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

Podcast - Update On The Multifamily Market 2020

Tyler Stewert
September 14, 2021
Podcast - Update On The Multifamily Market 2020

Carl Whitaker of RealPage joined us on the podcast to provide an update on the multifamily market.

Carl Whitaker is Market Analytics Manager for RealPage, Inc., where he blends in his passions for geography and teaching to foster a practical, applied understanding of apartment data and analysis. He specializes in creating in-depth reports and presentations to allow for easier consumption and application of data and analysis. Prior to joining RealPage, Carl was a Market Analyst for Axiometrics and an analyst for Catalyst Commercial, a Dallas-based economic development solutions firm.

Carl received a bachelor’s degree in secondary education and a master’s degree in applied geography from the University of North Texas.


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RealCrowd (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.

Carl Whitaker (00:22):
The difference between your average A and your average B property on a monthly rent was about $500, so when you start doing the math on that, it's going to be hard for a lot of A properties to offer a concession that's able to pool your B renter into that A pool.

Adam Hooper (00:46):
Hey, Tyler Stewart.

Tyler Stewart (00:47):
Hey, Adam. How are you today?

Adam Hooper (00:49):
Tyler, I'm doing all right. Good to have you back on the microphone with the home studio.

Tyler Stewart (00:52):
Yes. It took a hot minute to get all set up, but it's nice to be back on the podcast with you.

Adam Hooper (00:58):
I tell you, it's definitely an adjustment not being in the studio together. It makes things a little more challenging to coordinate, but I'm glad we can keep doing this from the safety and comfort of our own homes, keeping everybody safe. Our hearts go out to everybody that's being affected by this health crisis right now and hope for the best of health for everybody out there listening. The show must go on, though, right?

Tyler Stewart (01:21):
Yes, absolutely. The show went on today with Carl Whitaker, senior manager of market analytics at RealPage.

Adam Hooper (01:29):
Yeah, fortunate to have Carl come on today. RealPage, Axiometrics, they provide a lot of data to the National Multifamily Housing Council, so they are absolutely in the data flow here. Interesting conversation, kind of getting a baseline for what's changed and, from the data perspective, what they're seeing out there with how this crisis has impacted the multifamily space. Really interesting conversation.

Adam Hooper (01:55):
One thing I'm super interested in is, how are we going to forecast job growth coming out of this? What are some of the changes to some of their forecasting methodologies or data that's coming into this? Really good information and conversation around some of those different metrics to be watching and looking at as we round the corner of the crisis here.

Tyler Stewart (02:13):
Yeah, that was a really interesting part of the podcast. Then I really enjoyed our conversation just on the different classes of multifamily, Class A, Class B, and Class C, and how this current crisis may impact those different classes.

Adam Hooper (02:27):
Yeah. Talked a little bit about potential trajectories of the recovery. I've heard the swoosh-shaped recovery. Hopefully, Nike doesn't get too mad at us for using that. But I've heard that used a couple times now, where it's not necessarily a U or a V, but something a little more like a U to start and then coming back out of it. One of the challenges that we talked about was how quickly the data is changing, almost on a day-to-day basis. How do you get confidence in some of these numbers when it seems like they are just changing so rapidly? We talked about that and how different investors' risk perspectives might come into what period of data you need to see before you're comfortable using that as a trend or using that in your analysis.

Tyler Stewart (03:09):
Exactly. Carl also went over the types of data and key factors that listeners can look at. We'll be sure to bring Carl on the podcast again for another update, so let us know if you have any questions for him.

Adam Hooper (03:22):
Yep, absolutely. Lots of great links in the show notes. Listeners out there, be sure to check those. Let us know if there's any additional information you want us to track down. Happy to include that in episodes going forward. As always, if you have any comments or feedback or anything you want us to cover specifically on the show, please send us a note to With that, Tyler Stewart, let's get to it.

Adam Hooper (03:53):
Carl, thank you so much for joining us today. We know this is a very crazy time right now in a lot of people's lives. I want to take a minute and just say how thankful we are for our health, for those out there in different situations. Thank you for coming on the show today and telling us a little bit about what you guys are up to with RealPage and Axiometrics.

Carl Whitaker (04:15):
Yeah, for sure. Likewise. Just hope for good health and good spirits in some pretty challenging and unique times. Hope all is well with you and the folks that you're working closely with, as well.

Adam Hooper (04:26):
Absolutely. Before we jump in and talk about some data that we're seeing with what's going on in the current market right now, maybe tell us a little bit about your background, how you got into real estate, specifically how you ended up what you're doing right now, and what maybe got you into the multifamily sector to begin with.

Carl Whitaker (04:46):
Yeah, I think the story of getting into real estate seems to be one of those that a lot of people have, where you didn't necessarily intend to end up there, but just something works out, an opportunity comes up. A little bit of background about myself, I went to school here just north of Dallas, went to school at the University of North Texas, grew up in a little town in East Texas, so I'm from the area. Ended up getting my undergraduate at the school, went on and did an internship and decided, "You know what, maybe now is the time to go back to grad school while I'm still in the academic mindset."

