Tag Archives: Marcus-Millichap

The Apartment Market Forecast in Headlines

Multifamily Industry Expects Strong 2011

Multi Housing News (MHNonline) 11-29-2010

Apartment Market at Tipping Point

Colorado Springs Business Journal 2-4-2011

Distressed Debt Investors Prefer Real Estate in 2011

Forbes.com 1-7-2011

CRE Sales Deal Volume Returning to “Normal Levels”

CoStar Group 1-5-2011

Colorado Exceeded Only by Texas as 2010 Relocation Target

denverpost.com 1-4-11

Apartment Operators Regain Pricing Power as Vacancy Recedes to 10-Year Low

Marcus & Millichap 2011 Annual Report (Denver)

As you can see, apartments are the current darling of the commercial real estate world in the United States. The major factors in this trend include a huge number of 18-34 year olds forming their own households, continued high number of residential foreclosures, general population growth via births and immigration, and a lack of any significant apartment developments completed recently or in the pipeline.

In addition, REITs have apparently stopped waiting for the predicted wave of distressed deals and are scooping up Class A properties in high-barrier-to-entry markets such as Washington, D.C., New York City and San Francisco. Since they’re buying in the 5-5.5 cap rate range, it’s apparent they believe in these purchases as long-term holds. Insurance companies, dormant in the field for the last few years, are also returning to the market as both buyers and lenders.

All this has combined to make the next few years perhaps the best time to buy apartments we will see in our lifetimes.

Marcus & Millichap U.S. Apartment Outlook 1st Quarter 2010

Just updated! Be sure to see the new version for January 2011.


Marcus & Millichap is one of the nation’s largest real estate investment firms. Nearly every quarter they webcast a summary of the current and near future conditions of the multifamily market. The most recent one was released  on May 13, and included the numbers from the first quarter of 2010. Following are a few of the highlights.

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The first section was on the U. S. economy as a whole. Most of their comments were positive and upbeat. Employment is neutral or better, retail sales are coming back strongly, the employment trends are becoming positive and inflation is not a major concern. However, the housing recovery is still volatile. Thanks in part to the tax credit for first-time home buyers, the housing inventory is dropping and sales are rising. However, it’s too early to tell how the end of the tax credit will affect these trends, but it probably won’t enhance them.

People who are 18-34 years old make up the largest cohort of potential apartment residents, and 20 million of them are living at home, with that number still rising. Also, the unemployment rate for that age group is substantially higher than the not-so-great national average. Once the job market returns to full throttle, many of these people will be looking for a place of their own. That’s good news for apartment owners, but it does lie a year or two in the future.

The middle section was on capital market trends. It started off on a positive note, saying that confidence is returning, as shown by a recent rise in the number of multifamily property sales.

Deals are getting done. Freddie, Fannie and HUD are major lenders, and some local and regional banks are lending. It looks like insurance companies are starting to get interested in the multifamily market again, as well.

On the other hand, investors are up against constrained underwriting standards. Lenders are dealing with three major concerns. First of all, it’s difficult to determine values with so few sales to look at. Also, property fundamentals are still going down in some markets. Plus, they are concerned about the shadow market.

And lingering over everything is the current Euro debt crisis. The U. S. hasn’t been hit much by it yet, but as we’ve recently learned, all the markets are intertwined to a certain extent.

The final section was specifically about the apartment market.

For several cycles now, Marcus & Millichap has divided apartment investors into two camps. On the one hand are those who believe in the long-term inherent value of apartments. Most of these are would-be sellers and are hanging on to their properties if they can, believing good times are just around the corner. Forced to sell, they price their properties to reflect their belief in its value.

On the other hand are investors who are interested in buying now, but are dealing with hard-to-get loans, high vacancy and falling rents. Some are still anticipating a wave of foreclosures that could bring deep discounts. So you can see why there is a wide gap between sellers and buyers, resulting in infrequent sales.

However, there are signs that 2010 will see an increase in transactional velocity. In the first quarter of 2010, there was a 60% increase in dollars paid for properties worth at least $10 million, compared to the year before.

Another sign is the shift in who is buying now. More sophisticated groups are getting back in. In 2009, REITs made up only 5% of the multifamily buyers. But in the first quarter of 2010, they made up 18% of the buying pool. Similarly, institutional buyers grew from 5% to15%.

They concluded with a slide listing the seven reasons Marcus & Millichap is bullish on the apartment market for the next ten years.

  1. The population will continue to grow.
  2. The echo-boomers will start getting places of their own.
  3. Apartments are a good environmental housing choice.
  4. Budget and expense factors.
  5. No new stock coming online
  6. Apartments are more affordable than houses.
  7. Many will decide home ownership is no longer their dream.

The Marcus & Millichap team plans to put on another session roughly every 90 days, so look for the next one in August. To see the entire presentation, click here.

And here is where you can see the apartment forecast for 2011.

Marcus & Millichap Apartment Overview and Outlook -Jan 2010

On January 26, Marcus & Millichap presented a one hour webcast that summarized their current view of the economy and specifically the apartment industry. As the third largest apartment broker in the country, they have access to a lot of people and a lot of data. Luckily, the two presenters do a good job clarifying complex topics and trends.

