Curious about what’s happening in the multifamily market? Doug Ressler, Senior Research Officer with Yardi Matrix, joins us to discuss trends in multifamily and key market factors for investors.
About Yardi Matrix
Yardi® Matrix offers the industry’s most comprehensive market intelligence tool for investment professionals, equity investors, lenders and property managers who underwrite and manage investments in multifamily, student housing, industrial, office and self storage property types. We provide nationwide market and institutional research reports that leverage property-level details of multifamily properties. Yardi Matrix also uses data in the Yardi property management system stack to create aggregated and anonymized operating expense, revenue, and operational metric data that improves underwriting analysis and competitive benchmarking.
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Adam Hooper: (00:42) Our guest today is Doug Ressler, Senior Research Officer at Yardi Matrix.
Yardi Matrix offers one of the industry's most comprehensive market intelligence tools for investment professionals. Whether you're an equity investor, lender or property manager, they provide data and management solutions for multifamily, student housing, industrial office, and self-storage property types in today's conversation.
Doug breaks down which multi-family markets are growing, which ones are declining. And cover some of the key market factors multifamily investors should focus on in 2021. We hope you enjoy this conversation with Doug Ressler from Yardi Matrix. Well, Doug, thank you so much for coming on the show today. We're excited to hear everything that's you guys have been up to at Yardi Matrix. It's been a while since we had, uh, we had Jeff on so excited to hear what's new in your world.
Doug Ressler: (01:36) Thanks for having me today, guys.
Adam Hooper: (01:38) So before we jump in, why don't we take a little step backwards, tell us how you got started into real estate. What attracted you to this asset class and kind of what brought you into your role at Yardi Matrix?
Doug Ressler: (01:49) Yeah, uh, in 2008, I joined a Pierce-Eislen as an analyst to intelligence analyst. And basically, at that time Pierce-Eislen dealt with residential properties 50 units and above. And, uh, our subscriber base were loan, originators, uh, property managers, uh, owners, developers, that type of thing.
And so, uh, they had been added since 2000. They had initiated the business because. There was no value proposition for a lot of the data. A lot of the data that was acquired was scraping web scraping, things like that. And what we did is we went actually went out and contacted people directly as renters to get, uh, the real, uh, data as best we could, uh, for.
All the properties in at that time, about 37 markets, uh, in 2013, uh, Yardi Matrix added us to their port. Yardi Systems added Yardi Matrix to their portfolio because, uh, Yardi Systems is a much broader envelope they're privately held company. They deal with asset management software worldwide, and, uh, they needed a piece that was residential, which we provided.
And since that time, uh, we've also added elements, uh, other than just residential to our portfolio we’ve added student housing, uh, self storage. Uh, we're also into single family rentals now, uh, from Yardi Matrix. And then there's the broader suite of Yardi Systems that has commercial edge office industrial. Uh, they also have, uh, in-depth asset management in terms of Yardi Voyager software to manage, uh, said properties, et cetera, et cetera.
Adam Hooper: (03:36) I think that's, what's been so fun to see is right. I mean, Yardi was. Historically more known as, as kind of the asset management property management suite of software. Right. And then to be able to transition into. This position where you can actually analyze and do something with all that data that's being collected through the system. Right. Uh, in finding insights, it's just fascinating. And I think that's, we've seen that shift of people that historically haven't known what to do with this massive amount of data and, and to be able to see how you guys have leveraged that and create a new products and insights from that, I think has been really interesting to watch.
So excited to kind of dig in on that.
Doug Ressler: (04:11) Just one thing to add a lot of our data too. I mean, it's integrated, um, In terms of the Yardi silos, the Yardi Matrix data is integrated and asset IQ elevate. Uh, those are two of the most popular ones. They have come on board in the last two years. And it goes to what you're saying is that, uh, those are used as tools or technical, uh, types of, uh, Instruments to be able to look at what's going on and analyze, uh, to be proactive.
Adam Hooper: (04:41) Yeah, well, so you've grown from, I think you said it was 37 markets that you were looking at originally. Um, to now I think the latest multi-fit just multifamily report was 130 plus different markets. Um, tell us some of the trends. I mean, again, we've, we've just come out of one of the. More interesting times for, for lack of a better word, you know, more tumultuous times and in his last 12, 14 months, um, what are you guys seeing in the data?
How does that reflect on what we've just gone through and how how's it looks kind of across the nation at a high level right now?
