With 2020 finally in the rearview mirror, the multifamily industry has emerged as one of the most resilient asset classes despite a host of challenges testing the mettle of developers.
Only those who successfully pivoted last year are positioned to capitalize on opportunities that will emerge in 2021 as the nation’s urban centers experience a renaissance like never before driven by a desire to live, work and play.
Here are the Top 3 ways industry dynamics shifted—and how developers can better leverage those lessons learned to become market leaders in the year ahead.
Adapting to new rules for financing
In 2020, we saw more scrutiny of the underwriting process as lenders questioned the feasibility of new multifamily developments, particularly in areas where there was already concern about overbuilding.
Developers who were successful in securing financing needed to exhibit a strong track record and market familiarity in order to get deals done. This perspective allowed them to build stronger narratives for their projects, using supporting data and boots-on-the-ground expertise to articulate a development’s post-COVID-19 potential. As of December, The Mortgage Bankers Association expected commercial and multifamily mortgage bankers to close $395 billion of loans backed by income-producing properties for 2020, creating a more competitive landscape and marking a 34 percent decrease from $601 billion in the previous year. In 2021, the forecast calls for a slight increase in lending volumes with $407 billion in commercial/multifamily mortgage bankers originations.
Like forward-looking lenders, many investors remained bullish on multifamily in 2020. According to a recent Newmark Knight Frank study, the sector was drawing a greater allocation of capital than any other property type before the pandemic, and COVID-19 accelerated the preference as investors were drawn to multifamily’s high level of liquidity compared to other asset classes.
While 2020 challenged the industry in ways few could have anticipated, a silver lining was that it also emphasized the importance of home. Buyers and renters began rethinking how much space they need, and, with greater remote-work capabilities, where they want that space to be located. And despite headlines about the growing appeal of the suburbs, many urban dwellers long for the experiences that only city centers can provide. Multifamily developers, investors and lenders alike recognize this pent-up demand and how it will support urban multifamily development coming out of the pandemic, even if being close to the office is less of a priority.
Shifting strategies to market and sell
The value of VR technology became clear in 2020, and firms that didn’t make the upfront investment ended up paying for it in the long run.
Last spring, when the stay-at-home orders took effect, sales and leasing teams that were already familiar with using virtual platforms as a supplement to in-person walk-throughs were able to maintain momentum during what would ordinarily be their busiest season. They did this by tailoring the sales experience to each prospect, with a virtual presentation often serving as the starting point–in other words, their opportunity to create the all-important first impression.
A recent Zillow survey found that 36 percent of American buyers would be willing to purchase a home entirely online during the pandemic, and 30 percent said they would be open to it even after the pandemic ends due to the high quality of digital assets. Breaking with tradition, one out of three buyers said that, after COVID-19, they would prefer taking a virtual or video tour of a home instead of touring it in-person, though many would still want to do a physical walkthrough before making their down payment. This speaks to the long-term value and ROI of these tools.
Another way developers found success last year was by establishing dedicated sales teams for each project whose market knowledge and familiarity with the development made buyers more confident in their purchase, especially if more of that process was taking place virtually.
Going forward, look for developers to allocate more of their marketing budget to these virtual offerings, recognizing the growing role they will play in vetting a listing prior to an in-person visit. Additional resources must be invested in training to ensure sales teams are comfortable using the various tools at their disposal so they can easily be paired with more traditional sales techniques.
Perfecting the long game
2020 clearly was an anomaly, and developers who realized this and avoided making knee-jerk changes to projects that are years away from delivering are best positioned to succeed in a post-COVID world.
Residential developments that are starting construction or launching marketing campaigns in 2021 must consider how consumer preferences have evolved and tailor their messages accordingly. Other projects that are still in the planning phase must anticipate what a return to normal will look like and whether behavioral changes brought about by the pandemic will continue after it ends.
In 2020, the typical data points for-sale developers would analyze, such as the type of units going under contract and number of closings taking place each month, were not reliable indicators of market demand. By looking back at trends that were underway immediately prior to COVID-19 and analyzing current foot traffic, which provides a real-time snapshot of the market, developers can make more informed decisions about pricing and programming both today and in the future.
The pandemic turned the industry upside down overnight, but the recovery won’t come as quickly. Fortunately, developers are accustomed to taking a longer-term view of the market, with the understanding that what works today may not make sense tomorrow. While none of us have 20/20 vision coming out of 2020, we do have a clearer understanding of what buyers and renters are likely to prioritize in a home search, regardless of whether it takes place in person or online, and how this collective experience can be used to enhance the viability and marketability of residential developments in 2021 and beyond.
David Wolf serves as president & CEO of Wolf Development Strategies. A veteran development sales and marketing expert, Wolf possesses high-level expertise in every facet of residential real estate and multifamily development—from underwriting and entitlements, to building and programming, to marketing and sales strategies implemented by dedicated, on-site teams. Wolf leverages proprietary research and systems to provide advisory services to help determine the feasibility of new residential developments and enhance their marketability upon completion. He also helps developers reposition both for-sale and rental communities in a way that anticipates and responds to evolving consumer preferences.