REIT Week 2010: Neithercut Sees Good Times Ahead, and Not Just for Equity

Chicago--Households are being formed considerably faster than a year ago, partly because of job growth.

Dees Stribling, Contributing Editor

Chicago–David Neithercut, president and CEO of Equity Residential, speaking during REITWeek 2010 during a general session and also during smaller presentation by his company, expressed surprise not that the apartment sector is experiencing a recovery, but that it started so soon.

“We knew a recovery was coming, but didn’t think it would be so far along by this time,” Neithercut said. “Rents have stabilized, and occupancies started to grow in the fourth quarter of 2009.”

He further noted that households are being formed considerably faster than a year ago, partly because of job growth, but also because people who have jobs aren’t nearly as anxious about losing them as they were last year. Roommates are thus “de-coupling” and employed young people living at home are feeling secure enough in their employment status to venture out on their own.

Now the apartment sector is in a “good recovery,” Neithercut added, but the sector needs more job growth to continue the pace.

Rents, which dropped during the worst of the Great Recession, have been rising again. “In effect, we [landlords] are earning back the discount we gave to renters more than a year ago,” Neithercut said.

Moreover, assuming reasonably good U.S. job growth, the upside potential for rents is quite strong. The reason is that this recession didn’t catch the apartment industry with a great oversupply of properties in most markets, and since money for development essentially dried up during the credit crisis, not many apartment properties are in the pipeline.

Neithercut is ever more optimistic about the longer-term prospects for the apartment business, for two reasons. “Demographics are on our side in the coming years,” he asserts. “The echo boomers, a large population group, are coming of age, for one thing. In addition, immigrants are going to continue to come to the United States.”

Equity Residential’s chief executive also posited that there’s been a psychological shift among potential homebuyers caused by the recent problems in the housing market – a shift that might keep some of them in the market for apartments longer than previous generations. “Among the echo boomers, there’s no automatic assumption that you have to buy a house to fulfill your life’s dream,” he said. “Maybe that’s because everyone knows someone who’s had a lot of trouble because of the housing crash.”