Carl Whitaker (05:22):
Got a degree in business geography, and the first internship I had in graduate school was with a local economic consulting company here called Catalyst Commercial, basically doing demand analyses for retail, or if you're looking to attract a different type of tenant to your shopping center, what other economic factors feed into that? It was kind of that marriage of economic consulting and placemaking that you hear a lot from urban design folks. Was working with them, and we had some data at the time with Axiometrics, and reached out to Axio at the time, this was 2016, I guess, and ended up getting connected with some folks over there. That's kind of the background of how I got into real estate, and then got into the apartment industry from there.

Adam Hooper (06:16):
What was it about the apartment industry that pulled you in? Was it an attraction to that asset class, or there was a need there and you stepped in to fill that? How did that come about?

Carl Whitaker (06:26):
Yeah, I think it was probably more so just a need at the time. I'm sure you all have visited Dallas a time or two. If not, we'd love to have you all down here. But you just look around here, and it's insane how many apartments are being built. It's just crazy how many people are moving here. We just did a webcast today, actually, and looked at some updated numbers. Right now, in Dallas-Fort Worth, there's 42,000 apartment units under construction. It's remarkable. So there's obviously a need there.

Carl Whitaker (06:59):
At the time, Axiometrics was a fast-growing company, and I really liked that idea of joining one of those fast-growth smaller companies, not necessarily a startup but past that infancy stage, and worked with some really, really great people there. So it was really just more of a need that was identified, and turns out this stuff actually is pretty fun to work in.

Adam Hooper (07:22):
Yeah. Well, so that's an interesting, I guess, start to the conversation, 42,000 units under construction. Two or three months ago was maybe a very different take on that many units under construction today. Why don't we start, I guess, a little bit with where was real estate, or multifamily specifically, coming into this crisis that we're in right now? What were the fundamentals? Were we in an oversupply state? Were we undersupplied? Was the construction pipeline way overbuilt or forecasts way overbuilt? What was the status of multifamily going into this last month of crisis that we're in?

Carl Whitaker (08:00):
It's funny you ask because we've been getting that question a good bit from our clients.

Adam Hooper (08:04):
I'm sure.

Carl Whitaker (08:05):
It's a great question. It's totally fair. I think what we're looking at right now is the multifamily industry, and even the overall U.S. economy, headed into, let's call it mid-March, was actually in pretty decent shape. Sure, unemployment was low, and that was placing some strain on job growth, but you were still getting healthy job growth, the apartment market fundamentals, that job creation was creating new households, those new households need a place to live. We were just a few quarters off, I believe it was third quarter of last year, a 20-year occupancy high, where U.S. occupancy was above 96%. That's just absolutely remarkable. Rent growth was hovering around 3%. Overall, fundamentals for the industry looked really good.

Carl Whitaker (08:57):
Now, something we had flagged even late last year as we moved into 2020 was we did have some concerns with the level of building going on. Certainly don't think it was being overbuilt, but we did recognize that there were probably going to be some constraints on overall performance simply because we had almost 370,000 new units slated to deliver in 2020, which would've been well over a 20-year high. Sure, those units would be absorbed, but we expected some slower absorption, occupancy to pull back a little bit, rent growth to settle maybe closer to 2%, 2.5%. But overall fundamentals, I think they looked pretty good headed into 2020.

Adam Hooper (09:43):
So different picture today, right? I think probably still early to figure out what the actual picture is, right? I know we've got some April collections coming in. It seems, at least from what we've been hearing talking to managers, is that April hasn't been as bad as everybody had maybe projected it would be. There's significant reduction in what they're seeing, maybe 15%, 20% from normal rent collections, but certainly not such a sharp drop-off as maybe was anticipated. What have you guys seen in terms of performance of assets and rent collections here in April, and how do you see that playing forward?

Carl Whitaker (10:22):
We've been working really closely with the National Multifamily Housing Council, as a couple other data providers have been, in providing this data and just trying to get a pulse on how many people are paying. I actually think you summarized it perfectly that, sure, those numbers, or the percent of people paying, has gone down from where it was last year, but considering we're now at, what, 20-some-odd million layoffs and unemployment has just skyrocketed, I think the fact that early April collections not being terribly far off of what they had historically been was an encouraging sign for the industry. I think that points back to some of that overall economic health heading into this point and also just the overall industry fundamentals heading into this point.

Carl Whitaker (11:10):
A point we've touched on a couple times is that you can always joke that this time it's different, but if you look at this, let's call it a recession at this point, it was very different than the fundamentals headed into 2008 and 2009, where you just had too much housing being built and then the financing behind that just didn't have good structure to it. That was definitely an economic crisis. This isn't an economic crisis at its core. The economic crisis is a spinoff of a health crisis and the actions needed to be taken to mitigate that.

