Phase 2 - Real Estate 101 (How to or one big idea)

Podcast - Update On The Multifamily Market

Tyler Stewert
September 14, 2021
Podcast - Update On The Multifamily Market

Chris Nebenzahl, Director at Yardi Matrix, joined us on the podcast to discuss his latest report on the Multifamily Market.

At Yardi Matrix, Chris manages research operations for Multifamily, Self-storage, Office, Medical Office, Industrial, and Student Housing asset classes. His focus is on demographic and economic drivers that impact the real estate market and built environment.


If you'd like to learn more about the research done at Yardi Matrix check out the links below:

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Tyler Stewart (00:00):
All opinions expressed by Adam, Tyler, and podcast guests, are solely their own opinions, and do not reflect the opinion of RealCrowd. 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.

Chris Nebenzahl (00:22):
But these secondary and tertiary markets that, again, have perhaps more progressive local policy and more business friendly state policy, seem to be the markets that have been growing the fastest, again, in the latter half of the last cycle, and where I expect to see the most growth coming out of the pandemic and into the next cycle.

Adam Hooper (00:50):
Hey, Tyler.

Tyler Stewart (00:51):
Hey, Adam, how are you today?

Adam Hooper (00:52):
Tyler, I'm doing fantastic. We're back at it, another episode.

Tyler Stewart (00:56):
Yes, another episode, and it's a good one. We've got Chris Nebenzahl, editorial director at Yardi Matrix.

Adam Hooper (01:02):
Yeah, we've had a few folks from Yardi on before, a lot of really good data coming out of their shop. They do a monthly newsletter report, and today, we talk a little bit about what they put out in their September multifamily report. Sprinkled in a little bit of a preview on the October numbers as well.

Tyler Stewart (01:19):
Yeah, it's always great to get an early look, and you're probably actually familiar with Chris's work. So, Chris helps to contribute data for the National Multifamily Housing Council's rent payment tracker, which we publish every week in our newsletter.

Adam Hooper (01:34):
Yes, that's right. And so, we talk about that in the show today. Again, I think similar sentiment, little surprised actually at how well that's held up this deep end of the crisis compared to where we thought it would have been now, talked about primary markets, the urban cores versus secondary markets, what they've seen in rent trends there, what that recovery might look like in metros versus secondary markets, and also a few of the surprises that they've seen as the crisis has played out from February to September. And a few shining markets that he'll talk about that have not only just held up with rent numbers, but actually have seen some increase in rent growth since February.

Tyler Stewart (02:11):
Yeah. And Chris also broke down multifamily by asset class, class A, class B, and class C, and talked about how each of those classes are performing in the market.

Adam Hooper (02:20):
Yeah. And one of the things that I thought was interesting that we talked about a little bit was, when you're looking at the data, how do you balance the relative point of comparison? Short term versus long term. We talked about if you compare something today versus even six months ago, most numbers are going to look pretty good in terms of recovery, but if you look at it comparative to a year ago, it's not going to look so hot. So, we talked a little bit about how to sort through some of the data that you're seeing out there, and as the crisis and recovery continues, how to be a little bit more savvy when you look at some of those data and the headlines that are going to be coming out there. So, another really great conversation with Chris from Yardi Matrix. Happy to have him on today. As always, if you have any comments or questions, send us a note to And with that, Tyler, let's get to it.

Adam Hooper (03:11):
All right, well, Chris, thank you so much for joining us. I'm really excited to have you on today. We'll talk about your September multifamily report that you guys put out. You said maybe you'll sprinkle some nuggets from what's going to be in the October report. So, appreciate you coming on the show today.

Chris Nebenzahl (03:27):
Absolutely. It's great to be here.

Adam Hooper (03:29):
Before we get started, why don't you tell us a little bit about your background, what you do at Yardi Matrix, some of the products that you guys work with there internally?

Chris Nebenzahl (03:38):
Sure. I'm the editorial director for Yardi Matrix, and I oversee our institutional research team. And I like to say, I have a really fun job because I get to take all of the internal data that Yardi Matrix puts together, our rent data, our occupancy data, information on sales and loans, ownership information, all the fundamental data that you would need to underwrite an investment or manage an asset within your portfolio. And I get to take that and really couple that with what I call social data, economic data like jobs, income information, demographic information, where are people moving? Where are young people moving? Where are older people moving? What's driving different markets? And I put all that data together to really paint a picture at the market level or at the sub-market level, of what's driving commercial real estate, most specifically, multifamily.

Chris Nebenzahl (04:35):
So, I love having these conversations, Tyler and Adam, because I get to share what we're seeing in the market and talk about markets as small as Colorado Springs and as big as New York City.

Adam Hooper (04:49):
Yeah, I think you guys do cover quite a bit of a different markets, and we'll talk about the day… Maybe because you just brought up smaller markets and larger markets, how have you seen the effects of this health crisis and economics generally between some of those bigger markets and some of the smaller markets that you guys cover?

