Toomey agrees. He says increasing NOI and the absence of distress have several players interested in IPOs as an exit alternative to big portfolio sales unlikely to occur in 2011. “There is probably room to get three IPOs out, and one or two of them might be a re-IPO of a prior public company,” Toomey says. “I’m not aware of anyone that has any sentiment of selling into a big deal. I see companies going public as much more likely.”
#10 Development will Make a Command Performance.
Also increasingly likely in 2011 is a return to full-on apartment development and construction. With firms such as Wood Partners and Phoenix-based Alliance Residential launching major development initiatives in 2010, the race is on to get new product out of the dirt in time for deliveries in the 2012 to 2015 window of expected rent and NOI surges.
Unexpected absorption of the few complexes that opened last year also has several operator/developers looking to push groundbreaking dates forward. “All of our lease-up volumes are probably 50 percent better than pro forma, and our rents are 10 percent better,” Toomey says. “The concessionary levels are burning off quicker, and that’s why people are figuring they can be a lot more aggressive about development starts.”
Equally important, financing is suddenly available again from lenders, making the prospect of apartment building all the more real. “Wells Fargo, Bank of America, US Bank—all of these guys are back in business, even if they are only looking at opportunities in Washington, D.C., Boston, San Francisco, and the like,” says Fifield of Fifield Cos. “Some life companies are even looking at financing new construction. I think the big story a year from now will be that development is back.”
#11 Deal Volume Cranks, especially in the second half of 2011.
The result of all of these trends, of course, is a robust industry that, while not fully mended from economic recession and job loss, has matured from cautious to opportunistic optimism. As a result, the demand for apartment assets, the capital availability to purchase them, and the asset values that guarantee horizon returns for sellers will all culminate in the acceleration of deal volume, particularly toward the second half of the year. “I expect transaction volume to increase 30 percent to 40 percent in 2011, and that volume should increase as the year unfolds,” Alfieri says.
Toomey agrees and keys in on job growth as another major catalyst to deal flow during the latter part of 2011. “There is job growth out there, and the second half will be even better as more and more sectors of the economy start finding their job numbers,” he says. “When the jobs picture improves, then I say we’re off to the races again, meaning lots of volume, strong NOI growth, and lots of available financing. This industry is in good shape, and I think we’re going to have a damn good year.”
