Multifamily Trends: Sales, Industry and the Sharing Economy

In this past month, I attended the NMHC Fall Board conference and MFE’s annual conference in Las Vegas. There were a few interesting things I saw and heard and would like to share:

The sharing economy is front and center in conversations. On the first day of the fall Board meeting, AirBnB announced their new apartment owners program with a video link presentation from Jaja Jackson. The AirBnB program specifically addresses how owners can control and benefit financially from authorizing renters to put their units up on AirBnB where local laws and regulations allow it. The program also includes liability protection and other benefits for owners.

Separate from this program, owners wanting to be more aggressive leveraging AirBnB can allow businesses who they know will place the units on share sites to rent with no sub-leasing prohibition, and/or owners can participate directly by placing units on sites like AirBnB themselves..

I know many in our industry are worried about any of these options. As a demand management and pricing strategist, I think those who let these fears get in the way of leveraging a high-yield segment are missing an opportunity, especially given how hard it is to move the revenue needle in our business. Of course, my comments are limited to jurisdictions that don’t prohibit short-term rental of housing units. Where allowed, however, this can be a material advantage.

For example, I met an owner from Kansas City who was testing renting two units to a small business that placed units on AirBnB. This business was paying a 60% premium for those units on a 12-month lease. Assuming a $1200 average rent and a 6.5% cap rate, that’s $17,280 in incremental revenue and a valuation increase north of $265,000. Assume a 250-unit community, and that’s the same as a 5bps increase in rent on the entire property coming from just 2 units. I’m just suggesting that’s not something to ignore.

The industry matters to Congress. I was impressed at how many senators and congressional representatives met with us at the NMHC meeting. They understand that the multifamily housing finance system is working and any “fix” of the GSE problem needs to make sure that it doesn’t break what’s working in our industry. When I joined the industry 15+ years ago, I’m not sure they could have spelled “MFH.” This progress, which protects the livelihood we all have, is only because of the dedication of organizations like NMHC and the PAC money that allows us to be heard. It doesn’t buy us votes, but it does get access to be heard.

Philosophically, I’m no fan of how much money permeates politics. But if these are the rules, then we need to play the game. That’s why I’ve been a donor to the NMHC PAC for many years and encourage everyone who depends on the industry for a living to do so as well. The meetings in DC two weeks ago proved how much that money works for all of us.

No one knows when the bull run in MFH will end. Tired of baseball “inning” analogies? So am I. We all know that we’re past peak rent growth, but we still have rent growth above or near historical averages. So we don’t seem to be all that close to a rent recession (i.e. negative YOY rent growth). And this is despite one of the crazier presidential election cycles ever, Brexit, and increased terrorism threats.

Job growth, while not spectacular, is still steady. And wage growth suddenly jumped according the annual Census Bureau report on median incomes. So I don’t have any special crystal ball, but I don’t see a rental recession for at least a couple of more years. And it feels that any recession would be a much softer landing than we saw in 2008-09.

There’s still not enough of a conversation on sales. Sorry if this sounds like a broken record, but the operations-oriented panels talked about technology innovation, package handling, attracting long-term tenants, and reputation management. All of these conversations are useful, but none have the potential impact to our revenue that improving sales performance would have.

Overall, it’s still a great time to be in the apartment business, and I look forward to seeing many of you at Maximize, OpTech and/or the NMHC Annual Meeting over the next few months!