Chris Nebenzahl (05:12):
We've been following a couple of trends really for the past four or five years. One of those trends being overall migration out of the big gateway markets, those gateway markets being New York, Boston, D.C., San Francisco, Chicago, and Los Angeles. And part of the reason is just the cost of living, another reason that we saw this trend start to accelerate was the 2017 tax reform, where it became a little bit more expensive because of the removal of the SALT deductions, it became more expensive to live in California, in New York, and Massachusetts, and Connecticut, and Illinois.

Chris Nebenzahl (05:50):
So, we've been watching this trend, again, out of the gateway markets, into places in the Southeast, in the mountain West, in the Southwest, as people have been looking for a lower cost of living, many people say higher quality of life or a different quality of life, and what we've seen is that the jobs have started to migrate as well. Apple announcing that they were going to add jobs in Austin and Pittsburgh and Boulder, Colorado. Amazon, looking at a number of different markets, they ended up picking D.C. in New York, which are primary markets since pulled back from New York, but also Nashville. They're expanding a huge presence in Nashville. So, we're seeing the beginnings of this trend really take place over the past two or three years, and then all of a sudden, COVID hit in March of this year, and we really saw that trend just balloon.

Chris Nebenzahl (06:48):
We don't yet have migratory data from the Census Bureau, but everything that our real estate data is showing us is that people are moving out of the urban core. They're relocating from the urban core and they're going to one of two places. They're either going to the suburbs. From New York, they might be going to Westchester, they might be going to Long Island, they might be going to Northern New Jersey. From San Francisco, they might be going over into the East Bay, they might be going up to Sacramento. Or, they're making a major kind of life decision and relocation decision altogether, and they're saying, "No more living in New York, I would like to go to Charlotte, Raleigh, Orlando, Austin, Dallas." On the West Coast, it's Phoenix, it's Las Vegas, it's Denver, it's Salt Lake city, it's Boise even.

Chris Nebenzahl (07:39):
So, we've seen the operating fundamentals really deteriorate in some of these big markets occupancy, which had been running very, very hot in places like New York, and Chicago, and San Francisco, well above 95% occupancy has taken a major hit. Rent growth, new asking rent growth has taken a major hit. And interestingly enough, some of these secondary and tertiary markets have either seen their fundamental stay flat. And I think, looking back six months ago, anyone would have said flat rent growth in 2020 was a darn good year, but some of these markets are even showing positive year over year rent growth. And looking at some of our numbers, Portland, Maine, Boise, Huntsville, Alabama, Mobile, Augusta, these are some of the fastest growing markets on a year over year basis that we're following, and a lot has to do with that relocation.

Chris Nebenzahl (08:40):
Certainly, the work from home, the work from anywhere trend has caught a lot of people and interested a lot of people in that relocation. I think the tech companies were the ones that really started that trend, and as early as July or August, they said, "Look, you don't need to come back to the office for a full year." So, rather than just stringing their employees along on a month to month, quarter by quarter basis, they said, "You know what? You've got a full year of work from home." And that allowed a lot of people to say, "Okay, I'll give up my Manhattan apartment lease, I'll give up my downtown San Francisco, my downtown L.A. apartment lease, and I'll spend a year elsewhere. Maybe it's in the mountains."

Chris Nebenzahl (09:26):
I know, anecdotally, we don't cover these markets, but real estate in Vail, Colorado, and Lake Tahoe, is absolutely solid right now.

Adam Hooper (09:34):
It is, yeah.

Chris Nebenzahl (09:36):
And so, I think a lot of people are saying, "You know what? I'll give up the urban core or I'll get out of the urban core, because the reason I wanted to be in the urban core, the arts, the culture, the restaurants, the bars, the sports teams, well, we still don't have much, if any of that." So, that's really what's driving this trend that we see in the secondary and tertiary markets.

Adam Hooper (09:59):
Well, I was going to say, I mean, and you guys mentioned it in your report too, and this is something we've talked about on the show is, it seems like there's an accelerant to this health crisis of these trends that were already started prior to this COVID health crisis. Right? These were things where we were already talking about, this urban outmigration to the suburbs or to some of these more secondary and tertiary quality of life, lower cost of living markets. And then, as you said, COVID came, and if you don't have to work in the office for a year, and it's even certainly not coming back to the office until next summer for a lot of these companies, and still unknown after that. There's still some uncertainty as to what that looks like even post this one-year period. And so, definitely, we're seeing this just acceleration of some of these trends that were already in play before, but have been amplified and have just happened much, much quicker, much more impactful, dramatically, with the current health crisis.

Chris Nebenzahl (10:53):
Yeah, you're absolutely right.

Adam Hooper (10:56):
And so, you mentioned again, some of the metros, I know in your report here, you've got some of the higher cost metros, San Jose, San Francisco down by 6.6% in San Jose, San Francisco down 5.8% in terms of rent levels, is that a function of those markets, were just overheated, and then, now that we have this health crisis, there's just not the activity? Was that a reversion back to some form of, I guess, more historically accurate forecasts that would have been in those markets? Or what's driving that big decrease? Is that something that's going to continue, or will that start to stabilize, do you guys think?

