Multifamily Market Trends with Andrew Rybczynski

On This Episode of Peak Market Watch...

Multifamily Market Trends with  Andrew Rybczynski

Andrew Rybczynski, Managing Consultant at CoStar Group and Anton Mattli will discuss the latest multifamily real estate market trends.

 

Episode Highlights:

    • The eviction moratorium
    • Market trends – increase in single-family and suburban areas
    • Rent growth post-COVID
    • How working from home has affected the multifamily and office, asset classes
    • Hot markets in terms of state – Florida, Texas
    • Impact of business regulations on the housing market
    • Affordable housing

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Show Host

Guest Speaker

Connect with Andrew Rybczynski

  • Website: www.costargroup.com

 

VIDEO TRANSCRIPTION

00:00

yeah anton glad to be here yeah great to

00:02

have you on why don’t you give us a

00:04

brief background about yourself as well

00:06

as uh

00:08

the role you play uh with co-star i

00:10

think we know nobody needs introduction

00:13

to to co-star who is active in the

00:15

multi-family space but maybe you can

00:18

give us a little bit more background of

00:20

what you’re doing uh with them

00:22

sure so i’ll just mention that co-star

00:24

advisory services is a division within

00:26

co-star

00:27

that focuses on as the name implies

00:29

advisory services especially for

00:31

institutional clients

00:33

um so myself and my team

00:35

provide additional market information

00:38

and market intelligence

00:40

for

00:40

some of the larger clients that the

00:42

co-star serves and i myself as as you

00:45

mentioned do tend to focus on the

00:46

multi-family space

00:48

um i’ve been with costar for a little

00:50

over eight years now um most of that

00:52

with uh with advisory services and uh

00:55

our our team has um quite a wealth of

00:58

experience with

00:59

uh

01:00

the as i say the market intelligence

01:03

aspect of uh of costar’s uh offerings

01:06

yeah that’s uh that’s great uh we we

01:09

subscribe to uh do co-star and obviously

01:12

the information that

01:15

that co-star provides is just

01:17

absolutely massive right so there is

01:19

always some criticism that some of the

01:22

data is

01:23

is not completely accurate well that’s

01:26

that’s uh always a challenge with all

01:28

data that is being collected on an

01:30

ongoing basis right but uh

01:33

i would say for of all the services that

01:36

are out there the amount of information

01:38

that co-star provides us

01:40

is only second to none and i personally

01:44

also uh really

01:46

appreciate all the the market reports

01:49

and studies

01:50

of inside from individuals like you and

01:53

from teams like you because

01:55

it’s impossible for us to really monitor

01:58

every single market

02:00

and that’s where i think

02:02

that your value is is is extremely

02:07

extremely important right to

02:10

for for everyone who who is in that in

02:12

that space so really appreciate that

02:16

now

02:17

andrew everyone is

02:20

still has koei 19

02:22

on their mind in some markets like texas

02:25

where i am based

02:27

it’s it appears that

02:29

most people

02:30

have come back to to their own

02:34

life as as normal as possible while in

02:37

other parts of the country it still

02:39

feels more like a lockdown situation

02:43

uh so kobe 19 is certainly still

02:46

with us in

02:48

in one form or another

02:50

uh but i think we certainly have seen

02:52

some signs of recovery

02:54

uh so

02:56

it certainly would be helpful for our

02:58

listeners to hear what you have been

03:00

seeing depending on the market where

03:02

where you have seen recoveries where you

03:04

still see some some struggles in the

03:06

marketplace

03:08

so we’ve we’ve seen recoveries nearly

03:10

everywhere um the question is uh

03:13

the question is less is the market

03:15

recovering and more how much does it

03:17

have to recover so for instance in

03:19

dallas um i suspect that the

03:22

i knew it was closed recently but i

03:24

suspect that the um

03:26

the peak rent uh level has been re

03:29

has been reached again um in downtowns

03:31

whereas in san francisco um

03:34

downtown san francisco suffered

03:35

somewhere on the order of a 15 rent loss

03:38

um in multifamily so that is going to be

03:41

a challenge to recover from

03:43

um

03:44

and it is

03:45

you know there are vast geographical

03:47

differences uh so

03:49

as you mentioned those southeastern

03:51

states uh have tended to be less

03:53

restricted um and they so they they did

03:56

suffer less of losses um but those were

03:59

also growth markets to begin with so

04:02

outside of kovid i still would have been

04:05

recommending uh you know charlotte and

04:07

raleigh and ass and austin um and indeed

04:10

i was you know a a year and a half ago

04:13

because those those markets are such

04:15

strong growth markets that uh even in

04:17

the even in the face of economic

