2016 has certainly been a tumultuous year. Between Brexit and the unpredictable American presidential election cycle, the real estate industry has been cautiously awaiting signs of what’s to come in 2017. At the ULI Fall Meeting this year, MHN got the chance to catch up with some of Transwestern’s top players to learn about their accomplishments from the past year and what they expect going into the next. Managing Director of Finance Ashley Grigsby, Vice President of Multifamily Development Brandon Allen, Senior Managing Director of Capital Markets Mark Glagola and President of the Americas Chip Clarke gave their insights on the biggest trends of the year and their outlook as it comes to a close.
On current trends
“One of the largest trends we’re seeing is in the Baby Boomer demographic, (who are) increasing their interest in apartments,” said Allen. “One of the trends we’re seeing is they’re more interested in larger units than the Millennial generation, so two- and three- bedroom units are becoming more popular than one-bedroom units. We’re seeing some developers, including ourselves, shift to offer more two- and three-bedroom units in projects, and in some cases, increase the average square footage overall of the project to less one-bedroom units.”
While unit size may be a—literally—growing trend for the Baby Boomer renter, fundamentals are equally important for all renter demographics. “Quality, location, functionality and logistics are very important,” said Glagola. “Nobody wants to sell (Class) A but they want to buy A. (Class) B is becoming a little bit of a commodity and that’s an interesting story; whether or not you should sell it or hang on to it. There are some great opportunities in infill—product that is close to or next to major cities, it might be ugly, it might be expensive, but it’s next to.”
While there are plenty of opportunities to invest and capitalize on properties in various locations and asset classes, financing may be another story. In 2016, traditional lenders, like banks, have been tightening their standards. “We’re definitely seeing the lenders be a lot more conservative. We’re seeing the leverage of the debt levels (come) down,” said Grigsby, managing director of finance for Transwestern’s development arm.
On highlights of 2016
According to Grigsby, the key to securing financing in the current financial climate is the careful alignment of fundamentals. “All lenders can cherry pick right now,” Grigsby said. “Fortunately for us on the development side, if you get the right deal in the right location, you’ll get the financing.”
Allen added that for Baby Boomers, financing a larger apartment and a renter-by-choice lifestyle is often plausible through capitalizing on funds invested in homeownership. “A lot of the baby boomer generation is starting to realize that they don’t need a three- or five-thousand-square-foot house. They need less space, they want to travel, and I think that the best way for them to reap the benefit of the equity they’ve built with their homes is for them to sell that house and move to an apartment.” The trend of Baby Boomers looking for larger-unit apartments and adopting a more flexible lifestyle is one that was clearly evident in 2016, and Allen said he expects it to continue into next year, and for some time.
On a company level, Clarke said that one of 2016’s greatest achievements for Transwestern was rolling out its client service improvement program. “At Transwestern we’ve had a company-wide mandate to get better at providing services to our clients, so I think the advantage of us being a private company is that we’re able to affect change pretty quickly and in a robust and fairly dramatic way,” he said. “We’ve gone through comprehensive training in setting the bar higher for our management services in the field.”
On the outlook for 2017
“Pricing is going up, we’re going to see that for awhile as well,” Grigsby predicted. “Until the banks start freeing some of their exposure, they’re going to be conservative, and until the regulators calm down, you’re going to see a lot of conservative lending out there.”
Glagola echoed the oft-mentioned “cautious optimism” felt by many in the industry approaching next year. “I think we’re going to see slow, steady, positive (growth),” he stated. “There’s a tremendous amount of equity still coming into this country, real estate is becoming a very preferred asset class, and we have a lot of good news. We actually have a recovering and reasonably strong economy. I think after the first quarter (of 2017) when we figure out the election hasn’t bothered anybody, we’re going to see a real positive mood and continued recovery.”
Allen revealed that the multifamily development branch of Transwestern is looking to expand from its typical areas of focus in Texas and the South. “Next year we’re looking to do some more projects in (Dallas) and markets outside of Texas and Atlanta,” he said, adding that the company is looking to target Phoenix as an emerging market for development.
“Now we just need to get the election behind us and move into 2017,” said Clarke. “We’re cautiously optimistic it’s going to be good year for real estate, not a great year. I think that it’s really bumpy, but generally on an upward trajectory.”