The Lay of the Land for Multifamily Housing

Can this year keep up with last?

By Armand Brachman

2012 was a banner year for multi-family rental housing, with the business seeing significant growth across the country. Will 2013 see continued booming business, or should the industry be prepared for change?

As a developer and owner of more than 25,000 rental units across the country, Dominium has seen significant growth over the past few years. In 2013, it expects that the pace of its business growth in the rental market will slow. Developers and owners should be prepared for insurance increases and changes to real estate tax rates, and maximizing revenues and controlling expenses will be the key to getting through the year.

Rental housing grew into a robust marketplace in 2012, with vacancy rates nationally hitting ten year lows earlier in the year while home ownership rates saw a slight decline from 2011. This equaled revenue growth for owners and managers of multifamily properties. In 2013, we foresee that the growth will continue in the rental housing market, but at a slower pace. The explosive growth in 2012 was a result of pent-up demand in the marketplace after several years of depressed economic growth.

The market is also waiting for the results of the fiscal cliff negotiations — undecided at the time of this writing — before making more big moves. The impact of these negotiations on the housing market is unknown. It is known, however, that a failure to negotiate a settlement will impact the pocketbooks of both the developers of rental properties and the residents they serve, and Dominium believes growth will be soft in both the general economy and the housing market until the tax question is resolved.

Natural disasters throughout 2012, like Hurricane Sandy and others, will hit insurance premiums hard. Even in areas unaffected by these events, the global nature of the economy will create a ripple effect. Rental housing owners and operators need to be prepared and plan for increased insurance premiums which will create pressure on operating expenses.

Additionally, the soft economy may lead cities and municipalities across the country to raise real estate taxes. Larger expenses with taxes and insurances have the potential to offset any gain in rental revenue, keeping operating incomes flat.

The good news is that with interest rates looking to stay low throughout 2013, there are great opportunities for new construction in both market rate and affordable housing. Despite the soft economy, now is the time to take advantage of low interest rates to build quality multifamily buildings that will provide a return on investment for years to come. In 2013 lenders will continue to be focused on the quality of the sponsors they work with, making track record and past commitments key to obtaining financing. Acquisition is also a key element of any business model impacted by trusted relationships with financial partners. Taking on troubled assets and seeing them through to success serves the bottom line and future development.

For property managers, even as demands on income increase, it’s important to maintain or improve the level of service provided to residents, and make sure property management are focused on the basics of customer satisfaction. Improved systems and procedures lead to improved consistency, which leads to better results. Dominium takes a hospitality outlook when it comes to operating apartments and it’s important to make customers feel valued and appreciated. Multifamily property management is truly a sales and services business.

The success of a property is dependent on the satisfaction of residents, which makes it vital to not cut back on services, upgrades or repairs even during tough economic times. A multifamily rental property is a long-term investment and taking the short view of turning the property quickly and only focusing on short-term returns is a mistake that is all too commonly made.

Additionally, with more and more renters entering the market, the industry needs to take a closer look at screening procedures. Careful credit and background checks have become more important with the influx of renters in the market in order to maintain a successful property.

Overall, 2013 may not see the same explosive growth in the multifamily rental market as 2012, but there is believed to be opportunity for both short-term and long-term growth. Managing the pressure on operating expenses while maintaining income is the key to seeing a successful 2013.

Armand Brachman is co-managing partner at Dominium. For more information visit www.dominiumapartments.com.

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