Hospitals Building Apartments and Other Trends You Should Know About
The market cycle, hospitals and three other trends you should be aware of as the calendar turns to 2019.
The headliners at the recent Bisnow Multifamily Annual Conference East conference in Tysons Corner, Va., were Bob Faith, Founder, Chairman & CEO of Greystar, and Barry Sternlicht, Chairman & CEO of Starwood Capital.
The duo, who together formed Starwood Capital Partners in 1991, didn’t disappoint as they shared stories about their careers and faith the apartment sector going forward. But beyond that session, five key trends emerged at the event.
Here’s a snapshot:
Hospital Groups are Interested in Apartments
From a community development perspective, few entities have a greater stake in their neighborhood than hospitals. People who have a roof over their heads are more likely to be healthier.
So, it makes sense that hospitals, who have money to invest, would target housing. George Kleb, Executive Director, Housing & Community Development for the Bon Secours Baltimore Health System, says his organization made a $750,000 investment in the Maggie Walker Community Land Trust, which is the land bank for the city of Richmond. It is now looking at making more direct investments in housing.
Bon Secours is not alone. Kaiser Permanente is setting up an equity fund to disperse money for housing in eight regions around the country. “We go outside of health care with our investments,” says Celeste James, Executive Director, Community Health for Kaiser. “We think about hiring, buying and building with those investments.”
The End is Near
While transaction values remain very strong, Michael Cohen, Vice President, Advisory Services for CoStar cautious that it is late in the cycle.
“A lot of supply is coming and that will potentially accelerate dislocation, particularly at the top of the market, in the next couple of years,” he says.
In some markets, construction delays have muted supply pressures.
“We are seeing a slowdown in construction completions,” Cohen says. “In some places, development has been delayed by four to six months. A little bit of a delay has helped fundamentals.”
Returns Continue to Be Squeezed
Volatile interest rates and aggressive asking prices continue to make it hard for some would-be apartment buyers.
“A lot of multifamily deals are having difficulty penciling out,” says Derrick LaRosa, EVP of RESIDE Worldwide.
That trend is showing up in the number of people bidding for deals. As of late November, brokers were calling Matt Ferrari, Senior Managing Director of TruAmerica Multifamily, and encouraging him to pursue their listings because there was less traction or bids from potential buyers.
“I don’t know if that [trend] was because of volatility in the markets or buyers had hit their allocations for the year and were waiting until next year to pursue deals,” Ferrari says.
Jonathan Slager, Co-CEO & Chief Investment Officer and Bridge Investment Group, says there “is still a lot of activity” in the market. But the end of the cycle is causing him to turn toward fixed-rate debt for his deals. “The difference in proceeds is nominal and the risk is better,” he says.
Know the Different Types of Renters
In this latest development cycle, the action was at the top of the market. Cohen said that six of 10 apartment units under construction required salaries of $100,000 to comfortably rent. Many of those residents may be older and don’t always want the same features.
“They want different amenities,” Cohen says. “They don’t want the pool and rock climbing wall.”
As more Millennial couples are having children, Cohen says two bedrooms are becoming scare. With so much supply as the top of the market, he says apartment owners should also focus on more affordable classes. “Class B renters have fewer options,” he says. “They’re less mobile and rent for a longer time.”
The Resident Experience Matters
Customization is very important to today’s residents, according to Scott Moore, Chief Information Officer for Cortland. “Today’s residents want a great experience delivered to them,” Moore says.
Often, apartment operators turn to technology (along with service) to deliver this great experience. But David Senden, Principal at KTGY said that apartment owners and operators need to be careful and investments that are not user-friendly. “We trying to not only figure out what makes us better but also what confuses things,” he says.
In the quest to provide excellent service and customization, Jason Fudin, CEO and Co-Founder of WhyHotel, warns apartment owners that there is a difference between technology and innovation. “It is important to know that innovation is the way we do something,” Fudin says. “It is not innovation simply because we add technology.”