jeff adler - monarch investment and management group · 2019-12-23 · 47. we have made a...

Multifamily 2017 Outlook- Monarch Investor Conference

Jeff AdlerVice President, Matrix

March 2017

47

We have made a consistent very positive case for US Multifamily Investment for several years-

1. US macroeconomic conditions, while not great, are solid and generating job growth of ~150-200K jobs per month Enough to maintain MF occupancy and good, but decelerating, rent growth vs 2012-2015

2. Demand is a big tailwind, both Short and Long Term Job Formation, Demographics, Affordability, and Technological change are all combining for a positive perfect storm

for the next 10-20 years

3. Supply is , relatively speaking, in check and peaking ’17- which will slow, but not stop, continued rent growth Supply surges are focused in major urban hubs of a select number of gateway and top tier cities, at very high rents Tighter regulatory oversight of banks has restricted new construction financing of all types Housing is in shortage in mid-priced apartments- and the opportunity in value add remains solid

4. Oil price decline has bottomed, with regional pain on the slow mend - Houston, OKC, to a lesser extent Denver & Pittsburgh Currently ~$53/bbl off a ~$38 low in early ‘16.

5. Major Top 30-40 Non-gateway markets, and their emerging intellectual capital nodes represent a one strategy for institutional investors to target a position in US Multifamily that have good odds of generating capital appreciation with income

Opportunistic or yield investors need to move to “unloved” markets away from institutional investors Value Add has good odds of success, given the large price gap between Luxury and Middle Market rents

The Yardi Matrix House View….

48

The Outlook remains positive; the extent of which is based upon the balance of pro-growth vs. immigration/trade policy emphasis

1. US Macro Conditions The move in long term rates has flattened out at ~65 bp, clipping IRR’s by -1%; but offsets from revenue, expense and

debt actions are available Potential for Pro-Growth policies come in two forms:

Executive: loosening of regulations- which can come quickly, once departments are staffed Legislative: (tax reform, education reform, health care re-reform, infrastructure spending) may take some time to play out and are

not without some risk in “the sausage factory” that is Congress

Immigration and trade restriction policies impact- marginal vs. major, is unknown at this time- “more heat than light” Major 30-40 metro area are significantly exposed; for smaller markets it depends on the level of production for domestic vs.

international consumption Extractive (mining) and transformative (manufacturing) regions may benefit vs. those dependent on technology and global export of

ideas

Yet, in a still low yield, Financial Market Environment Where Can An Investor Find Yield? INCOME PRODUCING US COMMERCIAL REAL ESTATE

Monetary Policy, and the Debt Surge it has engendered in the Gov’t & Publicly Traded corporate sector, has reached its limits (or very near its limits)—

US Multifamily, and US Commercial Real Estate, is still the place to be, even if the ride could be bumpy

How do Things Look Now?….

49

The Outlook remains positive; the extent of which is based upon the balance of pro-growth vs. immigration/trade policy emphasis

2. Apartment market conditions High occupancy on stabilized properties, but sliding; Mkts/Sub-mkts with new supply impacted the most Decelerating, but good rent growth- ~4% still, but decelerating; extent based on new supply impact Structural components of demand are still big tailwinds as before Wage pressures in the US are growing, but still not at the level of rent increases Supply is peaking in ’17- total pipeline has leveled off

3. Dislocation in Comm’l Real Estate Debt Markets, driven by regulatory influences, is restraining growth in new construction financing Dislocations in Bank and CMBS debt markets will extend the apartment rental growth up-cycle Debt availability and cost is more tied than ever to global financial markets, despite the steadying influence of the

GSEs (50% debt market share, and able to do more with Green/Affordable/Small Balance/ Variable Rate Programs). Long-term rates are not moving at the same pace that is expected in short-term rates Asset Value growth will be restrained, but not stopped, due to these cross-currents

Depends on pace of income growth relative to upward interest rate movements

How do Things Look Now?….

