Multifamily experts gathered at MHN’s annual Excellence Awards on Dec. 2 to discuss important issues facing the industry at the “Apartment Trends for 2022 & Beyond” virtual panel discussion. Moderated by Executive Editor Paul Rosta, speakers included The NHP Foundation’s Vice President of Asset Management Carlos Gonzales, The Breeden Co.’s Vice President of Property Management Barry Tomlin and WC Smith’s Development Vice President Matt Tsau. All three firms were honored with at least one Excellence Award at this year’s event.
Multifamily real estate was widely regarded by the speakers as a safe place for developers right now, although the industry faces opportunities, challenges and a fair amount of uncertainty.
Tomlin said 2020 came at them hard and he was not sure how the company, country and even the world would respond. Breeden finished the year in a strong position, and it appears this year will end the same way. Rents have remained healthy, if not rising, in their markets and occupancy rates have held steady.
Tsau said this year was good for WC Smith and the firm expects the first half of 2022 will be strong. He and his coworkers have been concerned about what the new normal will look like going forward. WC Smith just won a Best Amenities Gold award at this year’s Excellence Awards for its The Garrett project in Washington. With residential design and technology evolving due to the pandemic, Tsau wonders if residents will approve of major adjustments to amenities.
“How are people going to react if there’s a decrease in the availability of amenities?” he asked.
Challenges for 2022
Rising development costs resulting from many factors are a major challenge for the industry. Tomlin noted land is becoming more difficult to acquire and prices have “gone through the roof.” He predicted a continued shortage of construction materials will contribute to rising construction prices in the next year. Gonzalez tried to project what insurance costs might be in 2022 and said his firm could be facing double-digit premium increases.
“Costs certainly do rise but are rents going to support the increase in costs?” said Tsau. “We see that as one of the largest development challenges.”
Gonzalez highlighted the fact that many in the industry are dealing with significant inspection delays resulting from the pandemic. Many cities have implemented a virtual inspection process to keep inspectors, building workers and others safe while ensuring that buildings continue to meet codes and regulations. Gonzalez pointed out some of these systems are a challenge technically and that is adversely impacting inspections to the point that some owners are not getting a final signoff on units.
Most effective strategies for development
During the next 24 to 48 months, Tomlin is considering opportunities to reposition existing buildings whether it is a shopping mall that has gone dark or a hotel with a structure that just needs to be revamped. Tsau’s firm is also looking at the reuse of existing sites, but WC Smith is primarily a ground-up developer with a long-term hold strategy.
“We’ll hold not just next year but for the next five or 10 years down the road,” he said.
There is a large, unmet need for affordable housing that could offer a good opportunity for owners, according to Gonzalez. In some high-end markets, he said it may make sense to start conversations with government agencies to raise the income threshold for affordable housing.
“Even moderate-income households are finding themselves in a situation where housing is way too costly for the budget,” he noted.