Doug Ressler: (05:15) I think, uh, from a high, high level, what we're seeing is that the, uh, recent a year and a half have really pushed the cycle, uh, in terms of, um, time. To be able to, um, insent things that here forward would have taken say multiple years to be able to accommodate an example of that would be, uh, you know, the remote work from home.
Uh, there's uh, a big, uh, thought process that says, well, I need to have creativity and I need intellectual property, but doesn't necessarily have to be a hundred percent of the time. Uh, in terms of an office environment, can't, you know, be successful if you're working remotely. And I think that, you know, there's many instances that people are looking at what they call the hybrid model.
So we see that we see that occurring. In addition, one of the things that has occurred, uh, during the health crisis is that certain policies have, um, Shut off the tap. If you will, in terms of immigration, in terms of migration, there's been a lot written about migration out of gateway cities, but what I think people.
Uh, forget is that the inflow gateway cities are big practitioners of immigration in terms of people moving into large gateway cities and because of policy and because of the pelt health pandemic, the tap input has been shut off. And so what you see is a residual of outbound migration. And, uh, so we don't think that there are migration patterns.
We see that. Uh, we believe too, that in the rental market, along with everything else, it's more of a hedonic model where consumers are looking at the price they pay for housing and other items. And that really is one of the major drivers as to what dictates where, and, uh, you live in, in terms of your social environment.
Adam Hooper: (07:11) Yeah. And so I think we've, we've talked about that a little bit, uh, in a prior episode of, as you mentioned, right? These major metros, coastal cities have typically kind of refreshed that, that out migration with new immigration, new, you know, um, New, I guess, new population coming into those cities from out, out of, outside of the country.
Right. Um, and when that's cut off, you've got this, you don't have that new population coming in to replace. And that's what you say is driving this kind of decline. And, and we'll talk about that a little bit with what we've seen in, in the, the, um, rental rate drops, but going, going back to, um, overall rental rates.
I think you can. We we've been tracking the NMHC, uh, you know, rent performance, and it's, it's held substantially better with historical than we would have expected, certainly through the early parts of pandemic and even through most of last year. Um, what have you guys seen in terms of actual rental rates broadly across the country?
Have those held pace? Have they gone down up? What are you seeing there?
Doug Ressler: (08:13) Again, it depends on the market, but, uh, what we have seen because we measure rental rates and all the major markets, but we also measure it by, um, the classification of the property. In other words, uh, A's being the top end C's being a workforce, that type of thing affordable.
And so we, we slice and dice it a lot of different ways. So one of the things that we see and I think. People tend to want to just focus on the pandemic a lot. But you know, prior to the pandemic, we had an affordability issue, which we still have, uh, associated with us. And it's basic economics of supply and demand as to what's driving the market.
Uh, in terms of now, like it has been in the past that says, well, you know, Are rents going up? Are they going down? Are they going up for certain segments? The biggest demand that we see, especially in the Southeast markets like Orlando, things like that. We see immigration is driving a lot of the market, uh, down there, uh, especially the B's and C's workforce, uh, not so much the top end.
And so, uh, to be able to say, what's going on, you also. I mean, when you look at the aggregate, the national numbers. Yeah. You're starting to see a slice, a slight increase, but that's because of time period dependency, which is a big statistical term that says I measure year over year and when the bed months fall off and the new years come on, it looks like it's increasing.
You know, from the math. And so what you have to be able to do is to look at that and, and look at how each market is being handled and dealt with differently. Certainly the Southwest markets, um, the Southeast markets look good, uh, in terms of, uh, you know, overall rental rate increases. But a lot of the demand is in workforce and that's not where a lot of the supplies coming in being built.
Uh, so you, again, you get into an economic disparity in terms of what people want, how much they want to pay and where the demand is based off the supply.
Adam Hooper: (10:15) And now this, this time dependency is an interesting one, uh, in the sense that at any point throughout this year, when we look back a year ago, almost any number is going to look great, right.
In terms of, um, and you know, we saw that with inflation. We're seeing that certainly with some of these, these rental statistics, um, How much weight do you put in that? I mean, do you, do you have to, you have to look at, I guess the period that you're comparing it to and put kind of an asterisk on that or is there
Doug Ressler: (10:43) the way we thought yeah, the way we look at it, we look at the demand drivers.
