Nadeem Meghji, Blackstone’s senior managing director and co-head of U.S. Acquisitions, has been a leader in the company’s multifamily investment activity since joining Blackstone in 2008.
Some of his most notable transactions to date include the acquisition of GE’s U.S. multifamily portfolio, Stuyvesant Town and Peter Cooper Village and Edens.
Meghji recently took some time to talk with MHN about investments in the year ahead.
MHN: Coming back from the NMHC Conference in Orlando, how would you characterize investor interest in multifamily for 2016?
Meghji: I felt like sentiment was very positive, certainly relative to sentiment around other asset classes. I think the general view coming out of the conference was that although people are more cautious than last year, REITs were pretty optimistic about fundamentals and investors were similarly enthusiastic. On a relative basis, multifamily still looks pretty good even if rent growth has modestly decelerated nationally because we still have very good housing supply-demand fundamentals in the U.S. and multifamily financing in the private market is still plentiful. Furthermore, given the cost of financing, multifamily properties produce some of the best cash flow yields in the real estate space which continues to draw investors. With that said, investors are appropriately cautious in markets like Houston where supply is elevated and demand has suffered over the past year.
MHN: What’s expected for multifamily finance? Are any changes ahead regarding the availability of financing for new development, stabilized properties and value-add opportunities, for instance?
Meghji: I believe lenders and equity providers are being increasingly discriminating with respect to which deals and which markets they’ll finance. However, the data would suggest that supply continues to remain on a pretty constant level with permits beginning to slow only very slightly. As it relates to income producing assets, the agencies are open for business and are continuing to lend. They are less competitive in my view on the A+ core urban assets, but they are very competitive on A- to B garden-style communities all over the country. I think they will be just as active this year as last year, perhaps more. At the end of the day, financing is still available.
MHN: Are there any other trends on your radar in the next 12 months that will affect multifamily investing?
Meghji: We remain positive on national multifamily fundamentals in 2016. One notable trend is that investors continue to aggressively pursue value-add opportunities where they can generate attractive yields on capital investment by completing cosmetic unit upgrades, including kitchens, flooring and bathrooms. The strategy has worked well in most markets over the last couple of years and that trend will continue in 2016. Nationally, we see a modest deceleration of rent growth but the absolute level of rent growth is still very strong on a historical basis.
MHN: What do you think is the most important thing that investors need to be aware of in today’s multifamily environment?
Meghji: We are at a point in the cycle where suburban B assets are outperforming urban core A assets in many markets because of new supply. This pattern won’t exist forever, but for the time being I think Class B suburban is a pretty good place to be.