JVM Realty Corp., based in Oak Brook, Ill., owns and operates Class A apartment communities in secondary and tertiary markets in the greater Midwest. The company’s portfolio consists of communities in Cleveland; Indianapolis; Kansas City; Tulsa, Okla.; and suburban Chicago.
Jay Madary is celebrating his 10th anniversary as president and CEO of the firm, and the second-generation leader has been with the company since 1997. Here, he shares his thoughts on what’s happening in multifamily investing.
MHN: With 2016 now behind us, how would you characterize the year as far as multifamily investment opportunities?
Madary: Like the several years preceding it, 2016 was a seller’s market. Multifamily continues to get a lot of positive press, and strong resident demand from both Millennials and baby boomers remains. With available financing and rates where they are—even despite some recent upticks—it’s still a very exciting investment opportunity and one that offers returns not found elsewhere.
MHN: What was the biggest surprise about the year?
Madary: I would say the pricing that was achieved for some of the value-add deals. There’s a lot of demand for multifamily product in general from investors but specifically value-add communities. Anything that could remotely be labeled value-add seemed to automatically have a premium attached to it.
MHN: What do you foresee in 2017? What can we expect about the year ahead?
Madary: I think we’ll see a lot of the same, in terms of investment sales activity. We have yet to really see what the pipeline of product for sale will look like, but operating fundamentals should remain healthy, and that will help fuel another year of strong investment sales.
After years of anticipation, we’ve seen the Fed raise interest rates two times over the last year. I think buyers have always anticipated interest rate increases in their underwriting, because everyone kept expecting those increases to happen. Now they’re actually happening, and so we should expect buyers to take an even harder look at the underwriting. With those increases and more likely to come, it remains to be seen whether sellers will still be able to hold out for the premium pricing they’ve been getting over the past couple of years.
MHN: What major trends are on your radar for the next 12 months that will affect multifamily investing?
Madary: Obviously, the impact of interest rate increases on pricing and underwriting will be closely followed and examined.
I also believe we’re going to see the construction of new multifamily communities begin to slow down. It’s not going to stop, but I predict that it’s not going to proceed at the pace that it has over the last three years in particular.
Developers appear to have learned some painful lessons about overbuilding during previous cycles, and lenders seem to be pairing back their allocations for new construction.
MHN: What was your strategy going into 2016, and looking at it now, how did it pay off?
Madary: We have always focused on the acquisition of Class A properties in secondary and tertiary Midwestern markets. We see tremendous long-term value in the multifamily markets found in cities like Cleveland, Kansas City and Indianapolis. Supply and demand are in alignment in these areas, and the overall affordability of rents and strong income levels in the region create room for solid, steady rent growth. Additionally, the lower sales prices pave the way for higher returns than you’ll find in coastal, primary markets.
As we have done for over 40 years, we stuck to our guns in 2016 and landed a couple of great acquisitions: The Residences at New Longview, a newly constructed 309-unit luxury community in suburban Kansas City, and The Aventine at Oakhurst North, a 464-unit luxury property in Aurora, Ill.
We’ll continue to stay true to our conservative investment underwriting, and we won’t be seduced by something outside of our typical acquisition criteria simply because of a slow deal flow. We don’t get emotionally attached to any opportunities and therefore don’t get in over our head in a bidding war.