Chris Nebenzahl (11:37):
Yeah, I think it will continue, and I think it will continue as long as the virus in its current form and its current state continues. Again, I think back to what drives people to San Francisco, to Silicon Valley, to New York city, it's really the ability to gather either socially or professionally. The idea of Silicon Valley being this center for technological innovation, because some of the smartest minds in tech can get together in a room and talk about what the next big thing is going to be, and create these startup companies and collaborate together. I think that's really what brought value to Silicon Valley into San Francisco, and it's that ability to congregate and share ideas. And then on the same side, it's that same ability to congregate socially and blow off steam and enjoy a meal together with a group of people, go to a bar, go to a museum, go to a sporting event.

Chris Nebenzahl (12:41):
And without that ability to congregate right now, I don't think many people are choosing to pay that premium that those cities are demanding. We were seeing $4,000 rents in San Francisco, $4,000 rents in New York. Silicon Valley had sky-high rents as well. We've all heard the stories of multiple people, four or five, six people sharing a two or three-bedroom apartment so they could be in the center of it all, where the action happened in whatever industry that was, tech, finance, entertainment down in Los Angeles. And without that ability to really congregate, I think people are saying, "You know what? I'm going to give this up either temporarily, until the ability to congregate comes back, and then I will once again pay that premium." Or, perhaps this is really a sea change event, that we will gather socially, but do so virtually. And we will gather professionally, but do so virtually.

Chris Nebenzahl (13:51):
And I think the other thing here is that those people who had seen San Francisco, or New York, or Boston, or L.A. as really the epicenter of their respective industry, are now saying, "Wow, there are really smart and talented people in my industry in Austin, in Dallas, in Charlotte, in Raleigh, in San Diego, in Denver, in Boise, in a number of these smaller markets, where it might not be the absolute epicenter, but it's a very talented workforce, very diverse workforce in the industry. And you know what? For half the price, even if I have to take a marginal pay cut, even if my company wants me to take a 10 or 15% pay cut, the cost of living and the benefit I get, the financial benefit, actually will cover that cost and then some."

Adam Hooper (14:45):
And do you… Again, obviously, I think the undertone of this conversation will be uncertainty. We're still in very uncertain times. But do you guys have any forecast or thoughts or data around, I guess maybe historical trends, where we've seen some of this exodus or outmigration from metros once whatever event that caused that starts to settle down? I'm assuming there will be some migration back into those metros, once we get past this health crisis and this under control, do you have any historical data or forecasts on what that looks like after the resolution of these events that drive people out of the cities?

Chris Nebenzahl (15:28):
Yeah. Well, we do forecast, and our current forecasts are showing similar trends to what we're already seeing in our historical numbers, and that it'll be a quicker bounce back, if not just a flat lining, and then a growth cycle again, in the secondary and tertiary markets. The bigger markets, I think, we will still see those markets struggle for upwards of six to 12 months, even a year and a half, again, depending on how long the virus continues, when we get a vaccine, when some of the amenities in these markets are able to reopen again. And I would look back at similar instances, many people have compared this to the financial crisis, many people have compared it to 9/11. Will we ever go back to these cities? And yeah, we will. New York is not going away, San Francisco is not going away.

Chris Nebenzahl (16:25):
But I do think there'll be less of a immediate demand back in these markets, until there's general confidence in the American public and in the American populace to say, "Not only do I have to be in one of these big markets for my professional or social advancement, but also, if there is another virus, if there is another concern that is exacerbated by high density, that I want to be exposed to that." And so, I think these markets, again, they're not going anywhere. Their correction might be more of a reversion to a longer term mean, where it had just gotten so, so expensive, people were paying 30, 40, 50% and up of their income just in rent or in housing costs. And so, it might be a little bit of a break.

Chris Nebenzahl (17:27):
But when you look at the absolute housing cost of a $4,000 rent in San Francisco or New York, it's really an order of magnitude different from the secondary market. So, even a 10% correction, a 15% correction, these markets are still going to be the most expensive in the country. And if it takes a year, if it takes two years, two and a half years for them to get back on a growth trajectory, they'd still be some of the most expensive. So, I do see these markets recovering, but I think, if you look at the overall winners and losers of the whole pandemic period, beginning of the pandemic through, say, even two or three years from now, I think the secondary markets and some of the tertiary markets, not all tertiary markets, but some of the tertiary markets with a rapidly growing tech infrastructure and tech employment, those will be the markets that come out on top.

Adam Hooper (18:31):
Yeah. And you also, you guys mentioned in the report, in September, and again, I'm curious maybe what some of your October numbers are showing, but the top and bottom performers in September were largely similar to what we were seeing in February. So, there hasn't really necessarily been a much more of a, I guess, a change in which markets are doing good or which markets aren't doing so good, it's been amplified. Are there any surprises that you guys saw when looking at that data? Was that unexpected? Or, what do you guys make of that?

