AMELIA ISLAND, FL - Underwriting isn't what it used to be. Case in point: this humorous video from Steve Lefkovits on where deal flow might be taking today’s multifamily asset manager.
As co-producer with the National Apartment Association of Maximize: 2014 Multifamily Asset Management Conference, Lefkovits explains that—regardless of how high rents grow or how low cap rates drop—the emerging class of multifamily asset managers, pricing professionals, data analysts, and operations professionals will be ultimately tasked with creating value from the estate.
Facing them are a broad range of market challenges, which, when properly exploited, can become market opportunities for apartment owners and operators:
Inflection Points - Record-breaking rent growth has rewarded multifamily investors across a multi-year streak since the recession ended. Veteran players know that a cyclical market is what makes arbitrage possible and that sooner or later, rents will plateau. When they do, all eyes turn on the asset manager to maintain Internal Rate of Returns (IRRs) and distributions by extracting more cash flow from the asset. When rents are white hot, operational performance is a side thought. When rents stall, the hustle is on to implement the ancillary services, revenue management, and expense reductions necessary for optimizing returns.
Cap Rates - In the time it takes a distressed asset to blink, cap rate compression is back. Not only have cap rates nose-dived across asset classes (into the fives for Class A and the sixes for Class B), compression on forward-looking rates for rehab deals is pushing prices into the asset classes ahead of them. With value-add B-class assets trading for A-class money, the task of the asset manager to create the NOI growth necessary for exits (sometimes for as short as a three year hold), becomes a balancing act of strategic cost containment and creative revenue growth.
Technology - Advances in multifamily technology have provided incredible efficiencies at the property level. Selecting which to implement (not to mention handling institutional change management) can nevertheless beguile operators, particularly when portfolios are already redlining on rents. Technology has also provided access to immense data sets for predictive analytics and business intelligence efforts. Despite the progress, there are more numbers to crunch than ever, and still no true consensus of whether or not big data can be profitably applied to the apartment industry.
Want to take a deeper dive into best in class multifamily asset management strategies, trends and tactics? Register to attend Maximize: 2014 Multifamily Asset Management Conference, October 13-15 at the Omni Amelia Island Plantation Resort.