04:20

weakness you would expect them to

04:22

outperform

04:23

um

04:24

that that’s not to say that the north

04:26

that’s not to say that uh the northern

04:28

and midwestern markets are dead um as i

04:31

said they’re coming back um the uh we’ve

04:34

gotten enormous rent growth um really

04:37

across the board uh for uh for 2021 so

04:40

far

04:41

and in particular well

04:44

i guess i shouldn’t say in particular

04:45

because uh but

04:47

one of one of the stronger stories is

04:49

the comeback in downtowns uh because

04:51

downtowns were obviously hit extremely

04:53

hard

04:55

but they had the rent growth there right

04:57

now is enormous and the only thing

04:59

that’s

05:00

really overshadowing that is the fact

05:02

that uh suburban areas are still

05:04

outperforming that so i i you know i

05:07

said that

05:08

downtowns are

05:09

doing quite well right now

05:11

amazingly suburban areas are still

05:13

outperforming that and i’m speaking

05:15

specifically to multi-family here yeah

05:17

so

05:18

the uh the suburban story has some legs

05:20

it looks like

05:22

that’d be good uh

05:25

obviously

05:26

it’s it’s always probably by property

05:28

but we we know of a situation in austin

05:31

since you mentioned that

05:33

where a tenant

05:36

tried to negotiate renewal uh just a

05:40

month ago

05:41

uh and in in a class a core urban

05:44

building

05:47

and

05:48

that rent or

05:50

last year was

05:52

was around 1700

05:54

and they they were pushing him well

05:57

above the 2000 mark right so

06:00

uh clearly what you’re stating here is

06:02

definitely happening

06:04

in in the markets that have been

06:06

reopening and particularly in markets

06:08

where

06:09

the urban core has always been

06:11

attractive pre-call it already like in a

06:14

place like rally and and

06:17

and austin and some other markets where

06:19

people are just happy to go back in

06:22

right yeah

06:23

yeah

06:24

so just uh a

06:27

couple of days ago or maybe a day ago

06:30

another federal judge

06:32

this time in the district of dc

06:35

ruled that the cdc doesn’t have legal

06:38

authority to ban evictions

06:40

uh how how do you see these these type

06:42

of rules that one and all the rulings

06:45

have an impact really at the national

06:48

level and how quickly that will

06:50

will hopefully positively impact

06:53

landlords

06:55

right so of course

06:57

i mean we know from

06:58

numerous stories that that landlord’s

07:00

hands have been tied by these uh by

07:02

these eviction um pauses uh and of

07:05

course

07:06

there is some you know there is a

07:07

balance out there when when um

07:10

when the government

07:11

uh basically mandates

07:14

not directly of course but indirectly

07:16

mandated massive job losses

07:19

um

07:20

they do have a responsibility to those

07:22

people who suffer those job losses but

07:24

what they didn’t where they didn’t pick

07:26

up the slack and this is of course the

07:28

complaint of landlords um which is i

07:30

believe is valid uh where they didn’t

07:32

pick up the slack is that uh that then

07:34

has a ripple effect on landlords and and

07:36

that of course was not addressed

07:39

um so from that perspective of course uh

07:42

you know these these event those

07:44

eviction um holds have taken a large

07:47

toll um

07:49

when we look at where rent growth has

07:51

been was historically versus where it is

07:54

now

07:55

uh what we refer to as one and two star

07:57

at costar but might be safely referred

08:00

to as class c

08:01

uh

08:02

that segment of the market always

08:04

outperformed on rent growth and it’s not

08:07

it’s not really because you know there

08:08

were stronger income gains or anything

08:10

in that segment it’s really about supply

08:12

there was virtually no supply coming

08:14

into class c whereas class a suffers you

08:16

know enormous supply growth um every

08:18

year so the rent the rent gains tend to

08:20

be worse there now

08:22

i bring this up because class c has been

08:24

underperforming uh for

08:27

oh six months now

08:29

something on that on that measure

08:31

and while stimulus payments certainly

08:33

helped there uh the fact that class c is

08:36

now underperforming especially classy is

08:37

underperforming by quite a lot uh

08:40

indicates to me that

08:42

some some of that some of that weakness

08:44

is probably due to these uh eviction

08:47

moratoria so as you see that lifted i

08:49

would expect

08:50

um i would expect class c to regain some

08:54

of its pricing pressure because one of

08:57

the key

08:58

aspects that we you know that we kind of

09:00

built our our story on for the last 10

09:02

years is that america is under housed

09:06

and varying people will come out with

09:08

varying figures uh freddie says about

09:11

3.8 at freddy max is about 3.8 million

09:13

um

09:14

my team says about 2.1 million it it

09:17

doesn’t you know the point is that

