From one expert opinion who believes we’ll see a slow down but no recession, to how the current economy is impacting rent, and what competition among multifamily investors to find a good bet is leading to – and what we’re doing differently, we share some insight in today’s BAM Blog…

Recently, a State Street strategist appeared on CNBC, noting that while there were some weaker areas (like weaker manufacturing, the overall economy remained robust. Ana Harris, of State Street Global Advisors, who serves as global head of equity portfolio strategists, remarked that while she did think we were beginning to see a slowdown in the economy, they don’t anticipate a recession. According to Harris, this would constitute a late-cycle slowdown but not a recession. She referenced some of the macro indicators that was helping to make investors nervous, such as conversations around the trade talks. Despite the indicators of a slowing of the overall economy, she reiterated it wasn’t a recession nor should one be expected.

Another area that has been deeply affected by elements such as trade disputes and labor shortages is the delivery of multifamily construction. According to a recent piece in NREI (National Real Estate Investor), this delay in delivering inventory of the Class A assets has helped to force rent growth. As we’ve written before, the skilled trade labor shortage is an ongoing problem that presents real challenges in new multifamily construction. Current labor shortages have been slowing delivery, allowing for absorption of the inventory that is completed and helping to drive rent growth, according to the NREI data.

According to a different article in NREI, as rent sees a boost in Class A assets, multifamily investors are looking further afield and to a different asset class for yield. This piece notes that due to the competition at this point in the cycle, many multifamily investors are looking to affordable housing in secondary and tertiary markets to find that solid deal. As for BAM’s strategy: as BAM founder and CEO, Ivan Barratt has volunteered on several podcasts, at this point in the cycle, BAM is looking for newer assets, where you can fix some issues and add value – but take on far less work than a traditional value-add deal. As the market’s changed, pursuing newer, nicer assets may cost more but typically carries less risk. BAM’s strategy currently is to find these built-in the 1990s or newer, B+/A-/A properties and target a 5-7 year exit plan; however, we’ll plan for a 7-10 year hold to avoid having to sell in a buyer’s market.

The BAM Bottom Line: While the economy is showing some signs of a slowdown, some areas are still experiencing solid performance such as jobs and the multifamily industry. Construction delays are slowing delivery but are also driving rent growth in luxury assets, and although many investors are pursuing affordable housing in smaller markets, BAM is positioning itself to look for newer, nicer assets that will offer less risk at this point in the cycle.

 

Sources:

https://www.nreionline.com/multifamily/construction-labor-shortages-are-forcing-rent-growth-class-apartment-buildings

https://www.nreionline.com/multifamily/search-yield-more-multifamily-investors-explore-affordable-housing-smaller-markets

https://www.cnbc.com/video/2019/08/30/a-slowdown-is-coming-but-we-dont-anticipate-a-recession-strategist.html