An Investor’s View on the Portland Multifamily Market

Mitch Siegler, Senior Managing Director, Pathfinder Partners. Image courtesy of Pathfinder Partners

Portland’s multifamily market continues to boost healthy fundamentals, backed by a strong business climate, which attracts young workers to the metro. Investors remain interested in the area, particularly due to its value-add opportunities.

San Diego-based Pathfinder Partners has been keeping Portland on its radar along with other key western markets. The company continues to expand its multifamily portfolio in the area, with Creekside Village, a 132-unit community in Vancouver, Wash., as one of its more recent acquisitions. The company focuses on properties that offer the opportunity for improvement, said Senior Managing Director Mitch Siegler. In the interview below he also shares his views on Oregon’s new rent control law.

Oregon became the first to pass a statewide rent control policy. How does this affect Pathfinder’s investments in Oregon overall and Portland in particular?

Siegler: For new acquisitions in Oregon, we would need to comply with rent control regulations, which cap annual rent increases at 7 percent plus the rate of inflation, around 3 percent—approximately a 10 percent ceiling. Our recent acquisition in Vancouver, Wash., across the river from Portland, is outside of this rent control area. As to properties we have owned and renovated in Oregon, future rent increases would be at market rates, 3 to 5 percent, well below the ceiling. Future value-add apartment acquisitions in Oregon would need to be carefully scrutinized as the rent control regulations could impact our business plans.

What value-add opportunities does the Portland market offer?

Siegler: We look for properties that have been owned for a long time but never improved or not improved for decades. These opportunities exist in Portland and many other areas. They’re not easy to find, of course.  

How has demand for housing changed in Portland compared to other West Coast markets?

Siegler: Demand for housing is directly linked to population and job growth. Portland has seen strong in-migration of residents, many escaping high housing costs in California. Portland’s job growth has also been strong. It’s a place where Millennials want to live because of the city’s vibe, recreational activities and cultural offerings. Cost of living in Portland is much more reasonable than California, which explains the population shift during the past few decades.  

Creekside Village. Image courtesy of Pathfinder Partners

The company plans to acquire $100 million multifamily assets this year in several markets. How close are you on hitting that goal? 

Siegler: We have acquired the majority of that amount during the first five months of the year.

What other markets are you focusing on?

Siegler: Our primary target markets include Seattle, Portland, Southern California, Phoenix and Denver, along with secondary target markets Sacramento and Las Vegas.

According to Pathfinder’s latest report, rent growth is higher in secondary and tertiary markets. Tell us more about this.

Siegler: Rents are growing faster in mid-tier cities where Millennials are moving. While gateway cities such as New York City, L.A. and San Francisco are popular with Millennials, the rate of population influx and rent growth have been higher in the next tier—places like Seattle, Portland and Denver. They have strong job growth and many of the attributes of major cities (cultural attractions, recreational activities, etc.) and are far more affordable than the aforementioned gateway cities.   

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What are your long-term strategies for investing in multifamily assets?

Siegler: The multifamily housing market remains imbalanced because of very strong demand and constrained supply. This is especially true in the Pathfinder target markets, places where Millennials are moving. Population growth, job growth and company formation in these markets are very strong. There is limited land and barriers to new supply.

The home ownership rate has fallen from roughly 69 percent to approximately 63 percent during the past decade, so millions of former homeowners are now renting. We do not expect these trends to fundamentally change in the next five to ten years and remain bullish on the multifamily sector.

What is the biggest challenge in the investment sector today? How do you cope with that?

Siegler: Many others see what we see. Interest rates are low and asset prices (stocks, bonds, real estate) have appreciated significantly during the past decade. Properties are more expensive, investment returns are lower and there’s no shortage of competition for a new acquisition.