09:19

there’s there’s this uh under supply and

09:22

that under supply is especially

09:25

especially hard in the affordable

09:27

segment of the marketplace

09:29

so that does give that does tend to give

09:31

landlords in the affordable segment more

09:33

pricing power because it’s very

09:34

difficult to build into that that

09:37

segment we more so see

09:39

how uh see housing slide down into that

09:42

segment as new stuff hits the top

09:45

yeah very good point right and obviously

09:48

the

09:49

the lack of supply or the delay in

09:52

supply on the single family sites

09:55

particularly in the affordable space

09:58

benefits the the workforce housing

10:00

including c-class base on the

10:02

multi-family side

10:04

uh because there is just not enough

10:06

supply whether it’s single family or

10:09

whether it’s multi-family

10:11

uh

10:12

my concern really is more for landlords

10:15

yes you can push rents yes you can fill

10:17

the property but do you

10:19

uh are your tenants still able to afford

10:22

uh the higher rents right and

10:25

uh i think we just haven’t seen wage

10:28

growth yet that that really

10:30

can support all the rent increases so

10:33

that from my perspective that will be

10:35

interesting to see how

10:37

how that will uh will turn out right

10:40

right

10:41

i think overall i think

10:44

we solely can all agree that there is a

10:47

massive housing shortage right

10:50

and the question is and that brings me

10:53

to another point when it comes to

10:55

construction with

10:56

labor shortage with a material shortage

11:01

what can be done to really

11:04

fix that affordable housing

11:08

situation right

11:10

the government has has all the various

11:12

programs like the the light tech

11:14

programs and all that but that’s really

11:17

a drop in the bucket

11:19

uh it’s a it’s a niche market for niche

11:22

players

11:23

what really should happen in ideal world

11:27

is that anyone can build market rate

11:30

properties

11:32

that really can provide affordable

11:34

housing but it seems that that is just

11:38

not doable at this moment so what this

11:41

what is your take on that

11:44

there’s a lot you know there’s kind of a

11:46

lot to unpack there right uh but

11:49

on the one hand um

11:52

so my perspective is that i i don’t

11:55

think that under the current uh

11:58

the current regime i guess you can’t

12:02

close that shortfall um without federal

12:05

dollars or or

12:07

governmental dollars i mean you know you

12:09

talked about lie tech and i i believe

12:11

that the um

12:13

the current administration is looking at

12:14

uh funding section eight a lot more um

12:18

those those dollars may or may not

12:20

appear right but uh either way

12:23

um as i say the cur the way that the

12:26

system’s kind of set up right now uh

12:28

it’s very tough to build

12:32

middle market

12:33

uh

12:34

middle market units that

12:37

will be profitable

12:38

um and so that’s that’s where that you

12:40

know that’s where those federal dollars

12:41

bridging the gap helps um

12:44

theoretically if there was a kind of

12:46

regime change at the local level or the

12:48

state level

12:50

theoretically you could see this open up

12:51

so i you know i’m

12:53

i’m up in boston um where we have

12:56

enormous you know very high

12:58

uh housing costs um and it’s it’s pretty

13:01

evident to me that the demand is there

13:04

to uh densify

13:06

some of the the areas surrounding boston

13:09

um but the uh the political will is not

13:12

um and what i mean by that of course is

13:14

that the the local um the local

13:17

constituencies are not interested in

13:18

seeing any new construction

13:20

um so i think that that’s uh i think

13:22

that’s a big



13:24

break

13:25

on um

13:27

on this new construction it’s part of as

13:29

i say it’s part of why

13:31

you have to have that subsidy to bridge

13:33

the gap because when the additional

13:36

costs to

13:37

building a new unit uh get inflated by

13:41

basically uh regulatory and and um

13:44

it’s not even it’s not even really

13:45

regulatory but basically zoning boards

13:47

um uh holding up the process

13:50

um

13:51

that’s you know that’s in my opinion

13:53

that’s a big part of the problem

13:55

because i do think that for instance

13:57

boston could house quite a lot more

14:00

people um if uh

14:02

if some of those

14:04

um holds were removed

14:06

yeah that’s a it’s an excellent point

14:08

right

14:10

i talked to a developer on the other

14:12

side of the the country in uh in the sa

14:15

in the bay area

14:17

and uh they’ve they are building

14:20

in the bay area as well as a

14:23

further out right obviously they’re

14:25

locking also sacramento now the the

14:27

central valley and all that and it’s

14:30

really a tale of two worlds there where

14:33

the construction cost

14:36

in terms of labor

14:38

in terms of material cost is so

14:40

