Podcast - 2021 Multifamily Mid-Year Outlook

Marcia Cuenca
October 5, 2021
Podcast - 2021 Multifamily Mid-Year Outlook
"There's migration patterns, not only of the Millennials or the Gen Z, which is the primary renter of the future replacing the millennials. But also, you got Boomers making up a larger and larger percentage of renters that are driving the rental market."

- Doug Ressler, Manager of Business Intelligence at Yardi Matrix

On this episode, Doug joins us to discuss the drivers behind the rising demand for multifamily, the cities experiencing the fastest rent growth, and opportunities in growing markets. 

About Yardi®  Matrix
Yardi® Matrix offers the industry’s most comprehensive market intelligence tool for investment professionals, equity investors, lenders and property managers who underwrite and manage investments in multifamily, student housing, industrial, office and self storage property types.

Links

Multifamily Outlook Report, to download report click here
Listen to our earlier interview with Doug Ressler, 2021 Multifamily Breakdown
Learn More About Yardi Matrix, click here

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Transcript

Adam Hooper (00:00) Hello and welcome, I’m RealCrowd CEO Adam Hooper, and this is the Real Estate Investing For Your Future podcast. Here we explore the latest in commercial real estate trends, insights, and investment strategies that passive investors can use to build real estate portfolios that last.

Disclaimer (00:21) All opinions expressed by Adam, Tyler, and podcast guests are solely their own opinions and do not reflect the opinion of real crowd. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions to gain a better understanding of the risks associated with commercial real estate investing. Please consult your advisors.

Adam Hooper (00:42) Today we’re joined by Doug Ressler, Manager of Business Intelligence at Yardi Matrix, and a friend of the show. Yardi Matrix offers one of the industry's most comprehensive market intelligence tools for investment professionals, whether you're an equity investor, lender, or property manager, they provide data and management solutions for multifamily, student housing, industrial, office, and self-storage property. In today's conversation, we walked through Yardi's latest multifamily outlook report, which you can find a link to in the show notes. The conversation covers a supply and demand drivers impacting multi-family the cities experiencing the fastest rent growth, the markets to be wary of and what the inflationary environment might mean for multifamily.

Adam Hooper (01:23) We hope you enjoy this conversation with Doug and please again, check the show notes for a link to the full report from Yardi, Matrix. Well, Doug, thank you so much for joining us again today. We had you on earlier this year to, to talk about a few things and general update on the economy and you guys just put out the summer 2021 multifamily outlook for the U.S. Thank you so much for jumping back on and sharing some new info with us.

Doug Ressler (01:47) Always a pleasure to be here, folks.

Adam Hooper (01:49) So Doug, before we get started for new listeners, maybe they haven't heard the last episode. If they haven't, we'll include links in the show notes. Tell us a little bit about yourself, Yardi Matrix, and what you do there on the day to day.

Doug Ressler (02:01) Sure. My name is Doug Ressler and I'm the Manager of Business Intelligence at Yardi Matrix, which is a subdivision of Yardi Systems. Yardi Systems is a provider of asset management software, along with many divisions that also do data collection in terms of various commercial real estate endeavors. Yardi Matrix collects, data for the residential, self storage student housing, single family built for rent and others. We also share data with our sister divisions, Commercial Edge for office and industrial, and also Rent Cafe, which is a B to C type of publication for the commercial real estate industry.

Adam Hooper (02:46) And now it's gotta be a fascinating position to kind of sit on top of all of this data collection and try to figure out unique insights to it. I mean, how did you, how did you get into that again? And, and tell us a little bit more about your role within Yardi Matrix right now.

Doug Ressler (03:02) Sure. I started out initially with a company called Pierce Iceland in 2008, and they were acquired by Yardi Systems in 2013. I started out as a researcher. Our value proposition is that we don't do any web scraping, we call all our clients in terms of the commercial real estate endeavor that we're researching like residential and that is quite extensive and labor-intensive. So I started out in that endeavor and eventually moved up the food chain to become more of an analyst and in business intelligence to connect the dots, if you will. Once you collect so many dots, you begin to have a certain affinity, if you will, for how those dots interact or don't interact together.

Adam Hooper (03:51) And culminating in the report that you guys just put out again we'll have a link to that in the show notes. The U.S. Multifamily Outlook for the summer of 2021. It feels like it's been a fairly short few months since we spoke last, but it feels like. There's been a fair bit, that's changed in some that still hasn't changed. Right? Well, so some of the uncertainties that we were facing earlier days in the pandemic as well. So why don't we just take kind of a bigger snapshot of, where is the economy at right now? Relatively where we were earlier this year?

