Q3 Unveils Multi-Family Housing Sector’s Resilience

Many multi-family housing builders and developers continue to experience success, and in turn, investors are taking notice

The multi-family housing sector has experienced a great quarter for Q3, according to NAHB’S Multi-family Production Index (MPI) that was released last month. And while single family starts have improved year-over-year, millennials and even baby boomers are keeping the renting business afloat as homes are still unaffordable in many regions..

The MPI has increased one point each quarter this year, beginning with 54 in Q1 and currently up to 56 for Q3. This is also the 15th consecutive quarter in which the index has a reading above 50.

The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100. The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than those who report conditions are getting worse, according to NAHB.

Many multi-family builders and developers have experienced success among many regions throughout the U.S. In fact, investors continue to be attracted to multi-family developments as homeownership rates struggle to rebound.

For example, in October, Stuyvesant Town-Peter Cooper Village, the largest apartment complex in Manhattan, was sold for $5.3 billion to the Blackstone Group, a Wall Street investment firm. It has been noted as the biggest multi-family deal of 2015 thus far.

As per the terms of the deal with Mayor Bill de Blasio, Blackstone agreed to keep 5,000 units affordable for the area’s middle class for the next 20 years. In return, New York City agreed to waive $77 million in mortgage recording taxes and to arrange a $144 million low-interest loan for Blackstone through the Housing Development Corporation. This is an important factor for Mayor Bill de Blasio, who has promised to build or preserve 200,000 units of affordable housing in a city where the average price of an apartment has reached roughly $1 million.

Affordability remains a large concern not just for Manhattan, but throughout the nation. Stuart Zook, President of Monument Capital Management (MCM), saw an increase in the demand for workforce housing—predominantly in the Southwest, Southeast, Midwest, and Mid-Atlantic regions.

“Many people are seeking workforce housing out of necessity as luxury rentals or homeownership is not an option for them,” said Zook. “We will continue to experience a strong demand for workforce housing over the next 15 to 20 years.”

Monument Capital Management executes transactions on behalf of the three investment funds it directs. Under their first two funds, MCM has acquired more than $274 million of multi-family properties across the U.S. Their value-add company, Monument Real Estate Services, manages these properties.

“By providing upgrades, offering programs such as after school care and English lessons and fully understanding and meeting the needs of our residents, we have experienced high occupancy rates, and in turn, our investors have enjoyed a steady and good rate of return,” said Zook.

Accommodating the desires of renters among different demographics is key to the success of the multi-family market. With the eventual shift in millennials leading urban dweller lifestyles to more family-centered lives, multi-family builders and developers will ultimately have to shift their focus to larger, more spread out units to accommodate the wants and needs of this changing demographic.

While millennials continue to flock to multi-family developments for the urban feel and due to brimming single family home prices, the older and more financially-established millennials are attracted to amenities like upgraded design features and eco-friendly appliances. If integrated home technology is a possibility, then that only makes the space more attractive, according to Jonathan Zublena, director of sales and marketing for WoodTrac by Sauder.

However, contrary to millennials, baby boomers are attracted to neighborhood walkability, but are not willing to sacrifice living space for it. Yes, boomers often move toward multi-family to downsize, but they are not interested in the same kind of urban small-space living that millennials are. The absence of property taxes and the lack of maintenance liability are huge factors that drive this demographic to rent.

If MPI trends continue, the multi-family sector is expected to experience a robust 2016 and moving forward, as well.

“The consistent MPI reading over 50 aligns with the fact that the multi-family market has recovered and will continue to do well,” said NAHB Chief Economist David Crowe. “This positive growth is due in part to a strengthening labor market, which has enabled millennials to find jobs and create their own households.”

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