16C — January 27 - February 9, 2017 — 2017 Forecast — M id A tlantic
Real Estate Journal
www.marejournal.com
PA M ultifamily M arket
By Clarke Talone, Marcus & Millichap Philadelphia MSA multifamily market poised for strong 2017
O
n the heels of anoth- er strong year, the Philadelphia apart-
quick run-up in rates after the election caused a temporary disruption in the marketplace
cap rates, as investors look to obtain the same cash on cash yield. However, several factors
for multifamily properties throughout the Philadelphia MSA. Despite a robust pipe- line of new apartments being developed, Philadelphia is a still a supply-constrained market with a vibrant econ- omy, creating a healthy ten- ant demand for apartments. Investors recognize this and want to capitalize on the sta- ble investment. Apartments are still the most attractive asset class. There is a supply/ demand imbalance that still favors sellers. Second - Apartments fea- ture the shortest leases of all asset classes, with the
exception of hotels. What this means is that owners are able to keep pace with the market and increase rents when the market is strong. If we truly are heading into an inflationary cycle, owners will be able to capitalize by increasing market rents. In an apartment community, leases expire each month, providing an owner with an opportunity to increase NOI monthly to combat rising interest rates. For this reason, apartments are not as interest-rate sen- sitive as other asset classes, such as long-termNNN leased properties with flat rents. Third - There is still a healthy gap, 375-400 basis points, between the average cap rate and the 10 year trea- sury rate. While this gap has closed since July, it is still well above historical standards. By comparison, at last peak of the market in 2006, this gap was only 160 basis points. Investors are still able to uti- lize near historic-low debt to obtain positive leverage. Investor demand for apart- ment assets remains robust as we enter 2017. There are certainly factors that bear watching as the year goes on, such as additional future rate increases and changes to the tax code. However, given the overwhelming investor demand for apartment proper- ties and the low interest rate environment, all key indica- tors point to a prosperous 2017 for the multifamily market. Clarke Talone is first vice president investments and associate director - Nation- al Multi Housing Group at Marcus & Millichap. n continued from page 7C NJ industrial real estate forecast. . . J. Trump, bring more inter- national investors, or will he bring upon unchartered ter- ritories causing capital mar- ket investors to stand on the sidelines and wait for the dust to settle? That is a question that only time can answer, but we believe even with a strong GOP presence this election, only modest changes will take effect and it will be back to business as usual. Jason Crimmins is presi- dent and principal of The Blau & Berg Company while Alex Conte acts as executive vice president and principal. n
ment mar - ket is poised to per f orm we l l aga i n in 2017. The hot topic du jour is the impact that rising inter- est rates will
“Given the overwhelming investor demand for apartment properties and the low interest rate environment, all key indicators point to a prosperous 2017 for the multifamily market.”
as investors digested the new interest rates, it does not ap- pear as though this will have a long-lasting negative impact on the market. The obvious assumption would be that rising interest rates will correlate to rising
come in to play when trying to forecast the impact. While rates will impact pricing, it is not likely to be a “basis point for basis point” correlation for the several reasons. First - There is still an in- credible amount of demand
Clarke Talone
have on the market. The 10 year treasury is up roughly 100 basis points since July. All signs are pointing towards additional rate increases in 2017 by the Fed. While the
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