Chris Nebenzahl (19:07):
Yeah, it was a little bit unexpected. Two markets that really stood out for me and continue to stand out for me in terms of how well they're doing, are Phoenix and Las Vegas. Phoenix has historically been a boom and bust market, got hurt tremendously in the great financial crisis, but I think over the past year, sorry, over the past cycle of the past 10 years, Phoenix has really diversified not only its economy, but its resident base. A lot more people have been moving into Phoenix from California, from the Midwest, as well as a rapidly diversifying economy. And, again, the trend here of outmigration from L.A., from San Francisco into Phoenix and Las Vegas, really powered the market through what would have been, many would have considered a down cycle.

Chris Nebenzahl (20:04):
And then when we look at Las Vegas, well, certainly a huge portion of the Las Vegas economy and employment market is connected to the leisure and hospitality industry, hotel workers for conferences, the gaming industry. Many of the economies that drove Las Vegas forward shuttered overnight and still haven't recovered to pre-pandemic levels, and were completely closed for quite some time. But again, I think the cost of living, a little bit of the quality of life in Las Vegas has allowed Vegas to really push through and not see the losses that we had expected. Interestingly enough, it's the lifestyle, what Yardi Matrix calls lifestyle, which would be kind of the class A, class A- apartments, that have outperformed the renter by necessity or the workforce housing.

Chris Nebenzahl (20:56):
And in almost every market, the workforce housing, the more affordable housing has done better than the lifestyle. But in Vegas, it's the exact opposite. And again, I think what that tells us is that the workforce housing is struggling. That's the housing where many of the wait staff or the people who are employed in the gaming industry, the hotel industry, many of those folks live in workforce housing, and they were furloughed, or they took pay cuts, or they took cuts to their hourly employment, but the lifestyle asset class is moving along quite well. And again, I think that's driven by outmigration from California, people moving into the Las Vegas market. It's more affordable, many people will say it's a higher quality of life. And so, yeah, Vegas specifically, really surprised me.

Adam Hooper (21:52):
And now, generally, again, across the spectrum, across the product classes, across markets, again, we were just talking in the last show, we tracked the NMHC Rent Payment Tracker, somewhere around 150 to 200 basis points within 2019 numbers. It seems like it's tracked fairly closely to that from the beginning of the crisis, which, to me, I'm surprised that it's held as close to that as it has been. I think generally, the performance of the multifamily market in terms of rent collections has stayed higher than most would have expected through this. But let's talk a little bit more about what you're seeing in those different types of asset classes. So, break it down maybe, again, how you guys classify them within Yardi Matrix, and then maybe we can talk about where you see those trends. And again, I mean, if there's any October numbers of any continuation or changes of those trends.

Chris Nebenzahl (22:46):
Yeah. And I'm glad you mentioned the NMHC Rent Payment Tracker. We retract that as well. And Yardi is a contributor to some of that data. And I agree, I've been quite surprised to see how well those numbers have held up. Certainly, the federal stimulus, the extension of unemployment benefits for many Americans who are unemployed, has helped keep those numbers elevated. But most of that expired, as we know, July 31st, and yet, the August numbers were still strong. September numbers were still strong. The October numbers that I think were just released this morning, showed identical collection numbers year over year, compared to 2019, through the first week of October.

Adam Hooper (23:31):
And, I mean, that's surprising, isn't it?

Chris Nebenzahl (23:33):
It is. It is. Yeah. Given how much unemployment we saw, we continue to see unemployment claims at staggering levels. And I think today it was another 840,000 unemployment claims filed last week. To put that in historical perspective, even though it's well below the seven million a week claims we saw back in either late March or early April, that's still higher than any weekly number we'd seen ever, before COVID happened. We still have 11 million people collecting unemployment benefits, far higher than the peak of the great financial crisis. So, given that, it is very surprising, the collection numbers have been as good. Now, what the NMHC numbers don't tell us is what percentage are partial payments or full payments, but take it at face value, I think those numbers are still very, very good and surprising to the upside.

Chris Nebenzahl (24:36):
Now, what does our data look like, comparing lifestyle to the renter by necessity or the workforce segment? Well, nationwide, we still see outperformance in the RBN, in the renter by necessity, in that workforce housing segment. Year over year, rents have increased about 80 basis points, that compares to a drop nationwide of 30 basis points overall, and a drop of 1.5% or 150 basis points for the lifestyle segment. So, again, it's the workforce housing that's still leading the way. And that's a continuation of a trend we've been seeing really for four or five years now. Coming out of the financial crisis, thinking back to 2012, 2013, 2014, the lifestyle segment was the hard charger, the fastest growing segment, followed by the renter by necessity segment.

Chris Nebenzahl (25:36):
But really since, I'd say 2015, 2016, those RBN rents have been growing faster than the lifestyle segment. And we continue to see that in kind of this post-COVID or during COVID world that we're in now.