Doug Ressler (04:23) Well, the economy is starting, it’s slow transition back. I think you know, there's a lot of things out in the industry today. The Fed is considering their QE reduction program that they announced the Jackson Hole a couple of weeks ago. And you can begin to see the employment numbers perk up, even though the last employment number wasn’t so great. But you're beginning to see that slow progression. The Delta variant has really kind of inhibited if you will, the growth. And so you're starting to also see the impact of the Delta or whatever variant there is, especially in those industries, like the leisure and hospitality, the affordable and the working class, blue collar, working class  job employment, really a bifurcation of the two, distinct the types of labor pools, the labor pool of being able to work from home in high-end salary jobs has not been as impacted as much as the lower end jobs, which are more of a service industry related.

Adam Hooper (05:23) And, how has that changed from maybe this time last year? Or is there any, because it was such a swing last year and in such a steep decline and change of the status quo. Is there any value really in comparing it year over year, right now, where we're at?

Doug Ressler (05:40) You know, what we really see is the real value is you have a statistical term called time period dependency. And a lot of what you see being shown today in terms of results. Based on who you want to quote our stuff, our competitors stuff you're looking at double digit rent growth, but we really think that's a year-over-year type of calculation and it's a year over year based on time period dependency. That goes back into a time when the economy is in the state of depressed not really robust, because of the pandemic and the lack of a vaccine. So one of the things that we look at too, is if you go back and pick a point prior to the pandemic and you take the rent growth today, rent growth year over year is double digit. In most instances, 10, 12, you pick them. And what we do is before that, we take a period prior to the pandemic and then we chart and we'll take a proxy. Of an appropriate annualized growth, let's say 3%. And you look at 2019 on an annualized basis at a 3% growth. Where would you, where should you have ended up, today? And then how does that measure and what you eventually do is you reduce that double digit down to single digit. Almost cuts it in half. So if the pandemic effects are still occurring it's a very complex model is, I will tell you in terms of the fed. And so what we really see is the impact of that. We say that's a mirror effect where you're trying to measure that anyway. And what you say as well, you know, back in 2019, if we were to have a 3% year over year growth, where should we have ended up, where are we today and how does that compare? And so that really shows you the dramatic impact the pandemic has and is having. Most people say what's post pandemic. I don't call it post pandemic. We're still not out of it, I call it post vaccine phase 1. And so that's really where we're at right now.

Adam Hooper (07:51) Yeah, I think we see that still in some hesitancy of certainly returning to offices, right? I mean, we've been seeing bigger and bigger companies in some indefinitely postponing, right? Without real insight into when that's going to return more to normal. How big of an issue is that with the overall economic recovery, how are you seeing current status of post vaccine phase one? I think that’s what you called it. What are some of the issues that we're facing right now in getting to a healthier recovery and extending? What was seemed like a pretty bullish recovery earlier this summer until Delta came back in and kind of slowed us down and put a pause on things again.

Doug Ressler (08:33) Well, the work from home issue is also one that has many variance to it. You have the ability to say that, what is the value proposition of your companies? Do I need the creative, DNA of people being together. And that doesn't mean they're together five days a week, but people will refer to it as a hybrid model. And I think what you see is a lot of companies are saying, I need that creativity on the value proposition that I built my company from.

Doug Ressler (09:06) And so what people are trying to figure out is how to do that. You see that in terms of a lot of the businesses that are springing up, the ability of businesses that are springing up right now in terms of making workplaces safer. In terms of having rules in alignment here for that you'd never have had  in terms of, how the building airflow, air handlers work, things like that. So I think people are making progress in that regard is to be able to in act the hybrid models or what they want the hybrid models to be. You certainly have large financial institutions that have cyber security concerns. And so all those things weigh into how you bring people back when you bring them back.

Doug Ressler (09:48) And then last but not least is you have the demographic of people that say, do I want to be in the office. Am I an independent contributor or an individual contributor? Do I have to be in the office as much as someone who is more of a team oriented contributor? Those things all go through in terms of the DNA demographic of your office poll.

Adam Hooper (10:10) And we'll talk in a little bit about some of the rent growth trends, but I'm curious if you guys have seen any link between. Is that a driver with working from home and people maybe changing what they're looking for in space in their home or department? Have you seen that reflect any other metrics, either just overall occupancy rates or rental rates? Has that affected the, how people use that space now with the change of more working from home?

Doug Ressler (10:40) Yes, we've seen it. Our sister division Rent Cafe you stated as well as some other divisions data. And they took a look at migration patterns of renters. And what they found is, it was more of a hedonic model in lots of instances, meaning it was a consumer behavior. If I were in San Francisco Peninsula, and I had a better opportunity where I could work from home and I could get a larger place in Oakland. There was a migration is not significant, but it definitely picked up on the scale of things like that occurred. So what we see is that we see renters moving around, not very far from their original point of housing, but they are looking for better deals.