50

GDP Growth

0

20

40

60

80

100

120

140

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2001

Q1

2001

Q4

2002

Q3

2003

Q2

2004

Q1

2004

Q4

2005

Q3

2006

Q2

2007

Q1

2007

Q4

2008

Q3

2009

Q2

2010

Q1

2010

Q4

2011

Q3

2012

Q2

2013

Q1

2013

Q4

2014

Q3

2015

Q2

2016

Q1

2016

Q4 Co

nsum

er C

onfid

ence

Inde

x

Annu

alize

d GD

P Q

uart

erly

Per

cent

Ch

ange

GDP Growth Consumer Confidence Index

Source: U.S. Bureau of Economic Analysis (BEA); The Conference Board; Moody’s Analytics

51

Quarterly Job GrowthQ

uart

erly

Job

Grow

th

+15.7 Million*+8.2 Million

-8.7 Million

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

*Through January 2017Source: Bureau of Labor Statistics (BLS)

2016 Total: 2,240,000

76 Months of Continuous GainsMonthly Average: 202,000 Jobs

52

Demographics are in Multifamily’s favor over the long-term, especially in the younger aged cohort…

Real Estate Fundamentals: Demographics

65666768697071

Mill

ions

U.S. Renter Population: Age 20-34 Cohort

Source: U.S. Census Bureau (BOC)

53

Millennial Tailwinds

CAGR ComparisonStudent Debt Med HH Income*

5.8% 0.1%

* College Educated

54

Many Young Adults Still Living at Home


25.0%

26.0%

27.0%

28.0%

29.0%

30.0%

31.0%

32.0%

33.0%

16,000

17,000

18,000

19,000

20,000

21,000

22,000

23,000

24,000

1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

Pent-Up Demand= ~ 3mm HH

Number (Thousand) Share

55

Notes: Beginning in 2000, renter household data are the revised, consistent-vintage counts. 2000-09 counts are 2010 vintage, 2010-15 are 2014 vintage.Source: US Census Bureau, Housing Vacancy Surveys

Renting Rising as Homeownership Slips

60%

62%

64%

66%

68%

70%

72%

74%

30

32

34

36

38

40

42

44

Renter Households Homeownership Rate

Renter Households (Millions) Homeownership Rate

56

Total Housing Supply Lags Demand Since the Recession

0

500,000

1,000,000

1,500,000

2,000,000

2,500,00019

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

1420

1520

16

Housing Starts-Single family Housing Starts-Multifamily New Household Formations

Source: Moody’s Analytics; U.S. Census Bureau (BOC)

57

Future Rental Demand Looks Strong

30

35

40

45

50

55

Total Demand (Millions of Units)

High Middle Low

High projection: 50-100 bps decrease in homeownershipMiddle projection: homeownership constantLow projection: homeownership rises to mid-point between 2015 rate and historical high

Source: Yardi® Matrix; Moody’s Analytics; U.S. Census Bureau (BOC)

58

Inflation- Low, but not for Rent, Education, & Healthcare

Source: Moody’s Analytics; BLSNotes: Growth numbers are YOY 6 month moving averages. CPI Less Health Care, Education and Rent is an estimate using the BLS document “Math calculations to better utilize CPI data”

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%Education Health Care Rent CPI CPI Less Education, Health care and Rent

59

National Apartment Rent Growth Trends vs. Wage GrowthY-

O-Y

Per

cent

Cha

nge

Source: Yardi Matrix, Bureau of Labor Statistics (BLS); Moody’s Analytics

-4%

-2%

0%

2%

4%

6%

8%

2008 2009 2010 2011 2012 2013 2014 2015 2016

Rent Growth Wage Growth

60

Class B Assets Insulated From Near Term Supply Pressures

Source: Yardi®Matrix

Rate of Rental Increases Has Crested

0%

1%

2%

3%

4%

5%

6%

7%

Lifestyle

Overall

Rent-by-Necessity

Long-term average: 2.9%

Long-term average: 94.3%

Discretionary

Renters-By-Necessity

Upper Mid-Range

92.0%92.5%93.0%93.5%94.0%94.5%95.0%95.5%96.0%96.5%97.0%

Occupancy Levels Have Crested

61

Absolute Rent Spreads by Asset Type have Widened

2010-2017 CAGR

5.8% Discretionary5.3% Upper Mid-Range4.7% Low Mid-Range3.7% Workforce-Upper2.9% Workforce-Lower5.1% Overall