So we're a database driven type of, so you have to dig a little bit deeper. You have to really look at the demographics, like, uh, how very, and who's, he's a physicist by training, but he's the marketing for Google. And one of the, he sort of, you're going to be able to really explain something. You have to look at the demographics.
You have to look at the demand drivers that are occurring. It's almost like rents, occupancy are almost symptomatic based off of what the real causation is occurring. So that's what we do. Uh, we re break it apart, but the, uh, you know, The type of properties. We also, we call it context rating in our vernacular.
We rate the properties, but we also rate the locations. Uh, we look at the, uh, amount of supply. We look at the migration patterns, look at median income. Uh, to be able to see if there's gentrification on gentrification, does the median income support, the type of market that's occurring in terms of the rentals that's being asked, what type of concessions are being offered, offered, et cetera, et cetera.
Adam Hooper: (11:50) And so demand drivers. Typically we would think employment, population, growth, job growth, those kinds of things. Um, Are you looking at anything through a different lens in 2021 than you might've in 2019 or prior given what we just went through or had those fundamental
Doug Ressler: (12:06) Certainly, certainly we're looking at lease rates.
Uh, we're looking at, you know, right now we've seen, you know, tip the tip. There's three distinct patterns in terms of spikes and rental rates. You know, it's the January, Feb, uh, the May, June, and then the September, October, those are typically your. Your heaviest frequency of, of rental activity. And one of the things that we want to look at is what they call the gap.
The gap is what is my existing rent. Okay. I'm getting rid of my existing lease is getting ready to expire. What's the new rate. So, uh, lease renewals, uh, you know, what's the difference in terms of price also, what's the duration, uh, we've, uh, we've seen too where some people are getting offered. Um, this is again anecdotal, but the, their actions instead of a 12 month, they'll take, they'll take a 15, 16, 17, uh, type month just to retain the existing rates.
So those are all things that we look at right now when we see those are some of the biggest, uh, nuances, uh, that's occurring. Going forward.
Adam Hooper: (13:11) And so, so we've seen some gentle recover, I think, across most markets in the US here. Um, are you seeing different patterns are different drivers from some of those coastal markets and gateway markets versus maybe some of the more interior markets in the country? More the kind of Midwest Southwest stable markets.
Doug Ressler: (13:29) What we see in terms of the gateway markets to gateway markets in terms of the, the university of Pennsylvania. Um, and also, uh, Harvard have done some great studies along with, uh, some of the census, our sister division RentCafe also has looked at migration patterns using, uh, internal Yardi proprietary data.
And what we find is people don't move that far. Uh, you know, uh, if I were to look at the bay areas, somebody may look for a better price, but they may look and say, uh, Oakland, you know, across the bay bridge or whatever, they're there because of certain other demographic, those kinds of concerns. Uh, so the gateway markets, we think, um, Are going to see, you know, our recovery.
It just is the duration based off of the work from home and what people do also, there's a lot of dry powder sitting on the sidelines in terms of investment potential. Uh, that and that plus, uh, you know, the policies, governmental policies that are, you know, funding, a lot of the surge, we see that as going forward is going to provide a great big momentum shift or a push, not only for gateways, but also for secondary and tertiary markets, uh, Amazon fulfillment centers and distribution centers.
Uh, you can read about it every day, all the way from Des Moines to. You know, Atlanta, cetera, et cetera. And that's pushing a lot of, uh, a lot of employment. It's also pushing a lot of income and economic, uh, uh, health and wellbeing into secondary and tertiary markets that here for having existed.
Adam Hooper: (15:06) Yeah. And I know in, in this, the latest multi-member report, um, specifically, I think you, it, you said New York, San Jose, Los Angeles, um, those were some of the more impacted in terms of decline and, and certainly in, in occupancy rates.
Um, but it sounds like also there's going to be anticipated to see some recovery in those markets. What's driving that. Recovery back as it just, uh, is a re migration back into the cities. Are we going to see more immigration coming in from, from external to kind of refill some of those pipelines?
Doug Ressler: (15:40) Yeah. But a lot of different, but, uh, you know, the B-1 visa program has been opened up again, uh, or is. Going to be. So we see a lot of, uh, external migration that's occurring. Uh, when you look at the US in term of investment being less risky than other types of international markets, especially commercial real estate, that drives a lot of investment into that.