Adam Hooper (11:42):
Yeah. Again, another sponsor we were talking with this morning was making a similar comment. This is a very externally-driven health-related event, and assuming we can get through this very sharp trough, then we're back into your garden-variety recession and they can manage for that. The unknown is how much of an impact beyond that will this, again, very quick external effect that this is coming at from the health perspective, how much more will that sharpen or will that increase what would be more of a normal recessionary-type environment?

Carl Whitaker (12:20):
Right. I think that's the million-dollar question. If y'all have y'all's crystal ball over there, I'd love to take a peek as well.

Adam Hooper (12:27):
I was hoping you brought yours, but maybe not.

Carl Whitaker (12:31):
It's interesting. This COVID outbreak I feel like has turned everybody into an amateur epidemiologist. We all like to observe the weather as amateur meteorologists, but now we're all trying to figure out just the depth that this crisis causes on the economy and just how long it lasts.

Carl Whitaker (12:54):
I think if you look at some of our forecasted data for the standard rent growth and occupancy, I think it mirrors basically what you were saying there. Again, I think that was a good summary. You're going to see a near-term pullback. It's going to be a fairly sharp pullback. I don't think it'll be to the levels that we saw in 2008 and 2009 because, again, you're not looking at a housing crisis; you're looking at a shorter-term health crisis. Near-term fundamentals, I think they pull back, but they return fairly quickly. With apartments capturing as much demand, or new household creation, I think that's going to continue to be a tailwind for the industry as we move forward longer term.

Adam Hooper (13:37):
When you guys are running those forecasts, what are some of the data points or different factors that you're considering? Is it more of an emphasis on the health side of things now? Are there some more baseline economic fundamentals that you guys are looking at when you make those forecasts?

Carl Whitaker (13:56):
Yeah, great question. I can tell you've interviewed before. Seriously, that's a great question.

Carl Whitaker (14:03):
At its core, our forecasts… I'll stay fairly high level. I can go deeper if we would like to, but I don't want to put the audience into a slumber with statistics and whatnot. Our forecasts are based on economic fundamentals and expectations around job growth and home sales and household formation and changes to discretionary income, very Econ 101 factors. However, this quarter, in particular, we've had to take into account a slightly more qualitative component, which is, exactly as you mentioned, what are these health impacts? How long do they last?

Carl Whitaker (14:45):
As many other people in the industry, we're learning on a day-to-day basis. We take in new information. We'll see this new information as it plays out, and we'll take that into account in any updated forecasts that we release, but still very stats and math driven, or economics driven, at its core with the slightly more qualitative and, just calling it what it is, unknown component of what's going on with the health side of things.

Tyler Stewart (15:13):
I know at RealPage you have a whole list of factors you're looking at, but do you have a few primary ones for listeners?

Carl Whitaker (15:19):
Yeah. Well, and they're always happy to come to us. We certainly are happy to help them in any way we can.

Carl Whitaker (15:27):
I think some of it depends on portfolio-specific strategy or operator-specific strategy. Put it another way. If you're a Class C owner and operator, some of that more affordable workforce housing, something that I would look at is at least understanding the types of employment or the economic sectors that your renter base is largely employed in, and then see how deep layoffs have been in that sector. A good example would be, if you're in Orlando, there's going to be a huge tourism component to that economy, so understanding how many people worked in that tourism sector, which is being hit the hardest, will give you an idea of how deep the impacts are on your portfolio. Alternatively, if you're looking at that higher-end Class A component, some of those luxury high-rises in the downtown areas, I know there's been a lot built in Portland over the past few years, layoffs might not impact that product class quite as significantly.

Carl Whitaker (16:29):
Perhaps the fact that this property across the street from you that had planned on leasing up in the standard one-year period, maybe now they're looking at a 24-month lease-up, so do they start offering concessions and pulling your renter base away into their property? What are the factors there? I think, just broadly speaking, looking at the renter base on, whether it's primarily blue-collar employment, primarily white-collar employment, and then just understanding your local fundamentals for, whether it's lease-ups or whatever the case may be, will give you a good pulse for how deep the impacts will be felt.

Adam Hooper (17:09):
I guess a question on the underlying model that you're using. This is maybe a bit of a self-interested question because we're doing some risk underwriting and quantification and forecasting within some of the models that we're building. At one point does this cause a step back, and how are we actually underwriting risk? How are we actually forecasting these things? We go from a very healthy employment market to now, like you said, 20 million-plus unemployment. Is this something that will be seen as a blip, or is this something… At what stage does it become enough of an impact that we have to go back to square one and think about, how do we built some of these models at a very fundamental level?

Carl Whitaker (17:59):
Sure. That's totally a fair question as well. Within the bandwidth of risk, how much do the goalposts get moved? Were you comfortable with X amount of risk two years ago that now you're not comfortable with? What about 10 years ago?

