by Donald Davidoff | Oct 6, 2017 12:00:00 AM
The Maximize conference just ended. That’s four down (RealWorld, MFE, NMHC Fall Board Meeting and Maximize) and one more (NMHC OpTech) to go, and I’ll have survived the 2017 conference season!
In all seriousness, it’s been great to catch up with the many friends and colleagues we have in the industry; and the time on my flight is a great chance to reflect on some of the themes I’m observing throughout these meetings. In no particular order:
Market Conditions
While we’re clearly past “peak rent growth,” especially the 5+% growth we enjoyed for close to two years, all indications are that we’ve hit a very soft landing. Rent growth is in the 2.2-2.5% rate for the past several months, which is right in line with long-term historical averages. Macroeconomics are generally favorable; and while there are pockets of supply pressure in some markets, overall the prediction is that we’ll have a housing shortage over the long run unless development picks up.
Tax Reform
All eyes are on Congress as there could be substantial changes in several areas near and dear to real estate developers and operators: 1031 like kind exchanges, business interest deductions and carried interest just to name a few. I have no crystal ball, but given the wide range of philosophies among the Republican Senate caucus alone, it sure seems hard to see something passing only a party-line vote. If something passes, it seems clear that some of these treasured terms will be lost in exchange for a lower headline tax rate. Whether that will be a net gain, and if/how Congress will allow a transitional glide path is well beyond my prediction skills.
Density and Affordability for Millennials
20- and 30-somethings want to live in great urban locations, yet many are priced out of market-rate homes. That pain point seems to be spawning some very interesting entrepreneurial solutions. One is a growing number of start-ups creating networks for finding roommates. And with websites and online apps, they offer opportunities to find roommates more likely to get along. Another potential solution is the growth of “co-living” buildings. Co-living offers private bedrooms and bathrooms with shared kitchen and living space which decreases the square footage per person footprint thus making rents more affordable. Only time will tell whether these go mainstream or stay very niche…my crystal ball sure doesn’t see traditional rents becoming more affordable, so these are developments worth watching.
Short-term Rentals (STRs)
There are a very large number of companies offering services related to short-term rentals. Some rent our homes in order to re-rent them, some give us software platforms to manage STRs (both our own units and managing residents’ re-rentals) and others allow those who insist on not allowing STRs to identify, warn and eventually evict offenders. I still view STRs as just a demand stream to be managed (and leverage), and I think the industry is slowly coming around to this opinion. Though clearly, not everyone is in agreement, and some (as evidenced by Aimco suing AirBnB) may never get there. If/when we hit the next rental recession, it will be very interesting if operators suddenly get motivated about the idea as they seek incremental revenue streams.
Technology Investments
One of the most intriguing developments is John Helm’s creation of a real estate technology fund. This could create a very interesting network effect where members get a first look (and discounts) on new technology while start-ups get a jump start in their testing and growth. He’s well on his way to a goal to raise $100M, and he’s spoken publicly about Essex, MAA and UDR being on board as major investors. If you have any size, I’d advise you to take a look at this interesting development.
Artificial Intelligence
I spoke on this at MFE, and I’m moderating a fireside chat with representatives from IBM/Watson and Wayblazer at OpTech. I shared a dozen ways that AI could substantially alter and improve our business as I think AI is likely to be the next “game changer” on par or exceeding the likes of prospect portals, web-based PMS and revenue management. If you’re interested in talking more about AI, please reach out to me.
Looking forward to seeing a few of you at OpTech (and then at the NMHC Annual Meeting in January). Please take a moment to say Hello!