Uh, we see people that, uh, are moving. Uh, from a migration standpoint to where there's opportunities, if I can work from home, do I ask to actually have to physically be in the location where, um, my employer is. Uh, so we see it's a combination of all the things that you mentioned in terms of migration patterns and people wanting to move, but also at the same time meals set in place and have the economic wellbeing that, uh, here to for.
They haven't in the last year. So, I mean, when you really look at it, the great financial, uh, recession that we had, this isn't like that this is a really, uh, more of a fact, like there was a hurricane nationwide or worldwide. And so the recovery is going to be pretty dramatic and pretty fast.
Adam Hooper: (16:53) And so these are.
You would foresee maybe more temporary dislocations than a longer-term trend. That's something we tried to pick apart here on the show is what are some of these trends, as you mentioned before this, this accelerant concept, right? Everything that we just went through was an accelerant of some of these prior trends that were already underway and separating that from some of these.
Longer-term just, uh, you know, systemic shifts of how these dynamics come together. Are you seeing anything in these migration patterns or in these, you know, declines or increases in occupancy depending on which market you're looking at? Is there anything that you guys have seen that seems like an interesting.
Longer-term shifts that will remain after this recovery, or is it mostly going to be temporary reactions to what we just went through?
Doug Ressler: (17:39) No, it's longer term. I think if, if you, in some instances, what you look at is that, uh, obviously, um, People are looking for, uh, let's say for example, and this is again anecdotal, but just to explain the point, if I wanted to say, move to Orlando or something like that, I may look for a larger place on my hip two or three children, and I want to move and rent for a period of time until I look where to buy.
And so what you see is that, and also maybe I even want to rent single family rentals. That's probably one of the hottest topics we see going right now. I usually look at the housing market as a Venn diagram. So you've got rentals, you've got 50 units and up, you get five to 49, then you've got single family and then have ownership and you have all those inner.
Mingling Venn diagrams that are occurring. And, you know, basically it's common elements. In other words, the peoples that's that use or provide the demand and all those Venn diagrams, uh, could, they could choose to rent. They could choose to rent a five 49. They could choose to rent a single family rental.
Um, and, uh, the sweet spot for renters is obviously in the 22. 34 age, the Z type renders the Z demographic. Now you have, you know, a lot of the millennials that are getting ready to buy homes. Well, can they buy homes again? You get back into the affordability issues. Are there homes to buy and you have the inflationary spiral in terms of pricing and housing prices.
So they may retain to rent. So right now I think the demographic is such that the population of renters per se. Has really has a lot of different options. And I think that what you see is business for the market's being creative as to how to suffice to get around. Um, demand says, well, we have an affordability issue.
We can't provide the supply. What do we do? I mean, you see everything from manufactured homes to single family rentals, uh, that people were doing and building to be able to create that.
Adam Hooper: (19:41) Yeah. And I think that's, um, One of those, those demographic shifts that again, it'll be interesting to see how that plays in with, like you said, with the affordability.
Um, a lot of the DIY folks out there are, are, uh, you know, putting projects on hold. We've actually seen a couple of construction, your development, ground up development projects that have put, um, have been put on hold just because the cost of construction materials has gone up. Just so crazily, um, that it makes a lot of those projects harder to pencil.
So I don't know if that's going to help much on the affordability side, given where
Doug Ressler: (20:14) construction did a did a, uh, I don't know if you watch them routinely, but a 3d printing of houses. Or structures? Uh, I think it was Diana Allah was she was being shown, uh, the 3d printing operation of a house housing unit, uh, in the bay area, San Francisco bay area.
And someone drove up and I think this is so, um, you know, provides such a good example of the person drove up and they said, well, we'd like to buy this. And it was an apartment complex and they wanted to. To buy the, uh, the apartment. They said, well, it's already been sold. Um, and they said, well, can we buy the business then?
I think so. I think what you're seeing is the viability of people are looking for alternatives. You're very well said in terms of the cost of materials is, uh, you know, astronomical in a lot of instances and it's going through the roof. So again, how do you, how do you get the best fiducial return on the investment?
Adam Hooper: (21:13) And now switching a little bit too, to some local markets, and I know we're kind of jumping around here, but there's just so much information in this, in the report. Um, you mentioned in the report, inland empire, Sacramento, Phoenix. I think those were all over 8% in terms of, uh, earnings growth. Um, those were markets that we're already seeing some migration, they were seeing some trends prior to this, this pandemic, um, That would indicate again, like you mentioned a bay area, right?
