The industry’s greatest problem these days isn’t the slow economy or lack of movement; it’s the pervading sense of negativity among market participants. That was the general consensus of the experts on the Industry Leaders Panel, a featured session during the RealShare Apartments 2010 conference, held at the Westin Bonaventure Hotel in Downtown Los Angeles.
When discussing the economic rebound, Al Brooks, president of commercial lending for Chase, said that although it’s a slow turnaround, the situation overall is good. “We’re so hung up on looking for the negatives that we don’t notice the enormous wind at our backs,” he commented.
Putting it more bluntly, Ric Campo, chief executive officer of Camden Property Trust, said, “We whine too much about the economy. The psychology is more negative today than it ought to be.”
And Stan Harrelson, chief executive officer of the Pinnacle Family of Cos., simply stated, “I’d just like to feel better about feeling good” about the economic situation.
In fact, the experts speaking during the session were, by and large, optimistic about the overall market. So much so, in fact, that some admitted they may be too eager. “We want so badly for the markets to be positive that we’re going to will it to be so,” said Harrelson. “The recovery is going to take some time but fundamentally, the industry is sound.”
All four executives on the panel, moderated by Doug Bibby, president of the National Multi Housing Council, agreed that the recovery is uneven across the country, but it’s also very specific to submarket and property type within apartments. Camden, for instance, is seeing its overall portfolio do well, with rental rates on renewals rising 6% over the past 12 months, and a 2% increase on new leases, according to Campo.
“There may not be job growth overall, but the people who rent with us are getting hired,” he shared. “Even in tough markets, we see positive growth.” In parts of Florida, for example, the REIT has been able to raise rents as much as 8% or 9%.
And in terms of financing, the market isn’t as stagnant as it would seem. There is financing available for the right deals in the right locations. And those deals that won’t get refinanced will result in opportunities for investors. “As maturities rise,” said Tom Booher, executive vice president of PNC Real Estate, “not all of those deals will get refinancing or extensions, so there will be more opportunities to buy distress.”
The delinquency issues, meanwhile, are only concentrated on certain segments of lenders. Brooks, for one, said life companies are doing exceptionally well. “Chase’s delinquency rate nationally is 2%, and we thought that was a very good number,” he said. “But life companies’ delinquency rate is just 38 basis points.”
Development could also be looking up. Campo related that there’s still a huge supply and demand gap in certain locations. But in some markets, sales prices are so high and cap rates are so low that development seems like a better option, he noted. Booher added that there certainly are some markets that are still oversupplied and would need a few more years to recover. “But there are other markets out there where it may be time to get shovels in the ground,” he said.
Though they were the hardest hit markets in the housing bust, the panelists concurred that areas like Phoenix, Las Vegas and parts of Texas are also the most misunderstood. Yet when Bibby asked how they feel about the secondary, non-coastal markets that capital players tend to ignore in favor of high-barrier-to-entry coastal markets, Brooks answered, “I plan to continue to ignore them.” But, he added, those deals are “a good opportunity for the smaller banks that operate those markets.” (credit s. ayrgoren carranza-realshare)