Adam Hooper (25:51):
And so, historically, when you see the lifestyle gain, kind of class A, more urban, new construction kind of projects, when you see those rents drop like you've seen here, what does that do for the rents further downstream? Does a class B renter now move up to a class A property? Does that class A property renter, do they just stay in that property? What does that do to the shift of composition of occupancy, I guess, when you look downstream from where the high rent start dropping?

Chris Nebenzahl (26:24):
Yeah. And it really depends on, I would say asset to asset and market to market. What we've seen recently with a lot of the new builds that you referred to, there're certainly class A properties, but they're well above a class B+ or a class B, that it's not just, okay, rents are falling 1%, 2%, 3%, it's going to open up the gates for a number of new renters. I think the class A renters will stay class A renters. Most class A renters have been relatively unaffected through the pandemic. They're often employed in jobs where you can work from home, where there have been little employment disruptions. So, I think even though rents are coming down in that lifestyle segment, in the class A segment, and as you mentioned, in the urban core and in these bigger markets, I don't think that will necessarily alter the renter profile necessarily.

Chris Nebenzahl (27:30):
I don't think B class renter will immediately become an A class renter or a lifestyle renter. We've seen continued demand for housing. Occupancy has fallen a little bit nationwide, but overall, occupancy has stayed relatively stable in kind of the high 94% range. Again, some of the bigger markets have seen more severe occupancy drops, but yeah, getting back to your point, I don't think we'll see a major shift, and all of a sudden, a lot more people will be interested and able to play in the class A space.

Adam Hooper (28:06):
Okay. You touched on employment jobs, let's switch there for a little bit, and how that relates, I guess, to maybe some of these occupancy trends. So, we've got, I think last week, again, 800 and some odd thousand unemployment claims. We've got 12 million people not working right now. We've got labor force participation rate is declining. We've got Disney, United Airlines, American Airlines, MGM, Cinemark, Regal, massive, massive layoffs. So, how does that affect, or have we seen that effect yet, make its way into occupancy and demand for rental units? Or how do you see some of these trends that's going on in the employment market, making its way through into the rental space?

Chris Nebenzahl (28:57):
Well, the headlines that we've been seeing recently and what's going on in the employment market is certainly concerning. It's very hard to see optimism right now. It'll be interesting to see how grave some of these job losses become. I think through the first three to four months of the pandemic, people were thinking, "Okay, I'll be okay. I've got additional unemployment benefits. I'm temporarily laid off or furloughed, but things will get better, things will come back. There'll be a vaccine, things will go back to normal." What's concerning about the United and American layoffs, the Disney layoffs, as you mentioned, is that these are temporary furloughs that are now becoming permanent job losses. And what we're starting to focus on a little bit more is, what is the permanent job loss rate?

Chris Nebenzahl (29:56):
These employees, these workers are not just on the sidelines, ready to go back to work, now they're permanently unemployed, or their jobs are permanently removed, not to say that the economy couldn't and won't grow again, and the job market will recover. But that was a pretty striking moment for me, when we started seeing more and more of these furloughs become permanent, because I think that will start to have an impact on the housing market. I certainly don't see this as a catalyst for immediate growth, I think it will have its negative effects certainly in a place like Orlando, or Orange County, Anaheim, when you look at Disney. When you look at American, where are their hubs? United Airlines, where are their hubs? Chicago, Denver, Miami, Washington, D.C., San Francisco, where large concentrations of these employees are based, it certainly can't help.

Chris Nebenzahl (31:03):
And so, I think it will have a dampening effect on the rental market, and it would more likely than not, impact the workforce housing sector.

Adam Hooper (31:16):
And I think a lot of the jobs that have been added back quickly, have been more of those service jobs. And so, are you tracking, in terms of industry, the jobs that have been added back so far through this "recovery," getting back to whatever jobs we have added back? How have you seen the composition of those jobs? Or do you see that shifting going forward? Do you think that'll be against some more of that service industry workforce housing coming back, or where do you see those jobs coming?

Chris Nebenzahl (31:47):
Yeah, well, I think it will likely be in those service industry jobs, restaurants, things like movie theaters, as they open, close, open, close. I think it's going to be very volatile. We're heading into the winter months, even without the virus, the winter months, if you're trying to have more outdoor seating at restaurants, if you're trying to limit capacity indoors, that's going to be very difficult for businesses in a lot of places. And so, I think you will continue to see kind of a volatile shift of employment, jobs will come back, people will be furloughed again, jobs will come back, people will be furloughed. And so, given that most of the job losses have been in that service sector, I think that's where they'll come back the quickest, but I wouldn't put it past businesses and the economy to have more volatile employment flows.

Chris Nebenzahl (32:51):
And I don't know if we'll completely shut down or if we'll partially shut down, whatever we call it, I think there will be a very volatile trend in business activity, especially in the service sector, as we go October now, into November, December, and really until we can get out of the traditional flu season once again. And then you add on the potential for a vaccine, is it this year? Is it next year? I certainly don't have the answer to that question, but I think you'll see a lot of volatile activity in the employment sector for at least another six months.