Someone getting out of San Francisco, maybe they can go up to Sacramento, more affordable. You get a better bang for your buck up that way. Um, what's the story that's driving. That rent growth in those markets. And again, is that more of a sustained trend or do you think that we'll maybe have some reverses once pandemic is sorted out and people are starting to go back into the, into the cities?
Doug Ressler: (21:58) Let's see if we can unpack some of that. I think when you really look at a lot of the markets like Phoenix, Las Vegas, Denver, uh, Dallas, even, uh, it's you get back to the equation of a finite variable was the land. How's land zoned. What are the restrictions? If I want to put up self storage, if I want to book it, put up an apartment, uh, or if I want to do single family rentals, what's the cost.
Associated as land zoned appropriately, et cetera, et cetera. Now, in large gateway cities, you have a lot of restrictions, obviously in Newark, in New York, things like that. You don't have the flexibility, especially in the zoning laws and codes, uh, that you do and say the Southwest. So that's part of it. The other thing is the economic, uh, diversity's that's being brought to these, uh, areas.
Uh, certainly big cities are not going to blow away. Uh, you know, they, they are going to come back and they're going to come back from a resilience standpoint. They do present, you know, if you're looking at an investment from a demand standpoint, where, where are you going to look? Well, you're going to look where you have less risk and obviously big cities present a very good advantage.
Uh, in terms of economic diversity and a lot of incentive to be able to locate there, uh, from a pricing standpoint, uh, to be able to meet your needs. So cities are going to come back and it's just a matter of how much time also the recipient is going to be in terms of what we call the excerpts. Those border areas that sit on the banks are the edges, the peripherals.
Uh, you're going to see, you know, there's, those areas begin to explore, expand too, especially in suburban office, that type of things, many cities where, you know, it may look like. Um, there's a particular area in Atlanta, out towards the news ball, state, ballpark that just built, you know, eventually it's gonna look pretty much like a little mini city as opposed to, well, that's really the suburbs and people have this, you know, view as to what's going to occur.
But what they're trying to do is to embellish it with a lot of the city diversity's in these many hubs that sit on the excerpts of the borders surrounding a major metropolitan area.
Adam Hooper: (24:08) And so do you see that as gathering. What could have been some of that migration back into the more urban cores. Do you see more of those, those kinds of hubs and spokes models, I guess, coming to the residential world?
Yeah, absolutely. And certainly again, I think, uh, accelerated by the ability to have more flexible work environments, right. Whether it's remote or, you know, part, part of the way going into the office. Yeah.
Doug Ressler: (24:31) Yeah. Then another thing that we also tracked too, is in the communication networks. In other words, the networks, the wifi networks, do they have fiber?
Do they not have fiber? That type of thing, because you know, to be able to work from home with large data sets and things like that, you need some speed. Well, do you really have it obviously? Uh, you know, that's another thing that has to be we of overlay that. To see it's sort of like the internet or the electronic highway, if you will.
Uh, along with the transit oriented development,
Adam Hooper: (25:03) I can definitely attest to that with, uh, three kids, zooming, you know, streaming zoom meetings all day for school. Uh, that definitely puts a strain on the bandwidth. That's for sure. Absolutely. Um, so we talked a little bit about this time dependency of, of looking back and looking at things, you know, comparative to a period before.
Um, but when you're looking at rental rates, what time interval is, do you find are the most important, right? Is it monthly? Is it quarterly annually? Um, w w w period, especially since we're in such a volatile time right now, Are you finding one of those time intervals being more insightful in terms of looking at rental rate growth or declines?
Doug Ressler: (25:44) Uh, we track them all. But again, back to the point that I made before, as we see those three points, January, February, uh, may, June and September, October is to be the major fluctuation points. We look at what we call our benchmarks benchmark periods, uh, to be able to give us a comparison set. If you will, as to what we're seeing on a month to month basis.
Adam Hooper: (26:09) And so looking at those on a month to month basis, but then also again, kind of quarterly annually should investors and listeners of this show here. Should they be looking at those in any time period or another? You kind of need to look at all, all of them to, to try to identify some, we would,
Doug Ressler: (26:24) We would suggest they look at all because again, each market. Uh, and sub-market is different. I mean, when people invest, uh, they're not, I mean, they say, well, you know, tell me about the Dallas market, but they're not really, I mean, the Dallas market at an aggregated snow doesn't really have that much, meaning. I mean, you really want to take a look at, well, what is my investment strategy?
