cyclical and executives should strategize accordingly. Nevertheless, NAA sees long-term demographics having a continued positive impact on the apartment market.
“We have baby boomers returning and echo boomers entering the rental market, and together, that is half the population of the United States,” Culkin says. “We also have 1 million people coming into the country legally every year, and the first place they typically live is in rental housing. [This] all offers numerous opportunities. We are pretty excited, and most of our members feel strongly about the future of the industry.”
NMHC agrees with Culkin’s rosy outlook. “The rental market continues its recovery as the single-family housing market struggles with sharp drops in demand and an oversupply of stock,” the council cited in its June 29 Washington Update newsletter. “More than a million households joined the ranks of renters in the last two years,” the newsletter said. “In fact, the growth in renter households—1.2 million in 2004-06—more than made up for losses in 2002-04.”