Carl Whitaker (18:18):
Our models are primarily targeted towards providing outputs for rent growth, occupancy, supply and demand, so I think our forecasts are a little bit further removed from the level of risk that yours would be analyzing. We're providing the inputs that help you assess how much risk there is, whereas the types of analysis that you're doing are very much going to be property-centric or portfolio-centric, where you're trying to analyze… A good example would be the rent payment. If we missed out on X percent of rent collection, how much are we comfortable with missing? I think some of the models that you're working with are probably a little bit more nuanced and a little bit more fine-tuned for some of those property-specific factors.

Adam Hooper (19:11):
Okay, so we're on our own. What are you seeing at the actual operational level? Do you guys track much about the operational aspects or what the impact of this crisis has been from the day-to-day management of multifamily properties?

Carl Whitaker (19:31):
Yeah, we do. I'll just be candid, the team that I work with is a little bit further removed from that, on the day-to-day operations, but we're certainly talking to clients and we love getting their input. It's actually great hearing y'all's input, as well, because that helps us calibrate things on our end. But in talking to some clients, it sounds like they're certainly leveraging or leaning heavily upon any sort of virtual feature, whether it's virtual leasing, being able to tour the unit virtually, to be able to sign the lease virtually. Those are certainly operations-specific changes that have come out as a result of this.

Carl Whitaker (20:14):
We've also seen a lot of the common areas, a lot of the amenities, a lot of those being shut down, which is a little unfortunate because sometimes that can be one of the big appeals of a multifamily property, specifically for a student housing project, where a lot of that demand… I say demand. A lot of that renter base is pretty heavily using a lot of those amenities. We've seen a lot of those shut down. The owners and operators doing that aren't doing it because they are eager to do so. They're doing it with the renters' health in heart.

Adam Hooper (20:54):
Then you mentioned a little bit ago the different segments, different classes, A, B, and C, might be impacted differently than this. Maybe we can dig a little bit more into that, whether it's by geography or by asset class. Any forecasts or metrics or predictions in terms of whether this is more geographically centered as it relates to this crisis or more product type related to this crisis? Or is each one so unique in and of itself there's not really any way to look at forecasting across different geographies or product types?

Carl Whitaker (21:30):
I think it's fair to do both. You could really split it out between, let's say, hey, Class A in Las Vegas, you see that economy, and you say, "Oh, wow, that economy is going to be hit very hard. Is Class A there going to be hit as hard as Class C?" The answer is probably no. The old adage that a rising tide lifts all boats. If you're in a market that's just doing well, then it's theoretical or likely that all product classes are going to be doing well. In this case, it's going to be the opposite of that. Where all the markets are slowing, all the product classes will be slowing.

Carl Whitaker (22:08):
I think our view is that Class A, the biggest challenges are going to be the lease-up pipeline and then subsequent concessions that are offered as a result of that. Class C, obviously layoffs and the ability to, or perhaps even the inability, to pay rent as a result, that's going to be an important factor. If you're in that upper B+ product tier, perhaps you lose some renters to A properties offering a concession that's able to pool that demand into that luxury pool. But if you're an A+, it's going to be hard to offer a concession that's deep enough to really reach down into the B pool. There's challenges for each of the product classes.

Carl Whitaker (22:49):
If we're looking geographically at areas that I think are going to be dealing with the most severe impacts, I would say anywhere that's got a big tourism economy, any of these coastal markets like San Diego, or Orlando is not technically coastal, but I'm going to throw it in that coastal group, where you've just got a big component of that local economy that's basically been shut off. That's going to result in some challenges. We've said for a while now that we've really liked that inner Sun Belt core of markets, the North Carolinas of the world, the Tennessees of the world, DFW, areas that are attracting a ton of in-migration and creating a lot of jobs. Those job growth numbers are certainly going to slow down in the near term, but long term that's where people are moving to, that's where a lot of the demand is going to be captured.

Carl Whitaker (23:45):
Geographically, we really like that Sun Belt product… I say product class. We really like that Sun Belt group of markets. Then there's certainly a handful of the coastal markets that we like, such as Boston. A lot of the Bay Area plays. Seattle is one of our favorites, etc.

Adam Hooper (24:04):
I want to get back to what job creation looks like coming out of the other side of this. First, I want to touch on this potential rent compression between Class A and B. It sounds like there's certainly a possibility or likelihood that some of the Class A properties are going to have to offer concessions such that it's attainable by someone that would normally be a Class B renter. For things like that, do you envision that being a… Is that part of this sharper near-term pullback, or do you see that causing any ripples that would be maybe more long term an effect of truly squeezing that spread between a Class A or a Class B rental?