Doug Ressler (11:26) You look at millennials in particular who are aging, who should be out looking for homes. Who are not because their home affordability and the home availability is just not there. So in most instances they have, or we'll be starting families, and they're looking for larger places that meet their price. And some of those occur in what we call the exeters or the suburbs in terms of major metropolitan areas and that is occurring as well. That is one of the driving things. Why we got into the single-family or built for rent. It was because they look like a house. They act like a house they're a little bit larger in some instances than a normal apartment. And it gives you the freedom to do what you want to be able to do. That's one of the reasons why the market, especially large REITs have latched on to them, especially after the 2008 great financial crisis. And that's why he's becoming such a very exuberant and robust type of business right now because it's seeking its own level, you know, trying to provide price point for renters and give them the type of things that they demand.

Adam Hooper (12:37) And again, yeah, we'll definitely want to cover that trend of the single family for rent in the supply. When we talk about supply a little bit, but back to the general economic outlook. On a recent podcast, we had Peter Linnneman on and we were talking about this influx of money into the system, created this demand and the supply chain just got completely shocked, right? It couldn't keep up with the demand from all the stimulus money. He was saying, we're still a ways out from that supply chain coming back online with, you know, in commensurate with what that increase in demand was. How has labor effected that material shortage of supply chain management issues? How is that affecting our recovery right now? And any forecast or outlook on what that looks like over the next one to two, three years?

Doug Ressler (13:32) Yeah, I like Pete. I listened to, and I mean, coming from Wharton, he's a very august person. So the availability of materials and laborers, is very key in terms of this, again, it's dependent upon, the different types of Market, you can't make an offsite, this one market. So certain markets are more impacted, especially the secondary and tertiary markets, as opposed to the primary markets. You also see the supply chain still, you know, moving in and leaps, even though port of LA, I think had their highest. You know volume in the last 18 months, just last month. So you start seeing the ports coming back and you start seeing supplies coming back, but it's still not at the level. And that needs to be because you've had a lot of forward buying people have done forward buying. And Amazon is trying to accommodate that by putting fulfillment distribution centers in terms of same day.

Doug Ressler (14:31) You know, where their demand is. It's not a random act as to why they located in Dayton. You know, there's a big source of their demands. So when a top of the supply chain hiccups, what they're trying to do too, is to meet that value proposition of same day or one day delivery. And you see Alibaba, which is the big Chinese equivalent of Amazon, which also wants to get into the game while they're are. You know, international Dateline away and they're going to deliver stuff with then same to here. So they're going to have to have these remote centers like Amazon is like with fulfillment and distribution centers. And so that is being built.

Adam Hooper (15:10) Alibaba is gonna be doing same day delivery here in the states, in the U.S.

Doug Ressler (15:14) Yep. There, it was in the Wall Street Journal about a month ago or so. Yeah, because it's such a lucrative thing because the buyer, the consumer now has come to expect that. And they'll say I'll buy from you if you give me that. So again, it's a hedonic principle where they're offering that and UPS just made a purchase. It was again in the Wall Street Journal. They're actually getting into the, the fray in terms of doing same day with mini vans and special shuttle vans that are allowed to give same day service. So again, it's a very competitive atmosphere and what's happening is the whole supply chain like Pete talked about. Whole supply chain dynamics are changing in addition to what they were before.

Adam Hooper (16:00) Yeah, we had one of the companies that went through the same program that we went through in our batch and in Y Combinator Door Dash. They're now doing that as well for retailers’ delivery beyond food. Right? Normally they started out as food delivery, but they're opening up their platform for same day, same hour shipping almost for, for local goods. So I think it's fascinating to see as that consumer behavior shifts. I mean, I'm super impatient and I was always happy with, you know, maybe two day or three day shipping, but now that see things coming same day, it's just gotta be a logistics nightmare to try to figure that out. It’s pretty fascinating.

Doug Ressler (16:39) Especially with things like groceries, because what you have a Walmart has a proprietary system that they're developing where they're, installing, being able to install inventory above the drop ceilings that they have. and that's how, you know, when Walmart gets into the fray, you know, it's serious. So most of the stores or the infrastructure have not that it was adjust in time since 1980. Just in time type of delivery, keep it very low amount of stock. You have a pretty good supply in terms of your economic order quoted quantity algorithms. Well, now that's all being changed and instant gratification has now entered the fray.

Doug Ressler (17:22) And so what you see is, well, how do I handle that? You know, stores, especially grocery stores are looking at remoting, remote substations. Where they carry inventory, which has a very quick turnaround time to be able to get it into the stores or buying or whatever occurs. And also, if you go to a grocery store, you see a lot of people, driving these carts, putting bags together for instant delivery to somewhere. Probably at least 10, if not more percent of the people in the store are not even there, their phantoms are ghost. These people are doing the shopping for them.

Adam Hooper (18:01) Yeah, fascinating to watch. Well, I guess, so given all that, where are you in terms of bullish or bearish on the economy and maybe stabilization or continued growth over the next call it 18 to 20 months.

Doug Ressler (18:14) Continued growth, very bullish right now. Especially in commercial real estate. Industrial, which is all part of the supply chain, multifamily, very strong in terms of low risk. Even though the cap rates have depressed a little bit into the multifamily. There's still one of the best ways to deal with the situation. And also, it's probably one of the most resilient against inflation. And Trump Howes talked about inflation and you know, the constant need to monitor. What's going to go on there because you always have that in the background. And so the, the two, , primary commercial real estate endeavors that have that right now are multifamily industrial.