Where am I looking at? What is my competition in particular sub geospatial areas, et cetera, et cetera. And what is the. The rate, you know, how big is the demand and the energy corridor in Houston? You know, if I were to say, well, I want to go develop down in the energy corridor and use the, who am I competing against?
What's the type, what's the potential for the total demand to be able to fill the properties that I'm looking at.
Adam Hooper: (27:10) Okay. Um, and now let's take a little bit of a look at employment. Um, you economy's been adding a bunch of jobs. Uh, usually that's a pretty good indicator of. What we can expect to see health in the, certainly in the multifamily space.
Um, what is the employment market looking like right now in your eyes? And then how is it matching up with available supplier, maybe pipeline supply, uh, of multifamily units down the road.
Doug Ressler: (27:36) Well, again, it's, it's probably, is it dependent more on the market when you really look? I think the numbers are about 8 million in terms of total unemployment, but when you actually add to it, you have to look at those people that are, you know, that have been furloughed that aren't really working at pro probably I think moody says the numbers are somewhere around 11 million.
And so you look, well, how fast can I add jobs? Uh, you know, I need to be adding somewhere around, uh, six to 700,000 jobs per month to get back where I'm going to be. So, uh, last month was a little bit of a down 266,000 jobs for, at it, as opposed to the month before. But we really see that, that, uh, that the summer is going to present a little bit of a lag.
But we really think that, uh, you're gonna see all this money that's sitting on the sidelines truth that the government is throwing out. It is going to start really start to spark a business investments so that we believe in the third quarters of city improvement, uh, in those employment numbers.
Adam Hooper: (28:38) And then relative to supply, I mean, Given what we just talked about.
Um, I think a lot of projects kind of put the brakes on last year. And certainly now that we're seeing this pretty dramatic increase in supply in new construction costs, um, we've seen even more projects put the brakes on what does that look like? For supply going forward. And obviously most of the supply was in the ultra high end class eight.
Right. And that's all it could pencil before. And
Doug Ressler: (29:05) so that's enough. You're right. Yeah. Fifties, 50 units in a, you know, it's always been that type. And I, and I think, you know, that's going to probably maintain, I think we're gonna see it as in these alternative type of housing, single family rentals and things like that.
Again, it's still going to be measured on the cost of materials, you know, the return cost to my return. Uh, the other thing too is how do you underwrite a Lyle alone? And I think we'll probably get into this a little bit later, but what kind of interest rate what's inflation going to do? You know, if you listen to the fed, they're gonna, they're saying it's transitory, you know, don't worry about inflation, uh, so much and they could be right.
And then there's people on the other side of the coin that says, no, How do you underwrite a loan three and four years out? I mean, w you know, in terms of interest expense and things like that.
Adam Hooper: (29:51) And so that was one thing that we, we asked, you know, before the show, you know, what are, what are a couple of data points and key factors that you think investors should be keeping an eye on here in, in 2021.
And the other is inflation interest rates and capital flows. So let's unpack that a little bit. Let's maybe start with inflation. Um, what are your thoughts there?
Doug Ressler: (30:10) Well, you know, uh, I'm certainly not an economist of the ELCA federal reserve. And so the, the people are looking at, uh, you know, you can be on one side of the coin or the other, you think it's going to be transitory that the fed is going to maintain a low rate, that we're not going to see the pricing.
Then you have the price increases, consumer prices. I'm not talking about, you know, how much you pay at the restaurant and things like that, but durable goods, things like that. Uh, and if, uh, I think one of the keys is going to be if, uh, the supply chain continues to restrict and you have this unbridled demand, I think you're going to see inflation rates.
In other words, if people can get what they want and they have monies to be able to spend for it. I think that's one of the key concerns that the fed has right now in terms of saying, well, if we can, if we can keep that balance, if we can keep that supply chain where we don't see that getting out of. And that imbalance that's being created.
You have a large demand, and then you have supply chains that can fulfill that demand. That's when you're the, you run the risk in terms of inflation.
Adam Hooper: (31:16) And that's one of the benefits of a multifamily in real estate generally has seen, been seen historically as a pretty good hedge against inflation.
Multi-family more so because you're able to reset rents and, and kind of ride that up on a more frequent basis and longer term commercial, you know, industrial office leases. Um, so, you know, from our perspective, a lot of the conversations we've been having for those that are. More, um, anticipating an inflationary environment multi-family seems pretty attractive to them right now.