Carl Whitaker (24:49):
Yeah, and I think there's a couple different components to that, so I'll break it down one by one there. Just by and large, looking at the A-to-B rent spread, we saw that increase quite a bit over the past decade. I don't have the exact number, I'm taking some liberties rounding here, but the difference between your average A and your average B property on a monthly rent was about $500. When you start doing the math on that, it's going to be hard for a lot of A properties to offer a concession that's able to pool your B renter into that A pool. Now that's, of course, the average of those two product classes. If you're an A-, maybe you can get a B+ renter in for a much smaller concession. There's certainly market-specific nuances there, and certainly product-specific. But just by and large, the A-to-B disparity is so much larger than it was historically that I don't see concessions as quite as much of a threat to the B class as it was 10, 15 years ago.

Carl Whitaker (25:51):
The second component of that is, with so many more owners and operators today, especially versus 10 years ago, leveraging revenue management and different sorts of tools like that, I don't think you're going to see as many owners and operators freak out when demand stops, see their rents, slash them by 10% just to get somebody in the door. You're going to see more incremental measures taken with revenue management to be able to hedge against that. It'll find that point of equilibrium a lot sooner than just a base 10% rent cut. I think that'll help a lot of the owners and operators in the near term, as well, just leverage against that.

Carl Whitaker (26:34):
Then, lastly, I would just point out that there are some markets where the A-to-B gap really isn't that drastic. I'll point out Orlando as another market where A to B, there's just not a huge gap in terms of that overall price point, versus the East Bay, where you've got a rent gap there of $700, $800 between an A and B. Depending on how vast or how big that gap is market by market, you could see different A-to-B fundamentals play out in different locales.

Adam Hooper (27:07):
One of the things we've talked about quite a bit on the show is just the economics of developing new product. Class A is pretty much all that would pencil before. Do you see this altering much of that? Do you see new projects readjusting pro formas? Do you see a slowdown of delivering new Class A units? What do you see coming out of this for new product development?

Carl Whitaker (27:35):
I think we will see new product development slow down in the near term. Anything that's currently being built will, of course, get delivered. It's just going to take it longer to deliver because some areas have put construction moratoriums in place. It might be a slower burn, but I think you will see whatever is being built today will eventually deliver.

Carl Whitaker (27:58):
Now, if we look at the, let's call it two- to four-year pipeline, I think a lot of lending agencies and a lot of developers are going to take a much more cautious approach, so we'll probably see overall supply levels pull back to more "normal" levels after the fallout from the recession really starts to stabilize and the economy recovers. It's going to take at least a year for a property that's permitted to deliver. In a lot of these markets, again, y'all are based in Portland, so you know some of the challenges between permitting and getting things actually out of the ground, some NIMBYism and just some challenges there. I think we will see the mid-term scope of deliveries pull back a little bit, but I think long term we'll see a point of stabilization.

Carl Whitaker (28:49):
Just one other point I would make there, that I think you bring up a fantastic point with the ability to build at a B+ level. Does it have to be an ultra-luxury product for it to pencil out? Whoever the group is or whoever the person is that figures out how to build new, quality product at that B+ price point is going to be a big-time winner. If you guys know something that I don't know, I would love to partner with y'all. Just figuring out how to build good-quality product in a desirable location at that B+ price point, whoever figures it out or whoever the group is that figure it out, I think that could very well be the next cycle's winner.

Adam Hooper (29:32):
Yeah. No, I agree. I think that's something, again, we've talked about for quite some time. There's some interesting things coming out, whether it's prefab construction or some new kind of envelope and shell construction methodologies. There's some interesting stuff out there. It's certainly a need that a lot of different groups are trying to come at it from a lot of different ways. That's definitely a space we'll continue to watch and see what kind of innovations are created there.

Adam Hooper (29:59):
Getting back to the job growth coming out of this crisis, how are you… Again, we're so early in this. There's so many unknowns still. How are you guys getting comfortable, or what are you tweaking, to try to forecast what this looks like coming out of this? Are you still using historical data for that? Are you adjusting that for any kind of delta of, comparatively, what the unemployment is and that compared to other regions? How are you trying to wrap your heads around forecasting something as fundamental as job growth, given what we're going through right now?

Carl Whitaker (30:36):
Sure. Yeah, that's a great question. I think we're, again, monitoring data that comes to us on, quite literally, a day-to-day basis. But as we get some updates and as we get a better pulse of what's going on, as I'm sure many people are, we'll make the appropriate calibrations.

Carl Whitaker (30:53):
I think our thoughts are that this isn't going to be some long, slow-burning, U-shaped recession. It may not be your quintessential V shape. It's not like the economy is going to be turned on tomorrow and every layoff that happened is going to just be magically wiped away. It's going to take a little bit of time for that to stabilize. We could be looking at something like maybe a funky W-shaped recession or maybe a Nike swoosh recession. Our thought is that job growth will eventually return, and as job growth returns, that's going to lead to new household formation. New household formation is going to be captured by apartments. Some single-family, but you just don't have as much starter-home, single-family inventory available now. Apartments are positioned pretty well for when job growth starts firing back up.

