Who’s At the helm?
Dig deep and you’ll find that the glowing numbers are most prevalent among the REITs. For instance, the publicly traded apartment REITs reported remarkable numbers in the first and second quarters. Most were in full recovery mode as REIT-wide net operating income (NOI) for the quarter rose from -2.2 percent to positive 2.8 percent and revenues rose from -0.2 percent to positive 0.7 percent, according to Keefe, Bruyette & Woods, an investment banking and brokerage firm based in New York. Still, while the quarter-over-quarter revenue and NOI are showing significant recovery, year-over-year data isn’t rebounding as strongly.
And the more institutional the company, the better the numbers.
REITs and institutional owners have also pushed toward the coasts and “high-barrier-to-entry” markets where it’s difficult to build (leading to little new supply and, ultimately, little competition); it’s difficult to buy (making it much harder for renters to flee for homeownership); and incomes are often high with job opportunities plentiful (at least, relatively speaking).
But even REITs in smaller markets have seen staggering improvement this year, though. Take Memphis-based Mid-America Apartment Communities. Its key markets are Dallas, Atlanta, and Jacksonville, Fla. Not exactly the Bay Area and New York. Yet it still saw rental rates jump 2.6 percent in the second quarter with occupancies above 96 percent.
Part of that is simply because the REITs and institutional owners invest in technology such as leasing revenue optimization (LRO), which has helped them move rents quickly coming out of the downturn. “The apartment REITs are pushing rents far more aggressively than metro areas are as a whole,” says Michael Levy, vice president of New York-based Macquarie Securities, which provides investment banking and financial services. “Their occupancy seems to be better as well. Compared to smaller operators with a couple of communities in their portfolio, the REITs are proactive in terms of moving rents up and down and offering concessions to address the needs of the market.” The recovery has also varied by asset class with high-grade properties (which usually have institutional owners) outpacing lower-grade apartments. Reis’ Severino says that the improvements in Class B assets are generally about 10 basis points behind what’s been seen at the Class A level. “Lower-level owners are seeing improvement to the same degree,” says Katie Pelczar, a real estate economist specializing in multifamily for the CoStar Group, a Bethesda, Md.-based provider of commercial real estate information, marketing, and analytic services. “In looking at the data by apartment class, there’s no question where the largest pop has really been. Class B has seen a little bit of improvement, but nothing like what we’re seeing in the Class A segment of the market.”