outrageously high

14:43

in the bay area that it’s virtually

14:46

impossible for them to build anything i

14:48

mean they

14:49

they even have a

14:51

or challenge to build luxury buildings

14:54

at this point

14:55

uh never mind to even think about

14:58

building anything that is affordable

15:00

right and it’s

15:01

it’s what you brought up is really

15:03

important right it’s not just

15:05

federal money that i i agree that there

15:07

needs to be some form of of support

15:10

there but it’s also at uh at the state

15:13

and local level

15:15

where very often the the biggest impact

15:18

is when it comes to the overall

15:20

construction cost right and time right

15:23

yeah it’s especially time right and yeah

15:26

time is money but yeah yeah

15:28

yeah

15:29

so when we talk about the construction

15:32

right in gateway cities like a lot of

15:36

some of the east coast cities and west

15:38

coast cities and the major msas and and

15:42

the the suburban markets that have been

15:45

booming uh where do you very have you

15:48

seen how construction has been evolving

15:50

over the last year with kobe 19. so uh

15:54

if you look in at where we’re measuring

15:57

starts um one thing that’s of

16:00

one thing that’s of interest to me is

16:02

that uh the share of starts that have

16:05

been hitting downtowns has not really

16:07

moved downward so despite this

16:09

these huge losses and rents developers

16:12

are still willing to go into downtowns

16:14

but

16:15

i quote that number at a national level

16:17

so when you go in and you look at

16:19

where the

16:21

where the markets there that are driving

16:22

those continued starts in downtowns it’s

16:24

no longer san francisco and new york in

16:26

fact they had huge drop-offs in in their

16:29

uh number of starts

16:31

in downtowns especially um and it’s it

16:34

is shifting again towards the southern

16:36

and uh

16:37

let’s say mountain west markets i’m

16:39

trying to include phoenix and denver

16:40

there

16:41

um

16:43

so those uh

16:45

those do come to so i’m you know i

16:47

mentioned kind of the regulatory uh the

16:50

regulatory environment for building

16:53

um

16:54

especially in gateway markets and that’s

16:56

that’s obviously very tough but beyond

16:58

that you also have the regulatory

17:01

environment

17:02

and the cost environment

17:04

uh for businesses uh so

17:08

it’s

17:09

it

17:10

it’s tough of course to think of the

17:11

economy as a zero-sum game right it’s

17:13

always growing but so far as the states

17:15

go

17:16

um we do we do kind of have to think of

17:18

that as a zero-sum game because places

17:21

like texas and

17:22

atlanta although they are

17:24

growing of their own accord

17:27

they are also growing because they’re

17:29

able to offer a better business

17:31

environment

17:32

um for uh businesses that are currently

17:35

located in the northeast or the west

17:38

and we talk about the so-called texas um

17:42

from cal from california to texas

17:44

especially of tech firms and uh

17:46

there’s something to it it’s it’s

17:48

it didn’t

17:50

somebody didn’t just make that up

17:52

um

17:53

so you do have to think about uh those

17:55

regulatory regulatory environments not

17:57

just from a pure construction standpoint

18:00

but from a business standpoint and i

18:01

think that that helps drive a lot of the

18:03

growth

18:04

um in those in those metros and so even

18:06

you know theoretically even if

18:08

construction was as tough in texas as it

18:11

was in in san francisco which obviously

18:13

it’s not it’s not even close um you

18:15

would still see more construction in

18:17

texas just because uh

18:19

because of popular basically population

18:21

and economic growth

18:23

yes

18:24

it’s definitely the case right

18:27

i live north of of of dallas uh

18:30

uh maybe within 10 minutes of where we

18:33

live

18:33

uh toyota

18:35

brought the u.s headquarters here right

18:37

so

18:38

out of california or they had a

18:41

beautiful place in california right so

18:44

it they they only did did it

18:47

not just uh with an overnight decision

18:50

but they deluxed it in a in a very

18:52

detailed fashion apart from the location

18:55

central location the business

18:57

friendliness is definitely a key element

19:00

there and

19:01

if if it’s friendly for businesses then

19:03

it’s friendly for

19:05

uh for everyone else typically right and

19:08

that’s

19:09

that’s definitely what has been driving

19:10

it uh

19:12

so makes makes

19:14

absolutely sense

19:16

uh

19:16

and we we did a we did a short now you

19:18

know small analysis on this which just

19:20

looked at what are the tax costs of

19:22

national you know of every market versus

19:24

what is its growth and as you expect

19:26

there’s a there’s a linear trend um uh

19:29

the less

19:30

tax burden um the higher the the higher

19:32

the uh population and household growth

19:35

