Editor's Letter
Telling the Apartment Story
By Andre Shashaty
APARTMENT FINANCE TODAY • APRIL 2008
Phoenix—As apartment owners
and developers gather here
for this magazine’s annual conference,
there’s a lot for them
to feel positive about despite
the nation’s economic downturn
and the sinking stock
market.
Unfortunately, the positive story about
apartments has gotten lost in the roar of
bad news about single-family home sales
and rising home mortgage foreclosure rates.
Apartment fundamentals may be sound, but
that has not stopped real estate writers and
Wall Street stock analysts from badmouthing
our industry.
Even the National Association of Home
Builders lumped apartments in with singlefamily
housing in a recent statement.
Apartment firms need to fight back, and
I don’t mean just the publicly traded ones
the analysts cover. Negative word of mouth
about apartments reverberates from Wall
Street all the way down to Main Street.
Unfairly negative descriptions of our industry
don’t just hurt the capital raising ability
of the biggest real estate investment trusts,
they also affect access to capital markets for
small owners and developers.
In its latest Market Trends report, the
National Multi Housing Council (NMHC)
took issue with the negativity. It said conditions
in the apartment sector remain strong.
“Apartment owners exercised great
restraint during the housing boom,” noted
NMHC chief economist Mark Obrinsky.
“As a result, they have escaped the oversupply
problems plaguing the single-family
sector.”
Last year, he went on, the number of
apartment absorptions at investment-grade
properties increased by the largest amount
since 2000. In fact, the increase was as
large as that for the previous four years
combined.
Between 2004 and 2006, 1.2 million
households joined the ranks of renters,
more than making up for the loss in renter
households sustained from 2002 to 2004.
Obrinsky concluded that the recent
decline in the homeownership rate has
increased demand for apartment residences,
especially at top-tier properties.
The number of renters nationwide is
projected to increase by almost 4 million
households over the next 10 years. Half of
those households will likely rent apartments,
with the rest renting single-family
homes, duplexes, or other types of housing.
To meet that demand, the nation needs to
produce at least 250,000 new apartment
residences each year, NMHC said. Yet
apartment completions have averaged just
two-thirds of that in recent years. Last year,
both starts and completions of all multifamily
units (both condos and rental apartments)
fell to their lowest levels since 1996
and 1997, respectively.
“By all measures, new apartment supply
clearly remains in check,” said
Obrinsky. “Thanks to those solid fundamentals,
rents continue to show modest
increases even as single-family house
prices continue to fall.”
Rents for professionally managed apartments
tracked by M/PF YieldStar rose by
3.5 percent in the fourth quarter of 2007, a
pickup from the 2.9 percent increase of the
previous two quarters. Apartment vacancy
rates have changed little over the last five
quarters and are at exactly the same level as
a year ago, NMHC found.
“Real” returns (that is, returns over and
above the rate of inflation) to privately held
apartments have averaged almost 11 percent
over the last five years, according to
NMHC.
Finally, the long-term demographic
trends are quite favorable for rental housing.
The positive story about apartments
needs to be told loudly and frequently.
Otherwise, the negativity among the media
and Wall Street analysts could become a
self-fulfilling prophecy. Use the NMHC
data in your community. Tell your bankers
and potential investors the good news
about apartments.
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