Jan 2010 Jan 2017

Discretionary-Upper-Mid

$284 $438

Discretionary-Lower-Mid

$432 $675


$600$700$800$900

$1,000$1,100$1,200$1,300$1,400$1,500$1,600$1,700$1,800$1,900$2,000

Jan-

10M

ay-1

0Se

p-10

Jan-

11M

ay-1

1Se

p-11

Jan-

12M

ay-1

2Se

p-12

Jan-

13M

ay-1

3Se

p-13

Jan-

14M

ay-1

4Se

p-14

Jan-

15M

ay-1

5Se

p-15

Jan-

16M

ay-1

6Se

p-16

Jan-

17

Average Rental Rate by Asset Class

Discretionary Upper Mid-RangeLow Mid-Range Workforce - UpperWorkforce - Lower Overall

62

US Multifamily Sales Price Per Unit-Index 2008=100

Rent by Necessity Has Provided a Buying Opportunity

60

70

80

90

100

110

120

130

140

Jan-

08M

ay-0

8Se

p-08

Jan-

09M

ay-0

9Se

p-09

Jan-

10M

ay-1

0Se

p-10

Jan-

11M

ay-1

1Se

p-11

Jan-

12M

ay-1

2Se

p-12

Jan-

13M

ay-1

3Se

p-13

Jan-

14M

ay-1

4Se

p-14

Jan-

15M

ay-1

5Se

p-15

Jan-

16M

ay-1

6Se

p-16

Jan-

17

Lifestyle Rent by Necessity

Significant Spread

Good Entry Point

Spread has Narrowed


63

“Running Away From the Herd” Enables a Higher Ongoing Cash Yield

US MultifamilyClass B Cap

Rates2016

Popular Market Unloved Market

Denver El Paso

5.7% 7.3%

Source: Yardi® Matrix Expert Portal

64

National Employment Rank by Metro Y-O-Y Absolute Change Through December 2016

Top 10Metros

Absolute Change

PercentChange

New York 120,600 1.3%

Dallas-Fort Worth 113,500 3.3%

Los Angeles 90,000 1.5%

Atlanta 70,800 2.7%

Washington, D.C. 66,600 2.1%

Seattle-Tacoma 64,600 3.4%

Miami 60,800 2.4%

Orlando 50,300 4.2%

San Francisco 46,600 2.0%

Denver 44,800 3.2%

U.S. Total 2,242,000 1.5%

Bottom 10Metros

Absolute Change

PercentChange

Milwaukee -4,700 -0.5%

Allentown -2,800 -0.8%

Virginia Beach -2,800 -0.4%

Bridgeport -1,500 -0.4%

Lancaster -1,400 -0.6%

Youngstown -1,400 -0.6%

Syracuse -1,200 -0.4%

New Haven -900 -0.3%

Scranton -800 -0.3%

Akron -300 -0.1%

U.S. Total 2,242,000 1.5%


65

Monarch Markets Employment RankY-O-Y Absolute Change Through December 2016 – SOLIDLY IN THE MIDDLE

BottomMetros

Absolute Change

PercentChange

Dayton 4,500 1.2%Lansing 4,500 2.0%Des Moines 4,100 1.2%Little Rock 2,400 0.7%Albuquerque 2,200 0.6%Madison 2,000 0.5%Lexington 1,700 0.6%Columbus 1,400 1.1%Lubbock 1,400 1.0%Tucson 1,400 0.4%Amarillo 1,200 1.0%Jackson 600 0.9%Oklahoma City 500 0.1%Milwaukee -4,700 -0.5%Portfolio Average 1.4%