over the last 10 years so yes yeah and

19:38

what you have pointed out in

19:39

uh in the gateway cities right where

19:42

there is still some some stress there on

19:45

the construction side uh

19:47

uh we also see that on the financing

19:49

side right so some of the the deals that

19:53

are struggling where they where they had

19:55

to

19:56

to restructure the loans uh were mostly

19:59

in in gateway cities like new york you

20:02

mentioned new york right so

20:04

i mean there were a lot of construction

20:06

projects that were just came to to a

20:09

screeching halt

20:11

and they

20:12

a lot of the developers had to be bailed

20:15

out in one form or another right and i

20:18

think long term it’s it’s i’m

20:21

pretty sure it’s going to work out it’s

20:23

still such a

20:24

dense market where housing is still

20:26

required and people

20:28

uh in a few years will have forgotten

20:31

about all what kobe 19 was about right

20:34

so

20:35

i think i personally still feel it’s

20:37

temporary

20:38

we have had that situation before when

20:41

everyone said it’s the death of the big

20:43

cities and then they all came back right

20:46

yeah

20:47

uh so but who knows right uh so from uh

20:51

what do you see on the institutional

20:53

side when it comes to their decision

20:55

where the bill multifamily obviously the

20:57

supply also on the

20:59

and demand on the single family side has

21:02

a has a big impact on on on the

21:05

overall housing demand so where do you

21:08

see the trend is going where how the

21:10

institutions make decisions in what

21:13

direction to go and what are the markets

21:15

that you’re really focusing on i think

21:18

we all know but

21:19

right

21:21

so you know i i spoke a lot about the

21:23

southern and eastern uh metros but um

21:27

you know you talked about

21:28

new york will be fine and i do think

21:30

that that’s probably the case so i i

21:32

talked about i’m i’m thinking of this

21:33

from a growth perspective right like

21:35

we’re always we’re gonna expect

21:37

charlotte to grow faster than new york

21:38

but

21:40

new york’s you know as i as i kind of uh

21:42

talked about earlier new york’s um

21:46

slow growth is kind of self-imposed um

21:50

there’s still a ton of demand to live in

21:52

new york and of course that’s why rents

21:54

are rents and pricing are so high

21:56

um

21:57

so those yeah uh in general those

22:00

markets will still be you know in in

22:03

decent shape um and we do see uh we do

22:06

still see institutional capital very

22:08

interested in core markets i mean

22:10

now that said

22:12

um

22:13

there’s definitely uh there’s definitely

22:16

some something of a you know there’s

22:18

been a shift going on for for 10 years

22:20

right

22:20

but there’s there’s more interest uh now

22:24

than there had been previously uh in in

22:26

the texas markets in the the florida

22:28

markets um and one thing in particular

22:30

that i we’ve definitely seen is um well

22:34

actually i’ll mention two things i mean

22:36

they’re pretty interrelated first i’ve

22:38

got more questions about single family

22:39

rentals um over the past year than i

22:41

have

22:42

in my entire previous career

22:44

um and second uh we’ve definitely seen

22:47

some more interest in suburban um

22:49

suburban multifamily

22:51

so

22:54

i do think that they’re you know as much

22:56

as as much as we we’ve talked about um

22:58

you know people will forget covet things

23:00

will things will move uh back towards

23:02

normal i do think that there’s some

23:04

marginal

23:05

um marginal changes that are are going

23:07

to be pretty permanent one of them is

23:09

probably work from home um

23:11

now we are in no way i would say uh

23:14

calling for like the death of office the

23:16

death of downtowns

23:18

um the death of office space we’re

23:20

we’re very much uh you know we very much

23:22

think that those things are going to

23:23

come back but we do think that they’ll

23:26

probably come back a little bit less

23:28

than they had than they uh than they

23:30

were previous um so in a let’s say a

23:32

theoretical situation um maybe half of

23:35

the workforce

23:36

like has no work from home right

23:38

but the other half could be working from

23:40

home two or three days a week

23:43

in that scenario what we would expect is

23:46

basically renters not all renters but

23:49

some renters in that scenario

23:51

would be willing to trade a longer

23:53

commute for

23:54

less rent and more space

23:57

so we’ve definitely seen a preference

23:58

for

23:59

two bedrooms over one bedroom

24:01

studios have gone out of style so to

24:04

speak

24:06

and the suburbs of course

24:08

have benefited enormously over the last

24:10

year and actually do continue to benefit

24:12

even though we’ve seen downtown starting

24:14

to come back

24:16

so

24:17

as you if if you expect work from home

24:20

to

24:20