Doug Ressler (18:55) And there's a lot of things happening that people are pruning their inventories, their portfolios, to be able to look at some of these alternative assets, like student housing for one like self storage for. I mean self storage does very well and has done very well over the course of the last 18 months.

Doug Ressler (19:13) Probably more than people expected, assessing alternative asset. I need place a place to, you know, keep products. Small businesses are using self storage to keep inventory and things like that. So it was a very good student. Housing is as the colleges start to pronounce. , it was called, I don't know if you've ever been in dorm rooms, but they're not exactly big. And, , so you know, you, you need, you need some place to be able to accommodate that. So, , what you see is a lot of that going on in terms of storage and self storage, but also student housing in terms of their enrollment effort. , we have one, , , major university here at Arizona state university just opened, , the first, , , apartment complex.

Doug Ressler (19:55) which is, I would guess about two and a half, three miles from the university itself. It's on a major thoroughfare, but they give you free Uber service. That's one of the amenities. You don't need a car, there's no parking. , and , you use Uber or you use the light rail to be able to get to and from university, or if you want to go, you know, to the restaurants or things like that downtown, you got a free pass on, on Uber.

Adam Hooper (20:21)  said that was a university developed property or a private,

Doug Ressler (20:25) private about it was pro it was private the way that a, the Arizona state university does a lot of it out here. They're pretty much the best of themselves. So the dormitories, and they've given that over to, , the developers, , in the valley. And so what you see is the development activity that a lot of, um, universities are doing that, or have done that, the old style where the, um, Um, colleges are under a lot of tremendous PNL, , stress. So do I maintain these buildings or someone that wants to professionally manage them them development? Can they do a better job?

Doug Ressler (21:00) Can make them more cost-effective we'll bring the students. You take care of that. End of priests up equity on the colleges, stem from the standpoint. And it's a good, it's good news for the developers.

Adam Hooper (21:12)  Well, since we're, since we're talking Arizona, , let's maybe switch over to some rent growth trends, um, Phoenix leading the year over year rent growth. Um, why don't we take a little bit of a look at just nationally, what have you seen in the last six, seven months in terms of rent growth and, and maybe with some of the drivers behind that? I know housing affordability being one of them, , and just supply to available housing.

Doug Ressler (21:38) Sure, yeah the Southwest and west is, you know, all the way from Dallas to Vegas to Denver are looking very hot right now. And the reason for that there's migration patterns, not only of  the millennials or the Gen Z type generation, which is the primary renter of the future, replacing the millennials, but also you got boom boomers are making up a larger and larger percentage of renters that are driving the rental market in terms of the divorced themselves, if you will, from the maintenance and cost of maintaining a home or family single family, and they move into rental engagements, especially in those types of cohorts or communities that foster that, you know rental communities that have that kind of demographic. And so we see a lot of that going on from a migrant migratory standpoint. We also see boomers. What's interesting is boomers like to go to the central business course. , so, you know, , in terms of where you live and things like that, you'll see a lot of, , boomers populating the central business districts, as opposed to the other millennials, which are, you know, primarily in excerpts or things like that are around major university.

Adam Hooper (22:50) And now if we look at the, the numbers behind that, in terms of some of the fastest growing rental markets nationally year over year, up 10%, um, again, Phoenix leading the charge over 20%, those numbers, like you mentioned before, if you look at that time adjusted. Kind of taking into account the last year of 2020.

Adam Hooper (23:09) Um, maybe those numbers are tempered a bit more, you know, trending up from 2019, but still those are pretty substantial numbers in terms of rent growth. So maybe, maybe walk us through some of the fashion and rental markets and what you guys are seeing there.

Doug Ressler (23:22) What we're seeing is the lack of, , you know, housing available. You know, especially as the millennial generation looks to find that if it is not pro president, , they're going to continue to rent. So that's number one, you see it in Vegas, you see it in Denver. , and that's also wage growth, you know, has, has been moving up. It took a slight dip in 2020, but that was because the employment situation with the pandemic, but it has been moving up, , as opposed to.

Doug Ressler (23:50) , before that. And so wage growth is slowly increasing, but probably not as quickly as the rent growth is, but we see that as the ability for will eventually stabilize. It's a transitory thing that probably over the next 12 to 14 months, you'll begin to see the stabilization of rents begin to come down a little bit.

Doug Ressler (24:08) Yeah. , because of, , the initial surge, if you will, people that want to move or renew, , and things like that in terms of rental opportunities where they can get more for less things like that. , so, and also the population migration is occurring. Two jobs workforce is moving to those types of jobs and the cities where, you know, there is a greater degree of employment.