Adam Hooper (33:30):
Yeah. I mean, there's still fragility in sectors that are still hanging on right now, with that uncertainty that's still to come this fall. Hopefully, we'll be able to maintain, but yeah, it'll be interesting to see if any of these other sectors continue to feel the impacts. The infection rates are going up again, that's definitely not the right direction. If we start to see some more shutdowns with schools and everything, with job loss, from people having to teach. I've learned to become a math teacher for my three kids for the last month and a half. So, yeah, it'll be interesting to see what happens in this fall and what industries might still have some headwinds for keeping that employment up for sure.

Adam Hooper (34:19):
When we look a little bit more macro, we've talked about jobs, we've talked about employment, we've talked about some of this migration patterns, rent collections, rental rates, are there other factors or metrics that you guys are watching as some leading indicators that would provide some insight, I guess, into the health of the multifamily rental space or anything else that you guys are paying close attention to right now?

Chris Nebenzahl (34:46):
Yeah. Well, I would say, the trends that you mentioned are certainly the key trends that we're watching. The employment numbers are probably the best leading indicator that I would look at, but we're getting close to some of the migration numbers being published in early January. We see a lot of the moving companies, U-Haul, United Van Lines, they publish their one-way rental and one-way traffic numbers. So, how many one-way moves and one-way truck rentals are starting in New York and going elsewhere? How many are starting in Dallas and going elsewhere? And those are always very interesting indicators to see because it's the first indication of migration. And, again, I don't yet have the data, but everything that we're reading in major media and everything that we're seeing in our rental data and occupancy data is leading me to believe that those numbers are going to be huge in terms of leaving the gateway markets and going into smaller markets.

Chris Nebenzahl (35:53):
And then as we get into February, March, and April, we'll start to get the official domestic migration numbers from the Census Bureau. And that's going to be incredibly telling. That data is certainly a little bit more lagged than the immediate activity of people moving around, but that's going to be another very telling metric to look at. And then, I guess certainly looking at federal policy, will there be another stimulus? It seems like every hour, the talks are on, the talks are off. In the 45 minutes we've already been talking, who knows? Maybe the talks have been sidelined and restarted [crosstalk 00:36:39].

Adam Hooper (36:39):
I'll check my phone, but we'll see.

Chris Nebenzahl (36:42):
But yeah, and I say that only somewhat in jest, but I think the activity coming out of Washington is going to be really important. If there is another stimulus package, it's going to be in the trillions of dollars, and it's going to be very meaningful for many, many Americans, many, many renters, and that would certainly help the multifamily industry. That would add to the national debt, and that's a whole nother kind of economic discussion.

Adam Hooper (37:12):
That's a much longer podcast.

Chris Nebenzahl (37:15):
Certainly. But yeah, I would certainly focus on what's happening in Washington, and what's happening with the election. What does each candidate want to do with affordable housing? What does each candidate want to do with taxes and things like that?

Adam Hooper (37:31):
Yeah. Is there anything out there that you guys are keeping an eye on, that's keeping you up at night? What are your concerns, I guess, as you look at some of those trends or metrics or factors that you guys watch?

Chris Nebenzahl (37:44):
Yeah, I would say, the thing that's keeping me up at night, or maybe it's more of a continuous scratch in my head is, when are we going to get this virus under control? Going back to March and February, I remember saying, "Okay, this will be a little blip on the radar screen." Then through the summer, we said, "Wow, a second quarter is going to be very weak, and we're looking at a V-shaped recovery." And we might yet see a V-shaped recovery in certain industries. But I don't think we'll see a V-shaped recovery in the restaurant industry, in the travel and leisure industry. And the longer it takes to really contain the virus, the more head scratching I do, and the longer I think the economic slowdown will take place. And, again, I think it's going to be very volatile. I think we're going to see really strong third quarter numbers, but coming off such a weak second quarter-

Adam Hooper (38:54):
Right. Relatively strong. Yeah.

Chris Nebenzahl (38:56):
Exactly, exactly. And so, I think we'll have to weed through a lot of muck that will be in headlines. And I think people are going to twist headlines to benefit whatever stance, business stance, political stance, economic stance they want to take, but there's going to be a lot of noise to the fact that we're still slogging through a global pandemic, and in all likelihood, we're still slogging through a global recession.

Adam Hooper (39:26):
Any pro tips on how to slog through that noise and look at things without the bias of whatever the headline is saying and get down to the actual data?

Chris Nebenzahl (39:37):
Yeah, I would say, don't look at any of the short term numbers. Or, I shouldn't say don't look at them, but don't put too much stock in the short term numbers. What's going on on a trailing six-month basis? What's going on on a yearly basis? What is the trend looking like? Does the trend continue to be in these secondary and tertiary markets, if you're looking for rent growth or occupancy? I think it's very, very quick, and I find myself doing it quite often as well. Company XYZ is into level three trials with vaccine. Okay, great. The stock market pops and there's a lot of excitement. And then someone comes out and says, "We won't have a vaccine until next March." And there's a general groan in the market.

