2013 ULI Trends Day Arizona Recap – Part 2 – Apartment Panel

Following the Education Panel, was the Apartment Panel. Key characters from this group were: Tyler Anderson, CBRE; Chapin Bell, PB Bell; Eric Buchanan, Oliver McMillian Properties; Susan Eastridge, Concord Holdings.

From the peanut gallery, it did not sound like much has changed in the apartment world. Here are a few of the bullet points:

  • People are choosing to rent instead of buy a house
  • Strength in the housing market helps the apartment market
  • American Dream has changed (this lead to a discussion about the Gen Y and how they are very mobile in their early years in their professional lives)
  • The negative connotation of living in an apartment today is not the same as it was in the past (the idea was the luxury apartments had granite and upgraded appliances when entry level homes may not)
  • They anticipate a strong demand for the next 3-5 years for quality projects
  • Financing core assets depend on the sponsor – most aggressive is for the long term owner/operator (7-10 year hold perids)
  • Projecting rent rates to be flat in 4-5 years
  • Student Housing is still more of a merchant build scenario
  • In San Diego Market, sub 4% cap rates are typical. The goal is to get a 200 bps spread on the debt
  • Building Urban Infill projects are challenging today and will become more challenging in the future
  • When comparing the entitle process between CA and AZ, AZ is “a dream” compared to CA
  • Capital Partners will not work on a new development project without the entitlements in place
  • High Rise Density is just beginning in Phoenix and will likely become more prevelant
  • It is starting to become more difficult to obtain financing for apartment construction projects
  • There has been an increase in construction costs of 15-20% over the past 2 years
  • Prediction on Interest Rates: Can only go up from here. Expectation of 25 bps over the next year
  • “Green” projects are more important to the Student Housing sector vs the traditional market

Overall, it appears that that the dynamics driving the apartment world are starting to stabilize and there will not be any more significant increases. The future value creations is going to be through operational management. If you are there, what did you takeaway?