Across the Channel
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The main theme of the presentation was that there are many reasons to be optimistic, but the next surge upward is still a couple years away.

The job trend is improving, however slightly; inventories have dropped steeply, but are now growing again. In the last four months, temp jobs have been added, which is usually an early indicator of job growth on a larger scale. The housing inventory is dropping, down 22% in single family houses and down 33% for condos from the year before.

However…Employment is down even in the top performing metros like Austin and Washington D.C. The growth in employment, when it comes, is expected to lag behind previous recoveries after a recession.

Apartment vacancies seem to track the unemployment rate, and that rate is approaching 12% among the prime apartment-renting 20-34 year olds. Current vacancy rates range from the 3.4% in NYC, to 14.5% in Jacksonville, FL.

The “shadow” market is a significant factor in rising vacancies. This term refers to the number of people who either recently moved back home, or got a roommate, meaning that where two apartments were rented last year, only one is this year. This shadow market is estimated to involve 1-1.5 million people. In order to fight this trend, owners have lowered both the asking rent and the effective rent, which factors in concessions.

In discussing the capital markets, they stressed that the reality is better than the perception you can get from the media. Multifamily debt remains relatively healthy compared to other sectors. Fannie and Freddie both are experiencing only a half percent default rate on their mortgages, and are currently offering multifamily loans in the 6% range. They are a source of stability and liquidity to the industry.

As in previous webcasts, Marcus & Millichap are still dividing apartment investors into two camps. One side believes in the long term investment value of apartment investing. They believe that the disparity between future demand and current construction favors appreciation. They believe apartments remain a preferred investment vehicle, with few viable alternatives. These guys will hold on for now unless forced by circumstance.

The other group looks at the short term transactional value of doing an apartment deal now and sees that debt and equity are harder and more expensive to obtain. Also, they still expect a lot of good deals to come on the market soon as owners find their buildings no longer have enough value to allow a refinance of the loan that’s coming due. These buyers are looking for a deal.

In the last 120 days we have seen buyers further dividing into two camps. The first looks at the backlog of challenged assets the banks are sitting on and believe that deep discounts are around the corner. The others think the market is already at the bottom or very close to it. They may be able to create a high leverage deal through keeping the current loan in place. They’re also expecting a strong recovery in 2011. So at least one type of buyer is moving back into some markets, while others sit on the sidelines waiting to pounce when the deals start popping.

The sales trend for apartments accelerated toward the end of 2009. That’s a good thing, because the number of sales dropped 70% from its peak in 2006 for apartments from $1-10 million, and 86% in apartments worth over $20 million. The good news is that the last four months of 2009 saw 60% of the closings for the entire year.


The U.S. population is predicted to grow by 94 million in the next 20 years. This will require 60 million new housing units. Also, demographics are on our side. There are 78 million “echo boomers” who are entering their prime renting years. There will be 10 million legal immigrants and 5 million illegals in the next 10 years. And singles and unrelated people living together will make up 1 in 3 households by 2020. Therefore, Marcus & Millichap claims we’re “on the verge of the best bull markets for apartments in 30 years.”

Here’s where you can get the slide show for this presentation.

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Buy Apartments Now Says Marcus & Millichap Expert

Hessam Nadji, managing director of research at real estate brokerage Marcus & Millichap, believes that now is a great time to invest in apartments, especially older ones. According to Nadji, during a recession people often choose older units with fewer amenities.

The echo boomer generation is just beginning to move out on their own, and they often start out renting in this type of apartment. Even though their unemployment rate is currently high, they should be the first ones hired when the economy starts to recover, says Reis Research Director Victor Calanog.

Nadji urges investors to buy while prices and interest rates are low. “There is a good chance that if an investor waits for a recovery to materialize, they’ll see prices go up again,” Nadji says.

To learn more, see the article at Realtor Interactive Magazine.

Marcus & Millichap Feb 09 Apartment Forecast

On February 24, 2009, Marcus & Millichap presented a one hour webcast presenting the current state of the economy, the capital markets and the apartment market. They also looked forward several years for their projections. 

I’m going to go over some of the points that seemed most important to me. If you’d like to look at the slides while I describe them, you can open them here in a new window.

Slide 12 shows that the number of apartment units finished has dropped consistently since 1999. This is important because as we’ll see, the renter population is growing, but the supply is not. Eventually, the vacancy will drop to the point that developers can start building again. The latest rise in vacancy should top out this year and start to drop in 2010.

Slide 14 claims that deals are still getting done despite the tighter lending market. According to a Denver mortgage broker I spoke with, lenders want to see the net worth of the investor group equal to the loan amount. 

According to slide 17, lending rates are near historic lows, currently in the low 6% range.

Slide 23 defines Market Divergence. Depending on an investor’s personal timeline, some will view an apartment as a favored long-term investment, while others will point up the short-term challenges.

The sellers are convinced of the former position and therefore place a very high value on their property. They point out the lack of suitable alternative investments, as well as the favorable demographic outlook.

Buyers are trying to operate in a more difficult capital market, and think the current trend of dropping prices will continue, leading to even better deals than are available now. Buyers may also believe that the rising unemployment rate will increase vacancies as more people are forced to share accommodations. This could negatively affect cash flow in the near-term.

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