play any meaningful role in the future

24:23

um you would you would probably expect

24:26

the suburbs to uh

24:28

to benefit from that and that’s that’s

24:29

definitely why we’ve seen increased

24:31

interest in those areas

24:33

what about

24:35

secondary and tertiary markets obviously

24:38

it’s always a question of how you define

24:40

exactly secondary and tertiary tertiary

24:42

is probably easier right

24:45

but where do you see how far down that

24:48

ladder or institutionals willing to go

24:51

well how far are they willing to go um

24:54

that’s uh that’s definitely opening up

24:56

as well um

24:57

uh

24:58

it kind of depends so

25:00

when i think of tertiary markets um i

25:02

might i might say something as much as

25:05

like stamford or inland empire um which

25:08

are really pretty big markets

25:11

but we’ve actually we’ve actually seen

25:13

some interest in markets that are even

25:15

smaller than that and you know boise is

25:17

a classic example right boise has been

25:20

very become a very crowded space

25:22

over the last couple of years

25:24

um

25:25

but

25:26

even beyond that um there there are some

25:28

other markets um

25:30

surrounding like let’s say surrounding

25:32

denver or um

25:33

surrounding some of the texas markets

25:35

that uh have drawn some interest

25:37

but for the sake of argument let’s i’ll

25:40

use tertiary in my kind of traditional

25:42

sense which is more like stanford

25:44

um those markets uh those markets have

25:46

done pretty well and we we would kind of

25:48

expect that to continue

25:50

and it’s really based on again that same

25:52

work from home thing that i talked about

25:54

earlier uh so

25:56

stanford of course we do consider and i

25:59

keep going back to it because it is such

26:00

a good example but we do consider its

26:02

own market uh





26:04

but it’s it’s kind of just a suburb of

26:07

new york um

26:08

and that’s that’s what we’ve seen in

26:10

inland empire and you mentioned

26:12

sacramento earlier um that’s that’s

26:14

another one that’s

26:15

kind of gained from the from what we

26:17

might call a super commuter trend even

26:19

if they’re not super commuting yet

26:21

um

26:23

and those are those are markets that we

26:24

do expect to do pretty well in the in

26:26

the future inland empire is a particular

26:28

outlier i mean the the rent growth there

26:30

was

26:31

uh astronomical over the past year uh

26:34

and we are forecasting a pretty good

26:37

you know five years for it

26:39

not least because supply

26:43

there’s virtually no supply there and

26:45

we’ve definitely heard rumblings of

26:46

things getting out of the ground

26:48

or you know people looking to get things

26:50

out of the ground but uh at this time

26:52

there’s virtually no supply uh being

26:54

started so

26:55

that’s that’s a market that we think

26:56

benefits from this yeah i mean it’s one

26:59

of the the few of

27:01

affordable places to live near la right

27:04

so

27:06

there is just no other way there

27:08

but

27:09

also uh i do know what you think about

27:12

tampa right but we have seen a lot of

27:14

institutional players really going very

27:18

aggressive into into that market

27:21

so

27:22

what do you think about when we talk

27:24

about south also florida obviously you

27:26

mentioned atlanta dallas it’s obvious

27:29

phoenix i think is obvious austin

27:32

what about the flor north and florida i

27:35

think miami is it’s its own little world

27:38

uh yeah my miami’s

27:41

miami’s not quite big enough to be what

27:44

we would call a tier one or

27:46

you know primary market but it’s uh

27:49

yeah it it obviously it all has always

27:51

attracted a lot of institutional capital

27:53

right um but yeah i mean florida in and

27:55

of itself is still that enormous growth

27:58

story

27:59

so

28:00

orlando is a market that i might

28:01

highlight here because um

28:05

you know legend hospitality got hit very

28:07

very hard over the last year and what i

28:09

was looking for was

28:11

las vegas and orlando to uh uh to really

28:14

take a nosedive i kind of didn’t

28:17

um

28:18

so the uh

28:20

we’ve always known orlando was a pretty

28:22

good back office market uh as well so

28:25

you know call centers and that sort of

28:26

thing

28:27

have been moved to orlando

28:29

and evidently that was enough to uh that

28:31

was enough to buoy it

28:34

so it uh it continued to experience

28:36

pretty good growth

28:37

um

28:38

you know again it some of it comes down

28:40

to that regulatory environment um and uh

28:43

florida’s obviously been very

28:46

um

28:48

cooperative i guess uh with um

28:52

with business interests um so it does it

28:54

does help drive that growth and

28:57

i guess

28:58

you know just just to mention

29:00

there are sometimes downsides to that um

29:02

it’s it’s not a per you know it’s not a

29:04

perfect environment um we did see of

29:07

course those those big rolling blackouts