Um, which we'll see. And then, and then that ties in also with the interest rates of, you know, gosh, we ended last year, we were seeing. Just head-scratching interest rates on certainly the multifamily space. It seems like they've come up a little bit, um, and have kind of continued to bounce around at, at what would be historically a very, very, very low, low level.
Um, have you guys seen any indications or trends or what are you looking at for interest rates? Yeah,
Doug Ressler: (32:11) well, we have seen trends. Uh, you know, I think what people are trying to do is spread the risks. You're seeing a lot more JVs joint ventures. Uh, where people want to spread the risks in terms of development, you see more repurpose, you see existing structures like schools or malls, uh, that are being repurposed into other uses.
And so, uh, that's all occurring. And I think what you do is what you're trying to do is spread, uh, you know, if you already have some costs or costs that are. Exists, can I minimize my risk by either, either getting a partner or taking an existing structure with a minimal amount of repurpose and fulfilling the needs of the demand.
So we see those two trends that are occurring right now.
Adam Hooper: (32:55) Um, but we're not going to get you to go on record for any kind of interest rate forecast. Are we.
Doug Ressler: (33:00) No, I'm not I'll let Janet Yellen handle that.
Adam Hooper: (33:05) We tried, we tried. Um, and then capital flow, I think again, to what you just mentioned there, um, you know, spreading out that risk amongst different property types, uh, you know, there's a ton of capital that is still flowing into the real estate space.
And I think that's what we've seen. Certainly in the multifamily sector, right? This, um, pricing increase actually throughout the last year that I don't think we would have anticipated this time last year. Um, multi-family has certainly a combination of very cheap debt. A lot of capital flow coming in has certainly buoyed pricing and even pushed it in some markets.
Um, what are you guys seeing in the capital flow front coming into this asset class?
Doug Ressler: (33:45) You know, um, one of the things I think that, uh, the listeners should pay attention to is Peter Lindemann from the university of Pennsylvania, uh, and, uh, a good friend of mine, Matt Larriva from FCP uh, they've done a paper white paper.
And what they're attempting to do is to measure the flow of capital. They think that the flow of capital rather than a cost of capital is probably more indicative of what cap rates are. And. What they're going to be going forward. And, uh, we, that's one of the things that we follow, right? Yeah.
Adam Hooper: (34:18) Yeah. We had, we actually had Matt on the show a little while ago and got surface level on that concept, which is absolutely fascinating.
And Peter, Peter has been on the show as well. Um, so we'll, we'll put links in the show notes that episode, I would love to get him back on and do a deeper dive on that because I think that the research that they're doing is, is absolutely fascinating in terms of how they're looking at a very different way of forecasting, where pricing and cap rates are going.
Um, Yeah. So what, we'll put a link in the show notes there as well. Um, so beyond those three, you know, what keeps you up at night right now, given, you know, we're recording this and second quarter in 2021. What's what's keeping you up at night.
Doug Ressler: (34:57) Well, again, I think it's a, the housing affordability, inflation and interest rates, uh, uh, Harvard stone, pretty good.
Start a study. Uh, they've taken over 20 years worth of data. And they've looked at migration patterns, not only top end, but also people that said, well, you know, I want to move from LA to Boise as an example, you know, just as an example. And then they look, they bifurcate it in terms of top end renders and for housing and lower and the workforce and blue collar, that type of thing.
And what they find is that, that migration pattern results in terms of many of these markets where you see, uh, the. The actual demand is increasing in areas or markets where it hadn't been so great. So you have this migration pattern that creates these, this large demand influx, and what you see is an escalation or inflation of pricing.
And so that's one of the things that, uh, you know, we have to look at very closely in terms of when people come to us and they say, well, what is the trend? What is your forecast? Uh, those are all areas that we're looking at right now. And they can be very cyclical, but at the same time, they can be very, uh, unstructured because you have a real time, uh, markets or migration patterns that are affecting it.
Adam Hooper: (36:17) And do you think 3d printing houses is the solution? Is that a, is that are fixed to the housing affordability problem? If
Doug Ressler: (36:23) there's any one solution. I think that what you're seeing is the market, the water will seek at some level. So I think what you're seeing is single family rentals single-family on rounds right now.
