New York—Jones Lang LaSalle has more than doubled its multifamily practice in the past two years, aggressively adding teams in markets including New York, Washington, D.C., Seattle, San Francisco, Los Angeles and Atlanta. JLL says that its activity is reaching levels never before seen by the company. As of Dec. 1, the company has closed $2.68 billion, and another $2 billion of business is on the way. Indeed, through the middle of last year, JLL ranked second only to CBRE for transactions over $25 million.
Jubeen Vaghefi is managing director for JLL’s Capital Markets Group. Based in Florida, Vaghefi is the national multifamily practice leader for JLL, and he also oversees a broad range of investment sales activities in the Southeast U.S. Vaghefi explains to Keat Foong, MHN’s executive editor, why the apartment investment sales market will certainly be an object of envy by the other real estate sectors in 2012.
What is JLL’s outlook for the apartment investment and financing markets in 2012?
We expect apartment investment to maintain very high activity in 2012, continuing the strong levels we’ve experienced in 2011. The availability of debt capital will remain plentiful, with continued interest from the government agencies, as well as life companies. We also expect the CMBS market to return in a meaningful way.
What key trends are you expecting and preparing for this year?
One of the key trends we’re preparing for in 2012 is broadening interest by investors into the secondary markets. Over the past few years, there’s been a consistent focus on the core coastal markets. Now, we expect investors will begin looking for additional yield in markets further out on the risk continuum as fundamentals continue to improve.
Are current global conditions, such as stubbornly high unemployment levels in U.S. and European sovereign debt trouble, worrisome for players in the multifamily investment market?
With lingering concerns about unemployment and a general economic malaise, the desire to own a home—and deposit a large chunk of money for a down payment—has cooled considerably. Generation Y and the Millenials are afraid of illiquidity and the restrictions of a mortgage. The flexibility of renting has never been more popular, and occupancies in the multifamily sector continue to rise.
The United States continues to be the most politically and economically stable environment, and from a macro perspective, will continue to see economic growth and prosperity. Consumer sentiment is also more positive this year. Despite the troubles in Greece and other European nations, real estate will remain a more attractive investment, and multifamily, in particular, stands out due to the real yields and fairly low risk that sector currently offers.
What are multifamily investor sentiments at this point? What are the sentiments on the part of apartment sellers?
Multifamily investor sentiment remains robust. In select markets, there’s a slight concern about the potential volume of new supply, but as a general rule, the overall health of the multifamily market remains strong. Apartment sellers are still in the mindset that it’s a great time to sell, especially with financing remaining fluid and plentiful.
Are you witnessing some investors pulling back from multifamily investments in the face of uncertainty or expectations of lower prices in the future?
We have seen a minor slowdown in transactional activity toward the end of 2011, but that’s not unusual for this time of year. Once investors have had a chance to catch their breath, renew their allocations and review the solid performance they’ve experienced in this sector, they will return to multifamily full force in 2012.
With new supply coming into certain markets in the years ahead, and as we anticipate a future limited inflationary environment, replacement costs will go up, and that will bode well for real estate values.
Are you seeing any new types of investors or sellers in the multifamily market? What has been the trend with regard to international investing in the U.S. multifamily sector?
We’re not seeing any truly “new” types of investors in the multifamily market, but the availability of debt capital has allowed more private investors to participate in this sector than ever before. More private investors are now entering the market, either directly or through advisors.
We’re also seeing an increase in international investors looking into the U.S. market, though mostly as joint ventures due to their lack of familiarity with multifamily product. The influx of international capital will increase, but it will be relatively slow and methodical.
Will international investors, for example from China, change the future of the apartment investment market in the U.S.?
The Asian markets, and China in particular, are experiencing such economic growth that they must look for alternative investments, and we expect to see more of those types of investors looking into cities like San Francisco, Los Angeles, New York and even Seattle.
How are you competing as an investment adviser and seeking to differentiate yourself?
The environment for advisors such as Jones Lang LaSalle is fantastic right now. We’ve seen a steady increase in market share over the past few years because we’ve made it our goal to hire the best people in strategic markets around the country—giving our clients true “advisory” expertise, and not just facilitating transactions.
What are the current challenges for your company in competing in the market?
Because multifamily is such a strong and growing sector, nearly every brokerage in the country wants to have a hand in it. The challenge for Jones Lang LaSalle is to continue to lead the pack—delivering service at the highest level with the least amount of risk for our clients and continuing to find new strategies for our clients to participate in the multifamily market.
As an investment adviser, what would you like to see in multifamily financing with regard to refinance, acquisition and/or construction financing?
We’d really like to see the CMBS market stabilize, which would provide more of a balance in financing availability. Construction financing will continue to be more readily available, and while it will certainly help in some markets, it will take some time.
In terms of the distressed market, what challenges are facing the multifamily investor?
The true challenges in the distressed market remain in the C and lower-quality assets—and most of that distress is related to operators. Special servicers have become more efficient with those assets and are quickly moving product through the process. For the higher-quality assets with distressed loans, lenders are either working with the borrower, or selling the notes at fairly close to par, so we don’t consider that much of an issue. In most cases, though, debt capital is readily available for refinancing, recapitalizations and the acquisition of loans.
More than ever before, investors are looking for opportunities that have the slightest hint of distress, as that allows them to garner better yields.