29:09

in texas um in january right um that

29:13

that could have been that probably could

29:14

have been avoided with a with a

29:16

different regulatory environment and it

29:17

definitely had an impact on business um

29:19

you know it’s it’s

29:21

this is not without cause you know there

29:23

is something of a trade-off but uh

29:26

overall it does seem to be a net

29:27

positive given

29:29

how people are voting with their feet

29:31

yes uh definitely yeah we we all were

29:34

suffering from that blackout and that

29:36

was definitely not

29:38

pleasant kind of unexpected i i never

29:41

really looked into

29:43

how how that power distribution is

29:45

really

29:47

managed and the individuals that are

29:49

running it i think

29:51

strangely enough a lot of these

29:53

individuals that were on these sports

29:56

had very little background in in power

30:00

uh production

30:01

so i think it was kind of a political

30:04

animal that was just not no one really

30:06

looked at right so it’s interesting that

30:09

in in a in a place like texas that

30:12

actually was possible right so

30:15

uh hopefully it was a wake up call for

30:18

for texas to look at the infrastructure

30:20

right because obviously the

30:22

infrastructure is key to to continuously

30:25

attract businesses yes business

30:28

friendliness is important but the

30:29

infrastructure needs needs to be

30:32

supporting this right

30:35

uh one one other thing uh i think uh

30:39

uh if you can touch on that uh

30:42

and that’s one of the reasons i think by

30:44

a lot of institutions and uh also the

30:47

the middle market investors

30:50

syndicators and so on and private

30:52

individuals have moved

30:54

into secondary and even tertiary markets

30:57

is obviously for the to chase that yield

31:00

that is higher there

31:02

but at the same time you also have seen

31:04

that massive compression not just of cap

31:07

rates overall

31:09

but also

31:10

uh between a b and c class right so we

31:14

have seen

31:15

in some instances where b-class

31:18

properties now

31:20

virtually trade at a-class

31:23

cap rates so what’s your take on that

31:27

yeah and we’ve seen uh we’ve seen

31:28

value-add pricing uh you know compressed

31:30

compared to uh compared to your standard

31:33

core um as well

31:35

uh and our our take is uh

31:39

basically you know one there’s a lot of

31:42

hunger for yield um that’s that’s not

31:45

just reflected in how

31:47

cap rates and pricing are playing out in

31:48

in real estate but it’s also reflected

31:51

in

31:51

the flow of capital into real estate

31:54

right because real estate is

31:55

traditionally an alternative asset um

31:58

and uh it traditionally gets higher

32:00

yields uh

32:02

so

32:03

when yes so i’m just going to bring up

32:05

the pension funds because it’s probably

32:07

it’s probably top of mind anyway um but

32:10

you know the pension funds uh

32:13

in some cases have some gaps to close um

32:16

and some expectations on yield that

32:20

are are tough to hit

32:21

um and so real estate helps them get

32:24

there uh so that

32:26

that helps explain why there’s this this

32:28

shift kind of downward um

32:31

towards the higher yield product

32:33

uh because

32:35

of course those as i say those yields

32:36

are necessary now

32:39

the other thing at play i mentioned that

32:41

that housing you know what we what we

32:43

perceive as a housing shortage um we

32:45

think that’s also having an effect uh

32:47

because

32:48

if you have class b product that um is

32:51

in a cloud you know borderline class a

32:54

location

32:57

there’s there’s still a spread like

32:58

there’s obviously it’s it’s kind of

32:59

closed actually in recent years but

33:01

there’s still a huge spread

33:03

um in rent levels so if you’re able to

33:06

capture even like 10 or 20 percent of

33:08

that by pumping some capital uh you know

33:12

capital value into the um product and

33:15

you’re able to capture some of that

33:16

spread then uh you know you’ve made up a

33:19

lot of ground and

33:20

so that’s why despite the fact that

33:23

pricing is tough in value-add

33:26

there’s definitely still people going

33:27

into it and you know definitely still a

33:29

lot of appetite for it

33:31

because it has that potential

33:33

yeah that’s a very good point right

33:35

obviously

33:36

that’s particularly the case in uh in

33:39

denser areas where you where it’s

33:41

spilled out and

33:44

we talked about new york city and boston

33:46

too right so

33:48

there you you can take a c-class

33:50

building if it’s in the right location

33:52

and make bring it very close to an

33:54

a-class for a city location right so

33:58

i think

33:59

we obviously don’t know how that’s going

34:00

to play out but with the high

34:02

construction cost it wouldn’t surprise

34:04

me

34:05

that some

34:06

some be class properties are being

34:09

brought up to a to a class level in some

