Q: Where do you think rents will go in 2007, and what factors will dictate their direction?
A: “Barring a recession, rents should rise in areas where demand is robust and vacancies are tight. For example, many areas in Southern and Northern California have vacancy rates below 3 percent. Last year rents rose from 4 to 8 percent and should continue to rise for 2006. By contrast, vacancy rates exceed 6 percent in many Texas and Midwest cities, and rents there will continue to remain flat.” –Delores Conway, director, Casden Real Estate Economics Forecast at USC Lusk Center for Real Estate, Los Angeles
Q: What factors will cause pricing decisions toward or away from the property level in 2007?
A: “Even in the context of centrally managed rent management decisions, it all comes back to interest rates. If interest rates stay where they are or go higher, pricing decisions will continue to migrate away from the property level in 2007, and consumer confidence will continue to remain where it is today.” –Allan Domb, president, Allan Domb Real Estate, Philadelphia
Q: Which apartment classes will grow the most next year, and what factors will cause that growth?
A: “I would expect growth to be pretty consistent across all apartment classes. At AEC, we have found that upgrades and renovations in most of our markets can be justified and result in higher rent increases. As markets have improved, residents are willing to pay more.” –Jeffrey Friedman, chairman, president and CEO, Associated Estates Realty Corp., Richmond Heights, Ohio
Q: Do you see any more industry consolidation in 2007?
A: Of course we anticipate industry consolidation in 2007, as the more poorly capitalized developers cannot survive. The major players enjoy economies of scale on purchasing decisions from marble in China to insurance.” –Alan Perlmutter, COO, Paramount Worldwide, Boca Raton, Fla.
Q: What amenities are you planning to offer residents in 2007?
A: “We have patiently waited for wireless technology to become more commonly used among residents. Since laptop computers and PDAs have come down in price, we will include WiFi technology in our current multifamily projects, Oasis and Dwell, in Orlando, Florida.” –Alon Barzilay, vice president of development and development partner, The Klein Co., Philadelphia
Q: What do you expect to happen with insurance costs in 2007?
A: “[I hope] this spike will resolve itself over the next few years. Long-term, the impact is uninsured losses due to higher deductibles and limits on wind-storm coverage. This will be felt in all areas prone to hurricanes.” –David Abbenante, president, HRI Management, New Orleans
Q: What are your expectations for land costs in 2007?
A: “Land costs are likely to remain stable or drop slightly. Buyers that jumped in late with the intention of flipping their property bought too high and now face a cooling market. Considering the high cost of land, construction, and insurance, it’s tough to make the numbers work at these elevated levels.” –Andy D’Jamoos, vice president, sales and marketing, The D’Jamoos Group, Naples, Fla.
Q: Where will energy costs go, and how are you dealing with them?
A: “Prices are going to remain high and go higher. Multifamily executives should look for new technology that helps us manage these costs, like thermostats or lighting systems with motion detectors or timers on natural gas boilers.” –Dusty Wolf, president, Centra Asset Partners, Houston
Q: What major training programs will you undertake in 2007?
A: “RSVP, an acronym for Responsive Service Visit Program, is part of our expanded resident retention training focus. Our expectation is that our frontline teams interact with our residents proactively and as often as possible–not just when they have a problem. This is one of the reasons our annualized resident turnover is 56 [percent] to 57 percent.” –Jeffrey Friedman, chairman, president and CEO, Associated Estates Realty Corp., Richmond Heights, Ohio
Q: What forms of capital do you see leaving and entering the multifamily arena in 2007, and what will prompt those movements?
A: “Smaller exchange buyers will ease up on investments as they evaluate alternative investments outside real estate. They’re not necessarily looking to divest, but they’re probably not going to be as active as they were in last five years. Institutional investors will be more aggressive, as real estate has now taken its rightful place in inst portfolios as an investment class.” –Steven Ludwig, principal, Coastline Capital Partners, Hermosa Beach, Calif.
Q: What is the major threat that could derail the multifamily recovery?
A: “An economic recession that resulted in serious job losses to local areas. Demand for homes and apartments would fall while the supply of vacant units would increase.” –Delores Conway, director, Casden Real Estate Economics Forecast at USC Lusk Center for Real Estate, Los Angeles
Q: Which under-the-radar issue will come to light in the next year, and what will bring it to the forefront?
A: Local government intervention: bond issues to raise capital for affordable housing, a moratorium on condo conversions, and more controls on re-development. Tensions between the city councils and the apartment industry could escalate.” –Barry Baker, vice president, Grubb & Ellis Co., Los Angeles
Q: What will the opportunities in multifamily be given the weakened condo market?
A: “The housing market is notorious for operating on a cyclical basis. The pendulum is now swinging from benefiting condo developers back towards the apartment developers. From a consumer perspective many ‘would-be’ condo buyers may stay in their current housing scenario, or they may shift their dollars towards high-end rental communities and wait for the next cycle in the condo market to take its effect. Land deals are destined to become more favorable to apartment developers. However, it may take anywhere from 6 to 18 months for us to witness the impact.” –Alon Barzilay, vice president of development and development partner, The Klein Co., Philadelphia
Q: What will be the challenges in multifamily after the condo fall-off?
A: “Energy, labor and materials costs are going up. And there’s no reason that will stop unless there’s a big recession. So rents will continue to go up but it’ll be a close race which–rents or costs–will go up faster.” –John McIlwain, senior resident fellow and J. Ronald Terwilliger chair for housing, Urban Land Institute, Washington, D.C.
Q: What big innovations in management are around the corner?
A: “Utilities reform. With energy costs varying wildly, it’s difficult for operators to pinpoint where annual expenses will be. That makes it difficult for us to hit our pro forma annual budgets. Tenants don’t feel it in their back pockets as California doesn’t allow landlords to pass on expenses that can’t be individually measured. I expect to see more energy-efficient construction of new properties and submetering on existing ones.” –Steven Ludwig, principal, Coastline Capital Partners, Hermosa Beach, Calif.