Adam Hooper (24:34)  And now w when you mentioned the stabilization, do you think that'll be a. Just a slowing of the growth rate year over year. Will that be actually, you have to have, we will be yo-yo back. Right. Have we gone so far in terms of this, this similar demand and balances pushed it up? So it'll be, you're not, you're seeing a, necessarily a pullback of where rental rates are just exploding to that

Doug Ressler (24:54) growth. Okay. Yeah, because again, it's a good game. It's the less risk. , it's a good return on your money. So that's where you're going to find.

Adam Hooper (25:03) And I mean, looking through, and again, listeners out there, I highly recommend downloading the report. Um, if you haven't already, when you, when you listen to the episode here, um, it seems like these are fairly well geographically spread, right? You've got Phoenix, Tampa, just kind of going from the top down. Phoenix, Tampa, Vegas, Miami, inland empire Raleigh, Atlanta, Charlotte, Austin, Sacramento, Nashville, Denver Portland. So, I mean, it seems like it's a pretty well. Geographically diverse trend that you're seeing here in these faster growing markets.

Adam Hooper (25:32) Is there, is it a reflection of some of the migration patterns or is it a begin kind of rising tide thing? Do you see that?

Doug Ressler (25:40)  Definitely the migration. Yeah, definitely. The migration patterns also that we're seeing a lot of moving. , in terms of where people come from and to, in terms of headquarter moves, , you know, Disney just relocated to Orlando 2000 workers or plant to, , and so what you see is a headquarters, , you know, that are changing and obviously taking workers and increasing the workers sensitivity, where they want to live, certainly taxing, , inputs of a definite, , , impact on the taxation.

Doug Ressler (26:12) The north Northeast is typically seen as a higher tech station area that as opposed to the Southeast, , right to work laws and things like that. So you have a little bit more liberal, progressive type of folks. And you also have those, , areas like Denver and Orlando, where in mind. , where the policy folks are coming together and the governmental folks are coming together to be able to inset and to bring, , employment and, , the economic diversity and engines necessary to bring, , renters or homeowners to their particular area. So that's part of the migration pattern that you see.

Adam Hooper (26:51) And what about some of the, the gateway markets major metros? There was a lot of talk about. The migration patterns out away from the more urban gateway markets. Um, certainly last year, right? This time, last year, it was, that was a lot of talk about that. Um, have you seen that reverse or stabilize where where's the out migration from

Doug Ressler (27:13)  gateway? Yeah. That's yeah, that's an excellent question because, , in the next few days that were ranked cafe, everyone should look for rectifies going to come out with, , a link on that. Very question. This. And so, um, suburbs were even further.

Doug Ressler (27:27) So he Lindemann, you know, has talked about the fact that look, , cities aren't gonna dry up and blow away. They're there. Jeff West has written a particularly great piece. It's called scale. That's the book. And it talks about the economic diversity, , that goes on cities and bringing people together. , in terms of how that occurs, as opposed to, you know, secondary tertiary markets, not to dis you know, discount secondary tertiary markets, but there's a lot more synergy in the large metropolitan MSCs than there are in terms of a secondary or tertiary markets standing though.

Doug Ressler (28:05) , there's a lot of development that goes on in those, but we've seen a lot of international investment in the secondary and tertiary market. , because they're trying to stay ahead of competitors. And so people are re-engaging with investment. , look for the west coast, Southwest, , the, the markets, , along the whole west coast, , to begin, , seeing a lot of, , north American type of investments. I think north America investments, probably right now for the monies, , CBR just did an analysis. Analysis of it, but well, 60 to 70% of the investment, , in terms of commercial real estate right now has been from the north American cottony, very little from a European and Mid-East. Hmm.

Adam Hooper (28:51)  And that, that being a change from what we had seen in the last six, seven

Doug Ressler (28:56)  years, You saw a lot of Asia Pacific stuff that came in, especially on the west coast. And that has been diminished, , for various reasons, , policy and things like that. But, , that doesn't necessarily negate the fact that there's still investment coming from the outside world. It's just that they're looking at a little less competitive areas like in secondary tertiary

Adam Hooper (29:17) markets. Yeah. Um, so now if you look at your running down this list of the faster growing markets from a runaway perspective, W are you bullish on all those? Are those trends going to continue? Do you see any signs of a, again, we talked about maybe some slowing or that growth rate, but not necessarily a reversal. Are those markets pretty consistent with the ones that you're most interested in right now from a continued growth? Or are they any sleepers that maybe aren't on that list that you guys have been paying attention to?

Doug Ressler (29:45) Well, you know, some of the, the sleepers that we're paying attention to are places like Charlottesville, Savannah, Georgia, and there's those type of places. , they're small, but what they have is a great infrastructure. That's building infrastructure in terms of distribution supply. , inland empire, , has gained a lot of credence, especially with the supplies change search. So if you pepper in the new model of supply chains, what it is will be is beginning to put new life and renews some markets that here for we've never seen, , have that kind of, , diversity in. , so, , yeah, we, we fully believe that they're going to continue and they're going to be very robust going forward.