34:12

outside of these these gateway cities

34:15

and core cities

34:18

yeah i mean there’s usually some

34:19

structural stuff with with bees that uh

34:21

doesn’t it means that they can’t

34:22

necessarily make it all the way to a so

34:24

they’ll say if you’re able to capture

34:26

some of that spread then just some is

34:28

already makes sense yeah

34:30

very good uh really appreciate uh

34:34

you coming on andrew uh

34:37

i also want to give you a shout out

34:38

before you give our listeners your

34:40

contact details for anyone who wants to

34:42

reach out

34:44

uh you you’ve

34:45

did an article i think it was 2017 a few

34:50

years back yeah gaming shelter right

34:55

we talked specifically about

34:58

market rate affordable housing right so

35:01

that was already several years ago and i

35:04

think that that topic is now

35:07

it was a problem back then now it’s it’s

35:10

almost like a

35:13

topic on fire in comparison to back then

35:15

so it’s only hasn’t been resolved

35:18

uh so you already had that insight back

35:21

then and now we are right in the in the

35:25

middle of that affordability crisis when

35:28

it comes to that

35:30

so

35:31

certainly appreciate that you already

35:33

brought that up the question is what

35:36

what solutions can there be right to

35:39

dissolve it and you already touched on

35:41

it that there is only

35:43

it requires cooperation from uh

35:46

from a federal level but also at

35:49

particularly at local levels to to get

35:51

these

35:52

uh to get affordable housing into place

35:55

right

35:55

yeah

35:56

yeah ultimately um

35:59

and maybe i’m you know maybe i’m taking

36:01

too capitalistic of us of a stance here

36:03

but ultimately i

36:05

would be happy with

36:07

any increase in supply like any amount

36:09

of any amount of supply is is something

36:12

that i think would would help and there

36:14

is a lot of you know

36:16

we’ve obviously seen kind of the

36:19

even you know arguably some of the

36:20

negative effects of gentrification and

36:23

um certainly arguments against that but

36:25

um i think from a pure

36:28

economic perspective

36:30

um any supply anywhere

36:33

is helpful um to affordability and um

36:37

i i

36:38

i i’m i’m happy like i’m i’m i

36:43

as an economist i would be happy to see

36:44

any supply even if it is all luxury

36:47

because as i said that does push things

36:49

kind of down the scale

36:50

um everything’s relative so whatever the

36:53

new stuff is that comes out and whatever

36:55

amenities that has

36:57

um that means that older product uh kind

36:59

of slides down the scale and becomes b

37:02

um and that’s not

37:04

necessarily a great thing for landlords

37:08

but

37:09

sometimes it is um but either way i i

37:13

i do think that that’s um probably the

37:15

biggest piece of the affordability

37:17

puzzle

37:18

yeah that’s a very good point why just

37:20

come up with more supply period

37:23

it’s uh

37:25

um so far you know it’s tough as i said

37:28

it’s very tough to build into

37:30

uh the middle of the market

37:32

and especially right now

37:34

like you could you could talk about i

37:37

mean

37:38

we’ve obviously seen softwood lumber

37:40

prices um get jacked up

37:42

but

37:43

our calculations suggest that

37:45

construction is probably still

37:47

profitable um even if it’s even if it’s

37:49

less so like we wouldn’t expect this to

37:52

uh necessarily slow down uh construction

37:55

uh enormously not and again comes back

37:58

to what is rent growth doing and what is

38:00

pricing doing and i guess i should

38:01

mention that multifamily

38:03

in comparison to some of the other

38:04

product types has done very well um in

38:07

pricing and cap rates

38:08

um so you know

38:11

even though those those even though you

38:13

have those enormous construction cost

38:14

jumps

38:15

um

38:16

there’s definitely still uh a spread

38:19

um between what new product is worth

38:21

basically we believe that construction

38:23

costs are still below

38:24

um replacement cost yeah um

38:27

so

38:28

you know there’s there’s we think that

38:30

there’s still uh room for for more

38:32

supply and uh again a lot of what’s

38:34

constraining it could be um

38:36

it could be more regulatory yeah

38:39

very good uh appreciate all your insight

38:42

andrew it was really a pleasure to have

38:44

you on uh how can our listeners

38:48

reach you

38:49

uh so co-star advisory services does

38:52

have its own uh does have its own

38:54

website and of course i’m on uh linkedin

38:56

um if uh if if you do have some

38:59

follow-up questions um feel free to

39:00

reach out to me there um or again you

39:03

know the co-star advisory uh coaster

39:05

advisory services uh website

39:07

but thanks a lot for having me anthony

39:08

yeah you know great uh again thanks uh

39:11

for being on with us today andrew and

39:13

for all your insight

39:15

no problem bye