Recovering Economy Will Improve Already Robust Multifamily

The economic recovery might be slower than everyone wants, but it will help what is already a thriving multifamily market.

Dees Stribling, Contributing Editor

The economic recovery might be uneven and slower than everyone wants, but it’s a comeback nevertheless, and in the near- and mid-term, it will help an already thriving U.S. multifamily market. That’s the conclusion of Jubeen Vaghefi, managing director and leader of Jones Lang LaSalle’s national multifamily investment sales practice, who spoke with MHN on Friday, even as JLL CEO Colin Dyer attended the World Economic Forum Annual Meeting 2011 in Davos, Switzerland, to speak about broader commercial real estate trends, which Dyer asserted are generally stronger than last year.

The relative health of the multifamily industry is well known, but the question now is how a broader recovery will affect it. For-sale housing has often been the main residential beneficiary after previous recessions, as people look to buy. But things aren’t quite the same this time around, says Vaghefi.

“We’re now getting to the point in the recovery at which people are starting to spend again, and are more bullish about where the economy is headed,” Vaghefi tells MHN. “At the same time, one of the legacies of the recession is a pent-up demand for living space, because people were doubling up or living with relatives. Now people are beginning to feel more confident about forming their own households.”

But not as many of them will be in the market for for-sale housing as after previous recessions, he says, because there’s been a shift in mindsets. “There’s a diminished desire to own a home in a lot of markets,” Vaghefi says. “Homeownership has lost a lot of its luster.”

Combine that with a dearth of new multifamily properties coming on line, and there will be continued upward pressure on multifamily occupancies and rental rates. “It’s relatively simple arithmetic,” Vaghefi continues. “Fixed supply for the time being and increased demand. The bottom line is that NOIs are starting to improve substantially.”

Will improved prospects for multifamily drive a new gold rush of development for the property type? Vaghefi doesn’t think so. “There’s a lot of talk about new development, particularly in primary markets,” he says. “But lenders are being very disciplined.”

Also, Vaghefi notes, “a lot of players formerly in the development business don’t have the balance sheet they once had, which restricts their ability to borrow money. That isn’t to say that they won’t be back in a few years’ time, but right now not everyone who wants to develop can borrow. Development will come back, but it will be at a measured pace.”