Carl Whitaker (31:43):
To the question of how are we forecasting something as fundamental as job growth, our forecast methodology, and again, I'm happy to go into more depth on this if you'd like me to, but our forecast methodology actually leverages about two dozen different variables that we look at for projecting rent growth and occupancy. Historically, you might've been able to say, let's assume that rent growth is 80% predicated upon job growth, 15% predicated upon supply, 5% predicated on housing affordability. Then you could adjust that on a market-by-market basis. Well, as you know, today is just so different. If you're looking at a market like Miami, job growth might not be a very good predictor at all of apartment market performance because you've got retirees moving in. You've got reverse seasonality in play. You've got so much international capital flowing into that market. Perhaps job growth isn't a good predictor.

Carl Whitaker (32:37):
What our forecast models have done, in accordance with our economists and analysts who are working on these models, we've taken care to see if we can pinpoint market-specific drivers that aren't necessarily reliant solely upon that job growth figure, then calibrating that as we move forward. Again, just a good example would be here in Dallas, single-family homes are a direct competitor with apartments. So if you have an idea of what home prices are doing, that can give you an idea of where rent growth is heading, versus New York, your renter is just a very different pool than your single-family owner pool. Single-family fundamentals just aren't a very good forecasting tool or predictor of future apartment market success.

Adam Hooper (33:29):
The day-to-day nature of the data that we're having to look at now, contrasted with an asset class that's traditionally very illiquid, at what point do we have enough confidence in, I guess, the durability of the data that we're looking at today to start to pull out some trends, or is it going to be looking at this day to day, week by week for some time now?

Carl Whitaker (33:57):
Yeah, that may go back to, in a different way, but that might go back to some of your comments earlier on risk tolerance. If you see one quarter's worth of data on the capital markets, are you willing to change the way that you go about your investment, your fundraising, and your risk tolerance based on that one data point? I think some people will be content at looking at just one quarter's worth of data and saying, "All right, let's go. Let's ramp things up." Or maybe you have somebody that looks at that one quarter and says, "Holy cow, we're not going to enter the market for… We were looking to get into these three markets. We were hoping to dispose in these other three. These numbers just scare us. We're going to take some time to really look at what the numbers are showing us," so maybe they take a full year to look at the data.

Carl Whitaker (34:45):
Something that I think will drive apartment market investing… Something I think that'll drive capital to the apartment market sooner, rather, is that you look at different sector types. You look at office. This whole COVID impact and working from home, and even us doing this podcast remotely, is completely changing the way that people are looking at office space. How much office space do you need? How much can companies save by not having to pay for 400,000 square foot of office space in a prime downtown location? What are the impacts of that on the office investment market?

Carl Whitaker (35:24):
Hotels were already kind of a…. Granted, they're not typically in the same pantheon as the other four product types, but hotels were starting to see a little bit of changes from Airbnb and different types of short-term rentals. Now, what does the hotel investment look like? You look at retail. Retail was already a risky proposition. Now I don't see a lot of investors flocking to that asset class in the next year or two.

Carl Whitaker (35:55):
I think the winners, if you will, coming out of this from the investment side are going to be apartments, even though, as you said, it is a very illiquid class, but apartments are going to be fairly well-positioned in the near term just for some of the uncertainty on the other product classes, than industrial, of course, which has been gaining a lot more momentum and a lot more interest. But with industrial, you're also looking at some very long-term leases, and if you miss out on one lease, you've got half a million square foot that sits vacant for who knows how long. How comfortable are you with that, versus if you miss out on an apartment lease, what other product class is 90% occupancy seen as poor? Apartments, you sign something for one year, you've got that lease for one year, even though it's illiquid from a trading perspective, it's very fluid from the leasing perspective. I think that actually gives it some additional latitude that the other product classes don't have.

Adam Hooper (37:00):
On the trading side, what are you guys seeing on the transaction market right now? We've certainly seen a lot of deals that were in progress either blow up from debt quotes coming back in that maybe lower proceeds, higher rates blew up the economics of the deal. We've heard from sponsors that are still charging forward trying to find deals right now. We've heard from sponsors that are just putting a pause in a wait and see. Have you guys seen anything yet that you can comfortably report on in the transactions side, or still, again, we're very early in that and a little bit to be determined on how the transaction velocity goes?

Carl Whitaker (37:38):
Yeah, it's still early days, but I'll point to our partners at Real Capital Analytics. They actually put out a good article. If it wasn't today, it was yesterday. Sometime this week, they put out some good information. It basically showed what we thought would happen, which is some deals that were expected to materialize didn't, and there was a spike in the number of busted deals. Then just the overall number of unique transactions, or transactions coming from unique entities, decreased. I think that mirrors exactly what you're saying there, just that people are taking a much more cautious approach to how they're investing, how they're acquiring properties, how they're disposing of properties. I think there's going to be just a lot more due diligence in the near term.