Chris Nebenzahl (40:29):
I think that there's a lot of this noise and volatility, and if we can execute a longterm strategy, if you're looking at a market or a property and say, "Did I like this market before the pandemic? For particular demographic or structural reasons, have those fundamentals absolutely changed? And if not, why not? And if they did, can I see through, not only the pandemic, but also the recovery, because it will take longer in certain markets. Can I see through that to continue to execute my strategy?"

Adam Hooper (41:11):
So, as you said, don't put too much emphasis on the short term trends, look at things six months or one year. When you have such a dramatic shock to the system, if we look at everything again, month over month, or the last few months, comparatively to that period, it's going to look fantastic. Even going back six months, that takes you right into the meat of the early crisis days, so, everything's going to look pretty fantastic. Well, not health-wise, but, again, some of these trends that are coming up more recently with jobs coming back. Right?

Chris Nebenzahl (41:45):

Adam Hooper (41:46):
And then, if you look a year back, everything's going to look absolutely abysmal. So, when you have such an acute shock to the system like that, how do you balance that short term, long term, more recent bias? I mean, that's a tricky position to try to wade through that data, even looking at it on a longer term basis.

Chris Nebenzahl (42:07):
Yeah, you're right, it isn't. And again, I think any one of us can find data to support what we want to-

Adam Hooper (42:18):
Right, you can fit it to whatever narrative you're trying to tell, I guess.

Chris Nebenzahl (42:21):
Exactly. And so, as you said, on a six-month basis, everything looks good, on an annual basis, year over year basis, everything looks bad. On a monthly basis, things might look good or bad. I think what I would do is probably err on the side of conservatism and be a little bit more cautious. Because, I think, I don't know that we'll continue the rapid upward trajectory that we've been on, if you're only looking at it March or April to today. I think things are getting better, I think things are gradually getting better. I'm optimistic that we can put the virus behind us, but I wouldn't just say, "Oh, wow, okay, the valley or the bottom of the rollercoaster was March, and the rollercoaster has been tick, tick, ticking upward since. We still have a long way to go on this climb upward."

Chris Nebenzahl (43:23):
I think it's going to be a little bit of a roller coaster ride, and I think you've got to accept that there will be volatility certainly through the time that we can get a vaccine, that we can deploy it nationally and begin to get everything back to where it was in a pre-COVID world.

Adam Hooper (43:46):
Yeah. It's going to be interesting to see how everything plays out for certain. So, I guess with all that said though, to end on maybe hopefully a little more positive note, where do you see some of the opportunities going forward? A lot of listeners of the show, investors in multifamily, managers, operators of multifamily properties, where do you guys see some of that opportunity or where should people be thinking about looking, as we start to come out of the crisis and the recovery starts to come back?

Chris Nebenzahl (44:17):
Yeah. Well, I would definitely look at some of these secondary and tertiary markets that we've talked about. And as I mentioned, it's not every tertiary market, it's not every secondary market, but a couple of things that I like to look at are the employment base, does the market have a rather diversified economy and employment base? And then also, what's kind of the social and the political structure? I think we saw in the past cycle, and I would expect to see this moving forward, but some of the fastest growing markets have been more liberal or left-leaning cities in more conservative or centrist or right-leaning states.

Chris Nebenzahl (45:00):
And when I think about that, I think about Denver, Colorado, Austin, Raleigh, North Carolina, even Huntsville, Alabama, where there's a concentration of tech talent, there's a concentration of highly educated and high income jobs. And again, I see generally more progressive or liberal local policies as attracting that type of talent, and as a result, attracting those jobs, those high paying tech and financial jobs, yet they're doing so in typically business friendly states, development friendly states, oftentimes, states that might provide tax breaks for companies moving in or expanding their employment base. So, again, it's not just, leave New York, leave San Francisco, leave Chicago and go anywhere else, you really got to pinpoint and rifle shot the market you're going into.

Chris Nebenzahl (46:08):
But these secondary and tertiary markets that, again, have perhaps more progressive local policy and more business friendly state policy, seem to be the markets that have been growing the fastest, again, in the latter half of the last cycle, and where I expect to see the most growth coming out of the pandemic and into the next cycle.

Adam Hooper (46:32):
Good. Yeah, that's very insightful. And then, across product class, do you see any greater opportunity up or down that stack?

Chris Nebenzahl (46:45):
Yeah, I think, as we talked about the fundamentals, will likely continue to outperform in the workforce housing compared to lifestyle. One thing that I don't think we should overlook is that, going into 2020, and certainly for the past three, four, or five years, we've had an overall housing shortage. The multifamily industry was finally back to 300, 325,000 unit deliveries a year, almost exclusively in class A, so, that certainly had an issue of affordability, but the single family housing market, the single family home construction still hadn't recovered to pre-financial crisis levels.

