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decreasing rents, or simply building for fees to keep themselves in business. If capital is available build- ing will remain bullish. The trend will most likely continue through 2019 and level to around $280,000 to $300,000 per unit for prop- erties with 50 plus units. The key to the game is new supply. The next 2-5 years with or without a mild recession the play is to run it out, and if you’re in it, to win it, your going to make money where the supply isn’t. That’s the sharpshooter’s game.
Expect a Bumpy 18-24 Months in Multifamily
7.0%
Marker size is proportionate to total units in each market as of Dec 2017 represents < 2.0% forecasted rent growth represents 2.0%-4.0% forecasted rent growth represents >4.0% forecasted rent growth
Nashville
6.0%
Seattle
Higher growth, potential supply absorption issues
Salt Lake City
5.0%
Slower growth, potential supply absorption issues
Miami
Charlotte
Austin
4.0%
San Jose
San Antonio
Houston
Boston
Northern New Jersey
Dallas Raleigh
Orange County
Atlanta
Kansas City
Orlando
Portland
3.0%
Tampa
Los Angeles
Bridgeport - New Haven Chicago
Denver
Tacoma
2.0%
Higher growth, not yet oversupplied
Twin Cities
San Diego
Baltimore
Jacksonville
Phoenix
Manhattan
Richmond
Las Vegas
Philadelphia
San Francisco
1.0%
Washington DC
Inland Empire
Sacramento
0.0%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Job Growth Year-Over-Year
Source: Yardi®Matrix
Anti-growth finds its way into the mix with challenges from immigration control and trade renegotiations. While the tone signals pro-growth, nothing substantive has taken place with infrastructure, healthcare or education reform. Localities are looking to put rent controls in place (particu- larly in California) pressures have been built from job growth and wealth creation because of intellectual capital and a very restrictive ability to build. Rather than look at free market approaches to resolving these issues the blame game falls on so called capitalists. Single family rentals are included and may help deter such controls from happening. NEWSUPPLYMATTERS Supply pressures continue to grow but is beginning to level out due to a combination of delays in construction along with the ability to get financing. Sharpshooters execute under pressure.
THE LABOR MARKET Follow the intellectual capital hubs.
The development of intellectual capital hubs and the cost advantages associated with them, bodes well for companies to move jobs to places that have a lower cost of living. The contin- ued expansion into these markets will only further establish the infrastructure all the while tax reform is accelerating it. Trust the process if you will. This is a slow process and works to investors favor because with time on their side they can decide at what stage of development they want to participate in a couple of emerging hubs with multiple points of entry. Tech Hubs are emerging in both formerly non-metro and tradition- ally overlooked cites. While investors may land in the secondary markets, property values are far more volatile, so their capital structure must be prepared for that level of potential volitivity in a downturn. Nevertheless, returns are more in secondary cities than in primary cities. There are a handful of cities at risk of over supply in the next 2 years. The concerns are lessened when considering a 5-year outlook. While property absorption along with new supply absorption run their course we still must-see stabilization take place. We are 18 to 24 months along for the ride before saying are we there yet?
“No Supply isWhere toBuy” A GAME FOR SHARPSHOOTERS.
by Harding Easley
hether you follow NBA Basketball or not, there is a good chance you have heard of LeBron James or Ste- phen Curry. They both have mastered being sharpshooters and win at the highest level as champions. The champions in this current cycle of multifamily real estate investing, will be sharpshooters. A sharpshooter in the industry has figured out the game and it will champion the next chapter as the market turns course. While the crosswinds send us empirical data. Economic growth, the labor market and federal policy can help with nar- rowing an investors market expectation gaps. The ship has set sail and the sharpshooters know they want to land in a market where supply isn’t. W
of growth. Growth is accelerating as indicated in the market for money (interest rates) and labor market pressures. Oil prices have made a positive impact for the short term. GDP and employ- ment are up. Labor markets have tightened, short-term rates have increased, and wages are rising. However, the sharpshooter proceeds with caution as the sea changes. While the portrait of demands in job and population may be a Picasso, the shift is trending to job creation in lower cost cities. Financing costs are up. Home ownership has and will continue to gradually rise to the tune of about 10 basis points a year in secondary cities. The economy tells us to focus on our net operating income outrunning our cost of debt. The focus in turn navigates us to markets that are not as affected by supply pressures. Capital is abundant, the risk to developers lies in whether they want to take on the increasing tide of construction cost and
No supply, is where you buy. A game for sharpshooters. •
FEDERAL POLICY U.S. Federal Policy is mildly pro-growth.
Harding Easley is an account executive at Yardi Matrix. Learn more at YardiMatrix.com or email Harding at Harding.Easley@Yardi.com.
Positive progress has been made with tax reform, regulatory relief and executive orders in energy, finance and labor costs.
IT’S THE ECONOMY The economy is in good shape and continues to show signs
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