His responsibilities include strategic planning and management of various client portfolios, and serving as chairman of TCAS’s North American Senior Leadership Team and Portfolio Performance Committee.
A 31-year veteran of the real estate investment business, Martha recently spoke to MHN about the trends he’s seeing in the multifamily market.
MHN: Now that the first quarter is behind us, what can you forecast about multifamily investing for the rest of 2016?
Martha: We believe investor interest will remain high, both from domestic investors and foreign investors as capital continues to flow into the sector, although I do believe there’s some caution out there both from a pricing of core perspective and also increasing supply on the development side. Transaction volume will likely remain elevated, although perhaps below the record volumes that were experienced in 2015. Development is likely near its peak and supply will be an issue in select markets, particularly focused on the urban core locations. Demand however, has kept pace with supply to date and the negative impact on supply should not have a significant impact on operations and investment returns in most markets.
MHN: What trends are you seeing in secondary and tertiary markets?
Martha: Core markets and product have been chased to a point where current yields are at historically low levels. Without further cap rate compression, investors are searching for opportunities to add value in order to generate higher investment returns. I think that the value-add sector in multifamily has been a focus area for investment capital for the past two years and I expect that will remain a target strategy for 2016. The current pricing for core product, as well as the elevated rent levels to justify new development, is driving investment demand for alternative product and product that can provide enhanced deals while serving a broader percentage of the user market. Student housing and senior housing are prime targets. I think both are moving away from being seen as niche investments and are considered more alternatives or enhancements to an investor’s multifamily allocation and I think both economic and demographic factors are driving user demand for both. We remain very bullish on both senior and student subsectors.
MHN: What’s expected for multifamily finance? Are any changes ahead regarding such areas as the availability of financing for new development, stabilized properties and value-add opportunities, for instance?
Martha: The availability for financing for multifamily remains plentiful and very attractive. It’s really for that investor who is interested in conservative leverage, which I define as the 55-70 percent range, and core, stable multifamily product is very attractive to leverage. However, as an investor moves out the risk spectrum to higher loan-to-value investments, less stabilized opportunities, property repositionings, development strategies, the availability of that attractive financing becomes much more challenging. So more investor equity and mezzanine-type structures are becoming more prevalent as lenders have moved to a bit more cautious stance and seek higher-quality investments.
MHN: Are there any concerns that you are keeping an eye on?
Martha: The shrinking availability of funding capacity and the uncertainty around the size and control of the GSEs—Fannie Mae and Freddie Mac—is a notable concern. When we evaluate financing availability for multifamily investments in the future, the GSEs are always one of those discussion items. On the one hand they are required to shrink their businesses but on the other hand they are performing quite well. The future remains a political football and uncertainty is rarely a good thing for pricing.
MHN: What is TIAA Global Asset Management focusing on now specifically on the multifamily side, and what is your strategy in the months ahead?
Martha: We invest across the spectrum of housing—from core high-rise to development to property repositioning value-add type of investments. We have a team that I lead that specifically focuses on demand-driven housing opportunities, so the strategies pursued by that team include workforce housing, student housing and senior housing.