Adam Hooper (30:28)  So then moving on to the supply side of the equation, um, you know, I think it's been talked about for a long time that the multi-family space, certainly when you're talking about class B workforce housing, there's a pretty dramatic under supply historically. Um, it sounds like that's just further exacerbated now, um, with everything that's going on.

Adam Hooper (30:49) So, so where, I guess, what are you seeing on the supply side? Um, Is the affordability thing ever going to be solved. We've got construction costs coming down more in line, right? I mean, we had a number of projects that were going to be going up on the marketplace development deals that they just, they had to put on pause and definitely when lumber prices went absolutely crazy. Um, what are you seeing generally on the supply side for, for multi-family?

Doug Ressler (31:14) Absolutely. Let's unpack it. I mean, will it get better yet? Will it be overnight? Um, and so what we're seeing is in terms of the market though, is already beginning to react to the availability. And there's two words, adaptive, reuse. you're seeing a lot of infrastructure like, , offices that are, are, or even condos that are being reconverted to, um, apartments. There was just one, , yesterday in the wall street journal, I believe it was, , in inner Harbor and bolt. , it was a 1967 building. It was office. It wasn't populated, , you know, it had really had a meltdown and it was Rican reconverted.

Doug Ressler (31:54) Totally. Top to bottom in 2018 is now leasing up. It's pretty nice place. Now that's just one example. There's many more, some matter of fact, our data is going to be used in the Naya piece. That's coming out at the end of this month. I think it's on the. 29th or the 1st of October, that's going to be presented in terms of adaptive, reuse and multifamily, , you know, from other types of asset classes, , also rent cafe is also republishing, , an article that was done in the spring, , about, , adaptive reuse and where it's occurring. that's going to be, , republished in using, , our data and some of our sisters division stations. , this month too, but, , adaptive reuse is really, um, some people think of it as initialism niche, but it's becoming more of a niche as opposed to initiating niche. And that's the market's way of reacting to the fact of availability of.

Adam Hooper (32:48)  Yeah. We'd seen even a few managers that we're working with looking at, um, extended stay hotels and converting those into apartments. Right. Which is another E maybe easier conversion than an office to, , to housing. But, um, it's definitely, , seeing more of that out there and how you mentioned the, the single family for rent product too. Um, that's a fairly new, I mean, obviously you had all the bigger institutions. Thousands of portfolios with thousands of homes around the country, but this development of single family communities specifically for rents, um, that's a fairly new initiative. How are you seeing that effect? The, the multifamily dynamic.

Adam Hooper (33:31) Do you consider that? It's kind of like, multi-family it kind of acts and behaves like multifamily. W where do you fit that into the equation?

Doug Ressler (33:39)  Yeah, it's definitely part of the multifamily. We have over 90,000 plus properties, , right now in terms of our, , single-family rental portfolio. And, , you know, it's, you know, in the 2008 meltdown, the great financial crisis, you had all these real. you know, bank owned properties and things like that. And mom and pop, and that really filtered out a lot of people in terms of you had a lot of vacant properties that were being taken over by larger asset managers. And what they found is that the larger asset managers. , in terms of financial, she usually do a better job.

Doug Ressler (34:14) They can, , reduce the expenses by as much as 20 points in terms of running a, a collection of, , properties. So, and it makes investment sense. So what you see people like Blackstone, things like that, black rocketing. , involved with this, the large major REITs are starting to home charrette, people like that. See that there's great dynamic, great profitability, and also segues into the dynamic of people wanting a housing and not being able to find housing economics 1 0 1, Milton Friedman bless his heart. So. You know, , is coming back to look at this as a viable option and quite a significant Bob washing work can be managed, , efficiently and profitably, and it gives the consumer what they need.

Adam Hooper (35:00) Now you mentioned the report, a handful of markets that have, , The large number of new supply coming online. Um, Charlotte, Austin Raleigh, twin cities, Orlando in Miami, um, ranging from three and a half to four or 4.2% at the highest in Charlotte. What does that look like in more. Is that an abnormally high number? Like give us some, some context, I guess, of if for 4% of the existing stock is coming online for new supply, what is that relative to maybe more historical norm and what, you know, will that have a dramatic effect on rates there? Or is that just, , only a partial addressing of, of what the underlying demand.

Doug Ressler (35:40) Well, the demand or the supply, if you will, is really, , related to the demand. And so, you know, you could say, well, the percentage of existing stock was built based off of a certain type of demand. And that demand may be changing a quote case in point Austin. So if I looked at what Austin's percentage of, , supply to existing stock wise, you know, three years ago, And said, gee, that looks a little bit high. It was like 2%, you know, well now you're already up to 4% and you don't have enough housing to fit the bill. And so, um, it really is dependent. It's a push and shove, if you will, as to what the demand and all the other factors weighing into the demand is migration increasing. As the technology, diversity, driving more and greater population growth.