Carl Whitaker (38:24):
I think the early capital markets side of things appears to be showing less investment interest, which stands to reason, more cautious approach. As a result, you're seeing cap rates slightly decompress, not a lot, but a little bit. That's certainly a counter-trend to what we had seen, where cap rates had been compressing each quarter for probably the past, shoot, 80 quarters now or something, or at least 40 quarters.

Adam Hooper (38:52):
Are there any consistencies or any commonalities between transactions that are still moving forward, or is it a pretty mixed bag with any trends there?

Carl Whitaker (39:00):
Yeah, I'm not terribly familiar with that level of detail on the capital markets, but my guess is that those that have moved the ball 90% of the way to the finish line and really loved the deal are probably going to go forward with it. If you were 10% of the way done with your due diligence, even if you loved the deal, maybe you say, "Well, let's take a little bit more of a cautious approach." I think as analytics driven as real estate is and becoming, which I think is good, there's always that gut-feeling component that just can't be replaced, to some degree. I think a lot of the deals that go through are going to be gut driven in the near term, and then there's going to be analytics to help support or pull apart arguments against why we would get a deal done or why we wouldn't.

Adam Hooper (39:51):
Again, I know you're not directly involved in the transactional side of the business, but are there any metrics, or is it primarily health related, that we're going to see some stabilization before we start seeing some more confidence coming back in the markets? What do you think is going to be some of that confidence-building trigger points that will maybe kick back off some of that transactional volume or more conviction around "we're coming through this"?

Carl Whitaker (40:19):
Yeah, I think one, again, pointing back to that NMHC data that was released, I think the fact that, again, I don't have the exact number, but 85% or so of residents paid rent on time, that's pretty good. I think that's going to fuel some better feelings, and I think that's going to help some people sleep a little bit easier at night, knowing that that portion of the industry is still running pretty healthy. I think, also, looking at just alternative investments, right now is not a time that you're probably parking much money in some of the slow-growth or some of the more standard or alternative investment types such as the 10-year Treasury. That's certainly not attracting a lot of investment right now.

Carl Whitaker (41:01):
I think as people look around and say, "Hey, apartments are performing pretty healthy," we might be able to still get away with doing some deals here. I think apartments are pretty well-positioned. I guess what I'm getting at, and I apologize if I'm rambling here, but I think the overall investment interest and investment activity to apartments will return pretty quickly as we see market fundamentals hold up pretty well with your standard rent growth, occupancy, etc.

Adam Hooper (41:31):
Yeah. Again, Tyler Stewart asked if there's some key factors before, but as we're looking at that, how can listeners maybe look at some of the stuff that you guys are publishing, some of your forecasts? Are there other external key factors that maybe they can keep an eye on or set up some trackers for that would give some indications as when this starts to come back around?

Carl Whitaker (41:54):
Sure. I always, of course, point folks who are interested or hungry for more data, we have our RealPage Analytics Blog, where we cover everything from very market-specific fundamentals to very broad industry trends and what's going on there. The RealPage Analytics Blog has a lot of that information. Then we also host a series of webcasts where pretty much one a week we're updating information on some market or some industry trend, certainly a lot of information surrounding forecasts and current performance from that perspective. If you're looking for other proxies for apartment market health, I suppose, then the BLS is always going to have some good information on just what's your standard unemployment rate, just looking at what overall job growth is doing. Then, again, looking at some of those other alternative investment options such as the 10-year Treasury and what's going on there, I think those can be proxies for how the industry is doing and how much investment interest is flowing in.

Adam Hooper (43:00):
Good. Yeah, and we'll put links to all that good stuff in the show notes, and we'll link that RCA article that you had mentioned, as well, on the transactional side.

Adam Hooper (43:09):
One of the things, before we wrap up here, that I am just interested in getting opinions on is, what are some of the bigger behavioral changes that will come from this situation that we're in right now? You talked about office space. Is this the catalyst that makes remote working all of a sudden the new normal? What does that mean for office space usage? What does that mean for apartment space? Does everybody now look for that extra room so they can have their dedicated office in their apartments? I'm just curious, from your perspective, are there any longer-term behavioral shifts that you might foresee coming out of this that will stick based on this experience that we're all going through together right now?

Carl Whitaker (43:51):
Yeah, that's funny you say that because I actually hadn't thought of that until now, but maybe the three-bedroom apartments that people just had the hardest time leasing up, it seems like at times, maybe those become the favorite. Maybe we see more three-beds being built. Maybe you see bigger two-bedrooms being built. That's actually an interesting point. I hadn't thought of that. That's interesting you mentioned that.

Adam Hooper (44:14):
Lord knows I could use an extra room in the house right now.

Carl Whitaker (44:17):
Oh yeah. If you've got any family there, any kids running around, you're probably thinking, "What I would give to have a dedicated home office."

