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Page 24 — Multifamily Properties Quarterly — August 2017
Technology
F or several years, it has been
a great time to be a seller of
multifamily assets, as new
per-unit sales records are set
on a semiannual basis. And,
if your investment strategy allows
for patient asset pruning without a
pressing need to reinvest capital, all
the better.
But most need to find new invest-
ments and, with rising values, risk
continues to creep up. As usual,
Warren Buffet perfectly captures
the sentiment, “What the wise do in
the beginning, fools do in the end.”
With rising rents, increased
household formation and a millen-
nial tendency to rent versus buy,
how much risk can there be? And
even so, with the need to acquire
and invest, what really can be done
about it?
• Has Colorado reached “peak
renter?” The days of certain rent
increases and favorable capital
terms may be coming to an end in
Colorado, and we may have reached
“peak renter.” But there are ways to
use your data and predictive analyt-
ics to look at the market differently
to make more informed and timely
decisions.
In 2015, Denver absorbed 7,900
new multifamily units – an impres-
sive total. But halfway through
2016, 32,000 units were under con-
struction, with 13,300 units to be
delivered in 2017, according to the
Denver Post. Simply stated, supply
is starting to outpace demand.
Over the last several years, Den-
ver’s average rent increases have
outpaced the national average rent
increases threefold, driven by the
strength of the
job market and a
high concentra-
tion of luxury,
Class A develop-
ments. Denver has
become a desti-
nation. However,
supply is starting
to impact pricing
and vacancy rates.
June saw Denver
area average rents
for one-bedroom
apartments drop
“free” rent concessions, is driving
an adjustment.
Is this just a matter of supply and
demand? If so, price concessions
and time will work out the overca-
pacity. But what if, instead, we are
reaching “peak renter” and a trend
away from renting?
Much has been made of the
homeownership reaching historic
lows, and that renting is the “new
normal.” Yet there could be another
explanation – the Great Recession
– which led to tight lending stan-
dards, negative household creation
and a delay in college graduates
starting a career, getting married or
buying a home. But that delay may
be over. We now are seeing millen-
nials buying homes, and homeown-
ership likely will return to historic
averages.
• The stage is set for naked swim-
ming: How to prevent it. Recalling
another famous Buffet quote, “[o]nly
when the tide goes out do you dis-
cover who’s been swimming naked.”
Those 13,000 apartment units
being delivered in 2017 were under-
written based on assumptions from
2014 and 2015 – and those assump-
tions likely did not include flat or
negative rents, leasing incentives
or higher vacancies. All of those are
likely headed Denver’s way.
That does not mean acquisi-
tions and investments must come
to a standstill, but it does mean an
increased need for diligence to avoid
the aforementioned awkward beach
situation.
There are plenty of tools to evalu-
ate assets, such as detailed diligence
and service records or rent bench-
marks for similar properties. But an
asset does not reside in a vacuum.
There’s a whole neighborhood
around it, and that has proven to be
an essential decision-making factor.
When investors get the neighbor-
hood right, results tend to follow.
Detailed neighborhood analysis
delivers portfolio visibility across
different neighborhood types to bet-
ter understand factors that impact
growth and risk.
Think beyond just demograph-
ics across multiple dimensions and
years, including business activity,
consumer behavior, geographic char-
acteristics, crime, etc.
For example, with new technolo-
gies, developers can compare lessee
Mike Mauseth
Co-founder,
MapVida, Denver
MapVida
By charting neighborhood types, developers can compare a property location versus where
leases originate, as modeled in this Washington, D.C., example.
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