TopMetros

Absolute Change

PercentChange

Dallas-Fort Worth 113,500 3.3%Denver 44,800 3.2%St. Louis 33,600 2.5%Detroit 33,300 1.7%Chicago 32,200 0.7%Minneapolis 27,400 1.4%Cincinnati 21,700 2.0%Indianapolis 19,700 1.9%Columbus 19,200 1.8%Grand Rapids 12,700 2.4%Cleveland 10,900 1.0%Kansas City 10,500 1.0%Boise City 10,500 3.5%Toledo 6,000 1.9%Omaha 4,800 1.0%


66

Source: Yardi® Matrix

Supply Pipeline - National

% o

f Sto

ck

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2011 2012 2013 2014 2015 2016 2017

Num

ber o

f Uni

ts

Completions % Stock

67

Sacramento

Atlanta

Las Vegas

Nashville

Charlotte

San Antonio

Twin Cities

Baltimore

Portland

Denver Seattle

Inland Empire

San Diego

Orlando

Houston

Austin

Phoenix

Tampa

Kansas City

Jacksonville

Philadelphia

0%

1%

2%

3%

4%

5%

6%

0% 1% 2% 3% 4% 5%Job Growth YoY

Marker size is proportionate to total

units in each market as of January 2017

= <4.0% forecasted rent growth

= 4.0%-7.0% forecasted rent growth

= >7.0% forecasted rent growth

Slower growth, Potential Supply Absorption Issues

Higher Growth, Potential Supply Absorption Issues

Higher Growth, Not yet oversupplied

Employment vs Supply; Several Markets in Danger of 2017 Oversupply

Source: Yardi® Matrix; Bureau of Labor Statistics (BLS)

Com

plet

ions

as

a %

of s

tock

68

CincinnatiColumbus

Denver

Detroit

Grand Rapids

Amarillo

Jackson

Lansing - Ann Arbor

Little Rock

Madison

Oklahoma City

St LouisTucson

Twin Cities

Albuquerque

Boise

Cleveland - Akron

Dayton

Des Moines

Fort WorthIndianapolis

Kansas City

Lexington

Lubbock

Milwaukee

Omaha

Chicago

Toledo0%

1%

2%

3%

4%

5%

6%

0.0% 1.0% 2.0% 3.0% 4.0%Com

plet

ions

as a

% o

f Sto

ck

Job Growth YoY

Marker size is proportionate to total units in each market= <2.0% forecasted rent growth 2017= 2.0%-4.0% forecasted rent growth 2017= >4.0% forecasted rent growth 2017

Slower growth, Potential Supply AbsorptionIssues

Higher Growth, Potential Supply Absorption Issues

Higher Growth, Not yet oversupplied

Monarch Specializes in Largely “Unloved” Markets

Source: Yardi® Matrix; Bureau of Labor Statistics (BLS)

69

Monarch Operates in Less Volatile, Steadier Markets

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

RENT GROWTH IN CORE MARKETS AND MONARCH MARKETS

Core Markets Monarch Markets

Rent Growth in Core Markets


70

Monarch Market Performance

Market % of Portfolio

YoY Rent Change

YoY Occupancy

ChangeMarket % of

PortfolioYoY Rent Change

YoY Occupancy

ChangeDallas-Fort Worth 0.8% 6.0% -0.5% St Louis 9.3% 2.4% -1.0%Dayton 4.2% 6.0% -0.1% Des Moines 0.8% 2.3% -0.4%Detroit 7.6% 5.2% -0.1% Albuquerque 6.8% 2.1% 0.1%Twin Cities 1.7% 4.9% 0.0% Milwaukee 1.7% 2.0% 0.0%Columbus 4.2% 4.4% -0.6% Omaha 6.8% 1.9% 0.0%Tucson 3.4% 4.0% -0.2% Cincinnati 1.7% 1.8% -0.1%Indianapolis 1.7% 3.9% -0.4% Little Rock 5.1% 1.3% -0.2%Denver 5.1% 3.8% -1.2% Lexington 0.8% 1.2% 0.0%Lansing - Ann Arbor 4.2% 3.6% 0.1% Oklahoma City 1.7% 1.0% -0.4%Grand Rapids 11.0% 3.5% 0.0% Amarillo 1.7% N/A -0.1%Kansas City 6.8% 3.4% -0.2% Boise 0.8% N/A -0.5%Cleveland - Akron 0.8% 3.0% -0.1% Jackson 1.7% N/A 0.0%Madison 0.8% 2.8% -0.2% Lubbock 0.8% N/A -1.1%Chicago 2.5% 2.7% -0.6% Toledo 3.4% N/A -0.5%