Adam Hooper (44:24):

Carl Whitaker (44:26):
Yeah, I think that is a good question. Just behaviorally speaking, what are some of the changes here? I do think remote working is going to become more common. Sure, I don't think it's going to be 90% of the workforce like it is now, but even if it's 30% of the workforce, that's a huge jump from what it had been.

Carl Whitaker (44:44):
Specific to apartments, I think, and not to get too sales-y, but specific for apartments, I think an opportunity coming out of this is learning how to better leverage revenue management, how to leverage these screening tools to say, "Hey, if the industry or the economy does slow down, do I have a good idea of the risk that I've assumed by letting person A sign a lease even if I didn't feel good about their rent income ratio?" Or "Do I feel good about charging for different amenities that I'm not charging as a part of rent?" I just think understanding your own portfolio and how that operates through different tools and different algorithms and different products will be increasingly important going forward.

Carl Whitaker (45:32):
Actually, if you don't mind me turning the question on y'all, I'd be curious to get y'all's thoughts too. What are y'all seeing that's going to change behaviorally as a result of this?

Adam Hooper (45:41):
Yeah, again, there's just so many unknowns right now. This is such a massive disruption to a lot of the norms that we all just operated under. To me, one of the big ones is remote working. Technology has evolved to a stage where the reliance on office space, it's just lessened now. We can keep that same amount of productivity, we can keep in touch with everybody here through this technology. How much of a shift will that cause? Like you said, if that's maybe a 20%, 30% reduction in the usage of office space, that can be a pretty big impact.

Adam Hooper (46:23):
Some of the secondary things that you were talking about before that are not necessarily known, we don't even know what those impacts will be. We look back to 9/11 and the TSA and just the process of what travel looked like from a very short-term, one-time event that had a major impact just behaviorally on how we still do things two decades later. This is at least as big, I believe, of an impact to our collective behavior that I'm not sure that we know necessarily how the psyche of… My kids are 10 and 11. How does this affect their view of the world? That's a very different experience than anything that we went through at that very impressionable time.

Adam Hooper (47:08):
I think there will be some pretty big impacts. I don't know what they will be yet. I think it will be a while before we figure that out. Maybe this is a short-enough duration… That, to me, is another interesting thing. How long is this going to last? If it's a shorter term, maybe month, month and a half, two months more, and we come out of it, maybe it's a short-enough span of this disruption that we can kind of get back to life as normal. But if it lasts another quarter, two quarters, or we have another spike in the fall and we have to go through this perpetual open and shut, open and shut, to me, the duration of it is going to have an impact on how permanent some of these behavior changes become. I think it's anybody's guess as to what that outcome is, but it'll be interesting to watch for sure.

Carl Whitaker (47:54):
Absolutely. Yeah, I fully agree with everything you said there. I think that's a good way to summarize it. One thing I think that could be a very good positive that comes out of this is that having your kids at home, I think, for one, it's going to bring some families closer together because you're going to have valued that family time, but I think teachers are going to come out of this as a winner because parents are going to say, "Holy cow, you put up with this at school, and you're taking 30 students on in one class." They're certainly going to get some nice teacher appreciation gifts once all this settles out.

Adam Hooper (48:26):
Yeah. I was just going to say, I think we're all becoming aware how underappreciated teachers are in this world for sure, very much so.

Adam Hooper (48:37):
All right, Carl. Well, this has been super helpful. Is there anything that listeners, as they're looking at the multifamily space, anything else you wanted to cover or anything we didn't touch on that you think would be helpful to wrap up here with?

Carl Whitaker (48:51):
No, I don't think so. Again, really appreciate y'all being kind enough to extend the invite. Would certainly love to come back on at any point. It's been a good conversation, and it's always great to connect with groups such as yourselves. I'll just point everybody to some of the links that we provided, and certainly feel free to reach out to myself or any part of our team or our organization with any questions. Believe it or not, it's what we get paid to do. We get paid to talk about this stuff, which is great, because it's fun stuff. Certainly appreciate it. Just let us know if any questions come up.

Adam Hooper (49:24):
Yeah, and I think, again, the speed at which everything is developing, we're going to be trying to be more consistent in getting these updates. Even if it's for a quicker 20-minute, 30-minute hot take, we'd love to get you back on the show in a few weeks, a month, and see how that world looks differently, because I think we can all agree it'll probably look pretty different. Who knows what that will look like, but there will be something to talk about. Yeah, we'll look forward to that. Again, we'll put links to all of the information you shared here in the show notes. Again, really appreciate you coming on today, Carl.

Carl Whitaker (49:57):
All right. Adam Hooper, Tyler Stewart, appreciate it. Thank y'all.

Adam Hooper (50:00):
All right, listeners, that's all we've got for today. As always, any comments or questions, anything you want to see us cover on the show, send us a note to With that, we'll catch you on the next one.

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