Doug Ressler (36:29) That's really one of the things that we look at our supply forecast that we. , for both, , you know, residential and all the other commercial asset classes has really shown a continuous, the consistency of supply. We don't really see any major valleys that occurring out there that is continuing to grow at a pretty set rate, especially in those markets like the west and the Southwest, , that have a large inbound migration patterns, net end brown migration patterns. And you have the demographics that are able to.

Adam Hooper (37:02)  So seeing these numbers, three, 4% of existing stock coming as new supply, absent an understanding of the demand dynamic. Also you have to look at it in conjunction, right? And if, if there's call it 8% more demand, you know, in terms of total units and you're only building 4% of the stock in new units are still going to be an imbalance.

Doug Ressler (37:24) Right. And also to your point too, will that have an effect on rents? Yeah, it will stabilize rents a little bit. There will be a dampening if you will, but it won't be a negative dampening. And so what you'll see is as part of that stability, as new demand comes on and competition takes hold, you know, you will see that competitive pressure, which is true of any market dynamic. And so, , that will have that effect,

Adam Hooper (37:48)  no economics of new development often dictate that it's. You know, higher end class, a kind of properties that, that usually are being built. Certainly, as we talked about with this massive increase in construction materials costs and labor union, labor shortages, labor costs. are you seeing anything in the subclass a when we're talking about new supply?

Doug Ressler (38:14) Oh yeah. Yeah. Then we see, we see peace also. That's where a lot of the supportability Reeves is occurring. And you also have a lot of, , you know, affordability housing that is being done by nonprofits like Jan Berry, people like that, , that are bringing a lot of housing in from a government stipend. from, , the low-income housing tax credit from opportunity zones, things like that. So they're using all the wilds that they have to be able to reduce the cost of being able to develop in key areas.

Adam Hooper (38:47) And so how, how, how are construction materials looking now? Again, we had a huge spike lumber certainly has come back in line generally where you seeing construction material and what's, what's the forecast there for nearby.

Doug Ressler (39:00)  Material the material costs seemed to have stabilized. It seems that the major impetus right now is to be able to find enough workers to be able to do the work because, , you know, a lot of the workers have changed jobs, skill sets, retired, whatever. And now what you have is with this resurgence in, , in housing, again, from where it was in 2008, it's going to take returning and things like that, to be able to build a workforce back, to be able to, to accommodate.

Adam Hooper (39:30) So, so more, more of that impact is going to be felt by labor force, not necessarily just hard card costs.

Doug Ressler (39:36)  Yep.

Adam Hooper (39:37) Exactly. And are you seeing that any geographical disparity in that, or that's pretty well across the board?

Doug Ressler (39:44) primarily, you know, it's pretty well, you know, the gateway cities are definitely, , the biggest, you know, they pay the higher wages to get to the big. Part of demand. So, you know, LA inland empire is going to have that as opposed to some that are there smaller tertiary places like human and central valley, things like that. So they're going to draw away the, , the labor content, , at, at that price as opposed to the smaller, , tertiary markets. And

Adam Hooper (40:12)  so if we're still even with some of the. Larger percentage of supply coming online. And in some of the cities that we just talked about, if we're still under supplied, how much of that is a function of, of these labor and materials issues versus like, are we still, even if we're billing. A fairly large number of units in some of these markets, it sounds like it's still not enough.

Adam Hooper (40:38) How much of that is driven by this labor and material shortage or are there other factors that are preventing more supply from coming online to, to meet that demand?

Doug Ressler (40:47)  Well, I think that's one of the things that the government is taking a look at when you see Biden's plan for increasing the housing stock, a part of it is time. How long did it take you to build housing stock to be able to accommodate the existing. , for the population that may change in terms of not wanting to own preferring to rent, , things like that. Portland is probably a pretty good example of that. It's a lifestyle type of community. Some people there's that look, I don't want to own the house.

Doug Ressler (41:16) You know, I'd much rather rent, but I want, I want to run a nice place and I want to have amenity rich type of environment. I want to have a wifi broadband, that type of thing. I don't need a tennis court and I don't want a. So those types of things are going on. And so what you see is a lot of the government interaction, being able to help reduce the cost, , all the cost variance that go into it, , to be able to make housing the portable, again, it goes back to Adonis, you know, where do I want to live based on my lifestyle and the demographics, and can I can my wage and salary be able to fit it?

Doug Ressler (41:51) And how will wage and salary. , you know, continue to rise and, and then you have to add the unknown tax with the unknown tax or the, the self taxes inflation, you know, I'm making more money now, but I don't have, , there's just a, I think it was an article in the wall street journal this morning that said I'm making more money, but you know, other things. You know, like cost of gas, things like that. Just take more waste. So again, the inflation inflationary spiral, and one of the things that you're on pause looking at is how to be able to contain that, to be able to maintain the, the, the economic, , the economic prowess cause for,

Adam Hooper (42:27)  and are you more in the transitory camp of inflation right now? Or longer-term

Doug Ressler (42:33) concern? Based on the initial data that we're seeing is still too, too soon to tell, but I would say more in the transitory camp than, , the fact that, , you know, it's, it's back to the 1970s and gas lines going into, you know, and I think, , there was a place that I bought in 1980 and I think I had a 17% interest rate on it. I don't think we'll be there anymore.