If you're trying to build an, an, an urban core, you know, the cost of land would just be prohibitive. So what you see that as under peripherals, Very good, very indicative, a lot of things that drives some of that, you know, where to, where do people live? You know, if you're a Z without children, things like that, you could choose to use to live somewhere else.
But if you have children, you'd want to look at school systems, you want to look at where there's good school systems in a thigh rent. For a while for a period, you know, what schools do you go to? Well, when I buy the house, eventually that I'm going to buy, do I want to move out of that school system?
Probably not. So you're going to stay in that same general geospatial area, and those kinds of things are going to drive their one-offs, but they're going to drive your choice of housing and they're going to drive your choice of, you know, affordability.
Adam Hooper: (37:19) Okay. Uh, what are you most optimistic about right now in the multi-family space?
Doug Ressler: (37:24) I think just the housing market in general. I think that, uh, you're seeing a lot of, uh, you know, the pandemic or the longer-term impacts, uh, going away in terms of various assets, you brought it up that, you know, the commercial real estate is probably one of the least risk. Um, In terms of investment model, investment model.
So we see that as being very positive, uh, overall, not just for residential, but we see it for things in terms of self storage, they play off of each other, their collaboration, uh, the industrial the year. E-commerce that whole thing, fulfillment centers, uh, healthcare. Oh, I didn't, you know, one of the things that we see is people want to live there.
Uh, you know, their facilities for healthcare. Well, urgent care is now becoming very practical and very cost-effective as opposed to going to large hospitals and things like that. And hospitals see that, and they're actually investing in urgent care facilities. We think that's going to be one of the future trends
Adam Hooper: (38:21) going forward.
Okay, well, maybe we'll have to, we'll have to have you back on a, to dig in on what's going on the healthcare space, because that is, that is definitely one that's. Um, we're seeing some innovations, some changes, whether it's in home care or again, like you said, more kind of satellites with the urgent care clinics.
Um, a lot of interesting, interesting things going on in that space, which similar to schools. Can play into someone's housing choice, right? The, the availability, right?
Doug Ressler: (38:46) Well, yeah, not only that, but you get the retail market that says I've got this building. Uh, and uh, all of a sudden it's empty. Do I look for alternatives, have a filled it up.
You bet. How about it? Or urgent care. And then you see an awful lot of lease backs where people say, I'll go in and I'll lease it from you. And then all leases back to be able to, because I'm going to use it, especially in the urgent care.
Adam Hooper: (39:07) Yeah, fascinating. Well, Doug, this is a, this has been a great conversation.
Um, why don't you let us know and let the listeners know how they can learn more about what you're up to, uh, with Yardi Matrix.
Doug Ressler: (39:18) Sure. If you can put the links and, uh, you know, obviously I'll send, I've sent you some links too. We have a lot of, a lot of things going forward. I mean, there's already systems which you see over our branch.
Uh, you already systems as a tremendous amount of software and market innovations in the software, the technical, uh, asset IQ, elevate, uh, Voyager, uh, they also have special for property management with Yardi has created a software to be able to manage, um, you know, Terms of payment, things like that in terms of arrears and special pandemic softwares, I would say to be able to manage facilities and property managers at the convenience of the renter and the owner of properties to be able to optimize and make sure that you keep.
You know, people whole, uh, the other thing too is you've got commercial edge, uh, commercial edge uses a lot of our data, their sister division. They deal with all the industrial, the office. Uh, you've got Rent Cafe. They're a B2C type of sister division that looks at renters. Uh, and, uh, the kind of issue. So we collaborate on different kinds of things.
Then you have the Yardi Matrix, which does a lot of the residential, uh, self storage student housing and single-family rentals. So it's a wide brush. And if you want to know more, uh, you know, I sent you the links, there's links, uh, blogs. Uh, that you can go to, or you can call me and also I'll send you to the right person.
Adam Hooper: (40:48) Perfect. And we'll have, we will have links to all those in the show notes. Um, again, ton of great information that comes out of Yardi. Uh, we've appreciated the relationship with, uh, with you guys and, and appreciate you coming on the show. You've been so grateful with your time today, Doug. We appreciate it.
Doug Ressler: (41:02) Thank you very much for the opportunity. I can't thank you enough.
Adam Hooper: (41:05) All right, listeners. That's all we've got for today. As always. If you have any comments or feedback, please send us a note to email@example.com without we'll catch you on the next one.