Multifamily Insights Gleaned From NMHC.. Are we in the 7th Inning?

by Donald Davidoff | Jan 28, 2016 12:00:00 AM

I recently attended the NMHC annual meeting, and the effects of what is likely to be the biggest and longest bull run in multifamily housing in my career were certainly evident. In several conversations, I shared a belief that no one really knows how long this run will last. It seems like everyone likes using the baseball analogy, saying “we’re in the 7th inning.” However, I don’t think that’s the result of strong analysis. Rather, it’s simply a reflection that saying anything like the 3rd or 5th inning implies a Pollyanna-ish view since no one believes a run like this will last 5 or more years, while saying it’s the 9th inning would ignore current job growth and imply that a housing recession is just a quarter or two away. So being the data driven person I am, and using 3Q 2009 as the start of the current run (rents bottomed out in 2Q 2009), here’s what the baseball analogy portends depending on what inning you think we’re in (and presuming we’re “in the middle” of each inning): Inning Proj End 1 4Q71 2 3Q40 3 2Q30 4 1Q25 5 4Q21 6 4Q19 7 2Q18 8 2Q17 9 2Q16 While a perception that we are in the 7th inning is reasonable, anything from the 5th to the 8th seems plausible to me. With interest rates low, job growth strong, macro-demographics in our favor and construction still largely under control, why couldn’t we have another 5 years of strong growth? I’m not saying we will, but I’m also not saying we’re limited to only the 2 more years of growth that a 7th inning analogy implies. Other areas of interest and discussion at the conference included: Regulatory issues. The “as expected” concentration on regulatory and tax issues along with trying to understand what an election year that guarantees an administration change will mean for us. Along with this will come strong appeals to support NMHC’s Political Action Committee (PAC) so that the apartment industry has a strong voice. I’m no fan of how much money influences politics these days, but given the way the rules are set I think anyone who benefits from our industry should support a strong voice in regulatory affairs. The industry has been very good to me, and that’s why I’ve proudly donated each year for many years and gave Sue Ansel (the new chair of the PAC for this cycle) my donation at the conference. Diversity. It’s a plain and simple fact that the proportion of minority and female people at all levels, but particularly among leadership, does not reflect the diversity of our own customers (i.e. our residents). This is not simply an issue of fairness, or morality (or politics for the more cynical amongst us). It’s a matter of smart business. Many studies have shown that companies with more diversity outperform those with less. And how can we know what our customers truly want if most of our associates and leadership don’t represent them? Affordable housing. Housing affordability is a serious issue for middle and lower middle class workers. Perversely, the very bull run that is doing wonders for our balance sheets and P&Ls make affordability an even bigger issue. As a basic need, housing has a special place in the market. As such, ignoring issues of affordability will only lead to government and populist intervention that hurt our long-term potential. I don’t purport to have the solution, but I am very encouraged that NMHC has formed a formal committee to work on this and find appropriate ways to balance market-driven mechanisms with the need for our national workforce to be able to afford quality basic housing. I look forward to hearing what they recommend. As anyone who’s been to an NMHC Annual meeting knows, the focus is mostly on the deal-side of our business, but there are plenty of senior operators and operations-oriented vendors in attendance as well. I had the privilege of meeting with many of both, and here’s what seemed to resonate with them: As with the deal side, they too wonder how much longer strong rent growth will persist. There’s continued and growing emphasis on investing in people. Technology is important, but we’re still ultimately a people business. Several COOs expressed interest in learning more about how to align their team’s sales approach with the reality of how differently prospects buy today though candidly, they’re not quite sure how much they should invest and when they should take on such a change management activity There was a good bit of conversation around BI and benchmarking. Doug Bibby announced that NMHC would be forming a committee to define industry standards for key metrics like occupancy and rent. He went to great lengths to ensure everyone understands that NMHC’s role will strictly be to facilitate the definition of the metrics. Private industry will then be left on its own to leverage these common definitions in the creation of improved benchmarking and BI tools. Entering the conference, Rentlytics announced a new $9+ million round of financing lead by Walker and Dunlop demonstrating growing capacity for creating industry-based BI solutions while the Multifamily Data Exchange (disclosure: they’re a client of mine) continues to grow its network of participants in delivering the first set of benchmark metrics that are analogous to the Smith Travel Research reports that the hospitality industry enjoys. Interestingly, there wasn’t much discussion on marketing. This could be a reflection of COOs not worrying too much about leads given such high occupancy and rent growth, or it could be an oversight. I’ll leave that to the reader to decide. All in all, the state of our industry is healthy and robust. It was good to see that in action at the conference, and I look forward to an equally prosperous 2016.