Adam Hooper (42:53)  Let's fingers crossed, hopefully not. Um, so then wrapping up the, the report, , getting a little bit of the capital markets. What have you seen in transaction volume around the country in last, , last year or so?

Doug Ressler (43:07) Well, transaction volume obviously has been diminished banished, , as opposed to what it was prior years, but it is starting to creep back up. Well, we do. Is people are pruning their portfolios. They may prune their portfolios in terms of, , properties that they own. And look at some of these different asset classes, , you know, like single family rents or students, , housing or self storage, which have great profitability, um, tales to them. So what we see is people may want it to, from an investment standpoint, see that we see a lot more significant investment in the west.

Doug Ressler (43:44) The buying in Northwest west, as opposed to, and selling in the, , in the Northeast. So those are the two things that we see going on right now.

Adam Hooper (43:53)  And from, from those charts that are in the. Is there any insights that listeners, you know, as they're looking at investment opportunities does a market that bottomed out in 2020. And I mean, looking at some of these here, you know, Baltimore is up 22% a year over year Boise up 58% after being down 30% last year, um, suburban Chicago, you have down 70% in 2020, and up 106% this year. , Comparing that to some of the markets that have maybe continued to see a decline in 21 over 20, are there insights that people can look, you know, how do, how should we interpret some of those figures?

Adam Hooper (44:33) Is that a sign of greater recovery in those markets? Is it assigned the markets that have continued to see decrease in transaction volume? Is that a buying opportunity? You know, how can you help, , listeners make sense of some of those, those figures in the.

Doug Ressler (44:46) Well, we certainly have a wealth of additional data to be able to supplement that in terms of our subscription services that people can look in and they can do different types of comp comp, , computations. you know, it's really on a, you know, what kind of strategy. And again, it's a strategy by strategy in terms of a business, what type of business investors. Investor are they, are they a buy and hold for 10 years? Are they buying and home for three to five? , you know, are the adaptive reuse buyer and then get out that.

Doug Ressler (45:18) , and all those have different variables that are associated with, and that's one of our value propositions in term. This was just one report that we publish. But when you really start to peel the onion and get into the other variables that we offer, that's really the value proposition that you already matrix as in terms of the valuable and deep. That, , that are available. But I would say that, , do do your numbers, you know, do your research, which, , all, all of these folks are good at and, , come to us for the type of appropriate data that you need.

Adam Hooper (45:51) Um, you mentioned the, a lot of the capital is coming more from now, north America, Canada, um, and it kind of a decrease on some of the money coming out of Asia. Um, what is the composition of. Buying activity look like, is it more private equity? Is it individual woman pop? Is it REITs? What is the composition of the buyer world look like these days?

Doug Ressler (46:16)  I don't read a lot, a private act, not so much boutique owners. Um, but there are some so, but, , in terms of your questionnaire, it would be primarily, you know, a lot of, , Reese, , big guns are getting involved.

Adam Hooper (46:30) Yeah. And how about on the, on the debt side of the Capitol?

Doug Ressler (46:35) You know, it's hard to assess that when right now we're still going through the data. So I'd rather not comment on that until we do some more, , more local.

Adam Hooper (46:46) Okay. Um, well then Doug, I think that's pretty much what we've got, you know, made a quick, quick run through the report there. We're certainly going to have that in the show notes.We always like to ask our guests here at the end. What's keeping up at night and what's , what has you optimistic here as we look in the, getting into Q4 of 2021?

Doug Ressler (47:06) Well, I'm optimistic about commercial real estate in general. What keeps me up at night? Is the inflation aspect the hidden tax that goes on. But I think in terms of the most risk averse, whether you're looking at tips, whether you're looking at commodities, whether you're looking at stocks and equity or commercial real estate, commercial real estate is probably the most risk averse type of investment that you can make right now.

Adam Hooper (47:33) Okay, I think that's a pretty good spot to end it. Doug, again, you've been super gracious with your time, really appreciate it. Why don't you let listeners know how they can learn more about what you're up to with Yardi Matrix?

Doug Ressler (47:45) Sure, you can call me. Give me a call. Doug.Ressler@yardi.com you can give me a call 480-663-3365. Or you can visit us Yardimatrix.com, on our website.

Adam Hooper (47:58) Perfect and folks we'll have links to all that great information and the report in the show notes. So, Doug, thank you again so much for coming on today. We always appreciate the conversation.

Doug Ressler (48:09) Thank you guys. It's always a pleasure.

Adam Hooper (48:11) All right, listeners. That's all we've got for today as always, please send us any comments or notes to podcast@realcrowd.com. And with that, we'll catch you in the next one.

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