however, was that the inventory I men- tioned a moment ago as peaking during 2018 would be absorbed so readily, so rapidly, and so well. I was pleasantly surprised to see over the past summer that absorption of new supply was far better than I anticipated, which had some positive and unforeseen results. Those results included: •  Occupancy rates stopped dropping, even on stabilized properties • Despite a growing prevalence of rental concessions, new multifami- ly supply is being absorbed •  Rents are moving forward or at least have stopped declining even in those core cities I mentioned earlier THEAFFORDABILITY ISSUE Of course, while stabilizing rents are good for landlords and other property owners, they are not necessarily good for individuals already worried about finding affordable housing. Stabiliz- ing rents, rising interest rates, and a shortage of housing at lower price points have combined to produce a high volume of discussions about what to do about affordability. The answer to the affordability issue is, however, mostly a local one. The problems associated with a housing un- affordability are local and, in nearly all cases, the solutions will be local as well. For example, in California, the shortage of affordable housing is largely due to local land use policies, local restric- tions and regulations, local population density, and local zoning requirements. There is no magic stroke (no matter what rent-control advocates may tell you) to will the problem away. It is a natural phenomenon: Where we would like to have housing the most is where we are least likely to have a lot of it.


CLASSA: Properties representing the highest-quality buildings in the market area. Tend to be built within the last 15 years and offer top amenities to high- income residents. CLASS B: Properties older than Class A with lower-income tenants. They usually have lower rents and fewer amenities but are well-maintained and usually represent “value-add” opportunities. CLASS C: These properties tend to be more than 20 years old and located in relatively undesirable locations. Class C properties tend to need renovation and may need to be brought up to code. 24-HOUR CITY: Densely populated metro areas that “operate” 24 hours a day. 18-HOUR CITY: A second-tier city with higher- than-average population growth that offers its population opportunities similar to cities that operate on a 24-hour basis. GATEWAYCITY: A city hosting an airport or seaport serving as an entry point to the country.

Don’t overlook emerging cities full of potential! Here are a few to consider when making your next investment:

• Indianapolis • Columbus • Pittsburgh • Philadelphia • Phoenix • Salt Lake City • Tampa • Orlando

Sector Breakdown: Multifamily Real Estate Trends in 2018 and Beyond THIS YEAR WAS PLEASANTLY SURPRISING FOR MULTIFAMILY INVESTORS.

Note: While these cities are not traditionally considered “tech hubs,” they are working hard to build that portion of their employee population. Tech experts are ideal citizens because they bring in steady income and tend to create real estate opportunities.

by Jeff Adler

he multifamily sector started off the year with some pretty big issues to watch. We end the year, on the whole, pleasantly surprised by the way some of the trends in our industry have developed and wholly intrigued by the potential represented by 2019. Entering 2018, most analysts and investors in this space had some basic things they were watching: •  The burgeoning supply of multi- family inventory and how it would be absorbed •  When and where inventory vol- umes would peak and how inven- T

•  Class B and C assets would likely perform better than class A assets •  Secondary markets and 18-hour cities would likely perform better for investors than primary, or “core,” and 24-hour cities, exclud- ing international gateway cities from the equation •  Certain cities, including Orlando, Las Vegas, Tampa, and Phoenix, would perform well in terms of rising rents in multifamily devel- opments year-over-year What I did not necessarily predict,

tory availability would shift in response

WHATDIDTHEAFFORDABILITY ISSUEMEANFORMARKETS THISYEARANDWHATWILL IT LIKELYMEAN INTO2019? When any inventory shortage hits a critical point, people begin fleeing high- cost locations. They do not necessarily

•  What ramifications the recently passed tax reform would have on our sector •  The national economy (most expected it to continue to be good) and how it would grow over the course of the year I had a few predictions of my own about this based on my experience as a former COO of an apartment REIT and the current vice president of Yardi®Ma- trix. They included:

> Continued on :: PG 96


Jeff Adler is vice president at Yardi® Matrix, which offers the industry's most

A property that has an occupancy rate of 80 percent for at least one calendar quarter.

comprehensive market intelligence service for multifamily, office, self- storage, and vacant land properties. Learn more at

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