Chris Nebenzahl (47:27):
Now, we were a little bit overbuilt going into the financial crisis, that's partly what led to the financial crisis, and there was a glut of housing, both single and multifamily, in 2010, 2011, but that was soaked up pretty quickly, and for the past three or four years, we have been underbuilding compared to the household formations. So, we were in a housing shortage going into this. Development seems to have done okay through this. There was a short term, say, month, two-month, maybe two-and-a-half-month delay in overall construction as construction crews had to figure out social distancing, and some crews were shut down temporarily and so forth. But we didn't, all of a sudden, magically cure the housing shortage that we were at. We really haven't cured the affordability issue.

Chris Nebenzahl (48:20):
Again, New York, San Francisco, Chicago, Boston, some of the more expensive markets have seen rents decline, but it's, even as I said, at 10%, 15% decline, these markets are still very, very expensive. So, I think we shouldn't necessarily just wipe out all of the trends and all of the things we were focused on in the early parts of 2020, or at the end of 2019, just when we start a new cycle, we still have to think about where the market was before that. And for the most part, we haven't seen a whole lot of household destruction. We haven't seen too many people giving up their lease and moving in with family. There has certainly been some of that, but not a ton. So, again, the household formation numbers, the overall household numbers still lead us to believe that there's a housing shortage.

Chris Nebenzahl (49:15):
And I think there's a longterm trend in housing, in single family housing and multifamily housing, and I think those sectors will perform well during and coming out of the pandemic.

Adam Hooper (49:31):
Yeah. And that's something that, again, we've talked about a fair bit and we're continuing to pay attention to is, real estate heading into this crisis was in a pretty good spot. And this is a very acute external factor that's driving the current economic woes that we're feeling and health issues that the virus is causing. And so, I think there's generally some optimism about once we do get through the health side of this crisis, and once we can start to see some of that recovery that it should return to a more healthy position than certainly coming out of the global financial crisis. That was very much a financial-driven event, not a health-driven event. And so, I'm just curious, did you share that opinion? Is that something that you guys are expecting to see once we get through the health side of this, for it to return more to what we saw pre-COVID?

Chris Nebenzahl (50:24):
Yeah, I do, and I think fundamental performance will return. Certainly, market to market, that fundamental performance will be different. But one of the things that we haven't really touched on yet is the effect of the drop in interest rates. And I know, in March and April, the Fed cut rates to zero, the tenure dropped very quickly along with it, but Fannie and Freddie weren't really changing borrowing costs from multifamily, they're adding in new covenants and new restrictions and new reserve requirements. But since then, we've seen the cost of debt for housing, and really the cost of debt for commercial real estate continue to move lower and lower and lower. And what that's done is really backstopped asset values. So, while fundamentals have been deteriorating in San Francisco, in New York and Chicago because of the drop in interest rates, the values of those properties have actually stayed pretty stable.

Chris Nebenzahl (51:31):
Owners who are able to refi or people buying into those markets can do so at lower cost of debt, and even with a drop in NOI, their overall valuations are staying pretty stable. Now, the impact in secondary and tertiary markets actually has been the opposite, where, as we've mentioned, fundamentals have stayed pretty flat, or even improved and increased, and rents have gone up in some markets. And so, those markets and those owners are still able to go out and refinance, they're still able to go buy new properties and finance it through Fannie and Freddie at these incredibly low rates, and as a result, those values have actually gone up. So, depending on how you look at it, the lower interest rates have really bolstered… excuse me, bolstered markets that are struggling, and markets that are just doing okay or even growing a little bit, those values have improved significantly.

Chris Nebenzahl (52:34):
So, again, I think there are a number of factors at play, but the multifamily industry doesn't seem to be doing too poorly right now.

Adam Hooper (52:42):
Yeah. And again, we're still not out of 2020 yet, but it seems like things are doing pretty well in the multifamily space. So, we'll continue to watch. And, Chris, this has been a fantastic conversation, tons of great data in here. I know our listeners are going to love it. So, thank you so much for coming on the show today.

Chris Nebenzahl (53:02):
Yeah, absolutely. Thanks, guys, it's been a quick hour, but I've loved talking with you.

Adam Hooper (53:06):
Yeah. And I guess before we let you go though, if you want to let everybody know, how can they find out more about what you're up to with Yardi?

Chris Nebenzahl (53:12):
Yeah. You're free to see any of our free research and subscribe to our monthly newsletters across any of the asset classes. We cover multifamily, self storage, office, we just launched student housing. You can see all that information at So, it's

Adam Hooper (53:36):
Perfect. And we'll put a link down there in the show notes. Chris, again, really appreciate you spending some time with us today, and hope you have a great afternoon.

Chris Nebenzahl (53:43):
Thanks. You too. Great to talk to you guys.

Adam Hooper (53:45):
All right, everybody, and that's all we've got for today. As always, if you have any comments or questions, send us a note to And with that, we'll catch you in the next one.

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