OVERALL PORTFOLIO 100% 2.7% -0.3%


71

Monarch Market Forecasts

Market 2017 2018 2019 2020 Market 2017 2018 2019 2020

Albuquerque 0.7% 0.9% 0.9% 1.0% Lansing - Ann Arbor 2.5% 2.1% 2.2% 2.3%

Cincinnati 3.6% 2.6% 2.1% 2.0% Lexington 3.8% 2.0% 1.7% 1.5%

Cleveland - Akron 1.8% 2.0% 2.0% 1.9% Madison 1.7% 2.2% 2.3% 2.4%

Columbus 3.3% 3.1% 3.1% 3.0% Milwaukee 2.0% 2.0% 1.7% 1.2%

Dallas-Fort Worth 6.2% 4.7% 4.6% 3.6% Oklahoma City -0.2% 0.5% 1.0% 1.2%

Dayton -0.5% 1.5% 1.3% 0.9% Omaha 3.3% 1.5% 1.5% 1.5%

Denver 5.5% 5.0% 4.8% 4.6% St Louis 3.9% 3.0% 2.8% 2.8%

Des Moines 3.0% 1.7% 1.6% 1.7% Chicago 3.3% 3.3% 3.1% 3.1%

Detroit 1.7% 1.7% 1.5% 1.5% Twin Cities 2.8% 3.2% 3.2% 3.3%

Grand Rapids 2.9% 1.9% 1.8% 1.9% Tucson 3.2% 3.5% 3.8% 3.8%

Indianapolis 3.7% 4.0% 4.0% 3.8% Overall Portfolio 2.9% 2.6% 2.5% 2.4%Kansas City 5.2% 3.6% 3.3% 3.3% National 3.9% 3.8% 3.7% 3.6%


72

- US multifamily is a very good asset class to be in for long-term investors.

- Class B apartments, especially with a value-add strategy in less well known markets, are insulated from short-term supply pressures in the top 30-40 metros

- Asset Values in Class B/C properties has increased faster than Class A since 2011 Providing a good entry point

- Monarch has constructed a portfolio in markets which have a history a steadier, less volatile job and rent growth, and are forecasted to do so in the future as well

SUMMARY

73

ALTHOUGH EVERY EFFORT IS MADE TO ENSURE THE ACCURACY, TIMELINESS AND COMPLETENESS OF THE INFORMATION PROVIDED IN THIS PUBLICATION, THE INFORMATION IS PROVIDED “AS IS” AND YARDI MATRIX DOES NOT GUARANTEE, WARRANT, REPRESENT OR UNDERTAKE THAT THE INFORMATION PROVIDED IS CORRECT, ACCURATE, CURRENT OR COMPLETE. YARDI MATRIX IS NOT LIABLE FOR ANY LOSS, CLAIM, OR DEMAND ARISING DIRECTLY OR INDIRECTLY FROM ANY USE OR RELIANCE UPON THE INFORMATION CONTAINED HEREIN.

Disclaimer

74

»Jeff Adler, Vice President & General Manager of Yardi Matrix [email protected], 1-800-866-1124 x2403

»Jack Kern, Director of Research and Publications [email protected], 1-800-866-1124 x2444

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jeff adler - monarch investment and management group · 2019-12-23 · 47. we have made a...

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