I spent four days in Orlando recently at the Annual National Multihousing Council Conference. This conference is the largest industry event of the year and typically breaks over 4,000 people in attendance. The attendees and panelists include institutional and private owners, developers, private equity managers, lenders and vendors from across the country whose sole focus is the multifamily space.

I wanted to take a moment to share some of our key takeaways from this year’s session and where URS Capital Partner’s focus will be in the coming 12-24 months.

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  • First and foremost, the general consensus is that the long term fundamentals within our sector remain very strong. I will touch on this later, but even with the new supply peaking in the next 12 -18 months there will be steady demand for rental housing, especially “workforce” housing over the next several decades.
  • As I expected coming out of last year’s conference we will begin to see rent growth normalize, meaning the days of organic rent growth of 4-10% year over year have passed. Unless there is a value-add program being implemented we are expecting to see rent growth in the 2-3.5% range depending on the market over the next year or so.
  • Supply of Class A apartments is peaking over the next 12 -18 months in most markets forcing developers to be aggressive on their specials as competition increases to capture tenants in this class.
  • There is still a significant spread between C class or workforce housing rents and A class new developments.
  • The cost of construction for new development projects has increased significantly over the last several years making it nearly impossible to develop an affordable product.
  • Pricing is still aggressive on investment sales, as there continues to be a large appetite for multifamily from institutional investors, that said, Cap rates have likely hit there low point across all asset classes.
  • There is not much concern regarding interest rate movement over the next 12 -18 months. While we all believe the 10-year will likely normalize around 3%, we don’t expect tremendous volatility.
  • The spreads that Fannie and Freddie charge to borrow have narrowed allowing investors to secure 10-year fixed rate financing in the range of 4.5-4.75% depending on the size of the loan. This is still extremely attractive.
  • National vacancy rates are still floating around 5%.
  • The economy is growing along with jobs and that coupled with excellent demographics within our sector will make for a healthy 2018 and beyond in the multifamily sector.

In summary, I believe the best opportunity in today’s market is to stay in our lane and leverage the relationships and track record we have built over the last 9 years to acquire well positioned work force housing within in our targeted markets. I also believe there are very compelling fundamentals to acquire these assets utilizing 10-year fixed rate financing when possible and put a mid-to-long term hat on as the demand for this product will remain strong for decades to come.

If you’ve been thinking about investing in multifamily real estate, the time has never been better. URS has some exciting opportunities in 2018 for our investors. To become part of our investor network, be sure to click the image.