Since starting with AMLI in 1981, Phil Tague has risen to become the firm’s president of residential and chairman of its development company, spending approximately 90 percent of his time on new development activities.
AMLI is focused on the development, acquisition and management of luxury apartment communities across nine areas: Atlanta; Austin, Texas; Chicago; Dallas; Denver; Houston; Seattle; Southern California; and Southeast Florida—and has a deep appreciation for sustainable issues.
MHN talks to Tague about where he thinks the industry is heading.
With the first five months of 2018 behind us, how would you characterize what you’ve seen in the multifamily market?
Tague: The capital markets continue to support strong pricing for multifamily properties of all classes and locations. Thus far, the modest rise in interest rates has not affected pricing. New development activity remains robust though the emphasis has shifted somewhat to suburban locations and emerging submarkets, presumably to avoid the supply issues in the best urban submarkets.
What trends do you see as interesting and noteworthy?
Tague: An increasing percentage of residents are working from their apartments, which has prompted us to redouble our efforts to make our apartments and common areas more conducive for our work-at-home residents (our surveys show that 80 percent of AMLI residents work from home at least one day a week).
Modest demographic changes in resident profiles are noticeable with three key trends. First, renters who are 50+ in age have clearly edged up. We’re also seeing far fewer residents share apartments now, which parallels the skewing of unit mixes in new developments to primarily studios and one-bedroom apartments. Finally, Millennials actually make up a smaller percentage of renters than what the industry had anticipated, which is borne out by a recent survey showing that the percentage of adult children living at their parents’ house far exceeds any comparable measurement in the past.
You specialize in working with environmentally sustainable multifamily communities. How has interest in that sector grown?
Tague: Sometimes the growth seems glacial, but sometimes it feels like a refreshing stiff breeze. Every new AMLI development since 2009 is LEED-certified. Within a year, more than 50 percent of our portfolio will be LEED certified and close to 100 percent in five years. Same with our properties being non-smoking, both on the grounds and in the apartments. Even with our non-LEED properties, we provide green products inside the apartments and for cleaning purposes. We also advocate recycling at all of our communities. We believe that buyers of multifamily housing are valuing LEED-certified properties at capitalization rates slightly lower than what they would have used if the same properties were not certified.
What do you feel is the most important thing that investors need to be aware of in today’s multifamily environment?
Tague: Although “go big or go home” may work for tech companies, commercial real estate is far too cyclical. Most everyone believes that this economic recovery doesn’t have many years left. No one knows when or how a recession will occur. However, I think that commercial real estate investments, acquisitions or new developments, should do well through the end of this recovery if they are higher quality properties—regardless of age or condition. The values of higher quality properties will be more sustainable through a recession.
Anything surprising happening so far in 2018?
Tague: From 30,000 feet, I’m surprised by the strength in the economy, notwithstanding the theatrics coming from the White House. In the multifamily sector, I’m surprised by the continuing strength in absorption and rent levels. Sure, there is some softening of rents given the supply pipeline, but renters are still finding our properties.
What’s the key to planning a successful strategy?
Tague: Invest in and prioritize training and education. Commercial real estate is trapped in a growth and contraction cycle that approximates GDP growth and contraction. Developers like AMLI have to expand and shrink in the same way. Consequently, it makes it hard to continually invest sufficient money and resources in training, but I believe that evolving as a company via ongoing education is critical to plan and execute on successful strategies. You have to find a way to do that. Otherwise, you’ll be stuck in the pack.