While many novice investors jumped on the fast and furious multifamily train in recent years, the stalwart industry pros were focused on finding the best tracks - not necessarily the ones most traveled. Multifamily investment and asset management expert Michael Anderson, CCIM, chairman and founder of RealSource in Salt Lake City, has built his 30-year career on finding the best destinations for his clients. “When I formed RealSource in the recession of 1989 it was with the belief that the real estate markets would eventually recover. The trick was finding which markets would recover first, getting there ahead of the recovery, and then doing the same in the successive order of market recoveries thereafter,” he says.
Anderson represented the CCIM Institute as an expert multifamily investment panelist at the RealShare Apartments East conference in Miami last March. Commercial Investment Real Estate asked him to share his insights on multifamily investment's track as the market continues to recover.
CIRE: What prevailing trends are you seeing in the multifamily investment market right now?
Anderson: The multifamily marketplace has been dominated by new supply and continued low capitalization rates, fueled by plentiful and relatively cheap capital as economic expansion continues. The only factor keeping us from an oversupply or a bubble market is the persistent strength in apartment rental demand due to the challenges renters are facing in entering the homeownership market.
However, the No. 1 factor shaping multifamily investment going forward will be interest rates. Currently low interest rates are as much an indication of risk aversion as the competitive nature of excessive capital. For the last several years multifamily has been perceived as a relatively risk-safe investment, which has garnered considerable attention from investors and financiers alike. On the other side of that argument is the investment in single-family, owner-occupied mortgages, which, until recent years, was long considered the safer investment of the two. Although home mortgage rates are low, credit conditions remain tight and only those with impeccable creditworthiness are being approved. This is a double-edged sword within the housing industry: Although it keeps demand strong for rental properties, it stifles the powerful economic engine associated with new home construction and the jobs it creates.
CIRE: What factors are affecting multifamily asset management?
Anderson: Probably the most astonishing change for both multifamily asset and property managers is how strong the renter's voice has become. If an asset manager wants to get a current report card on how well their assets are being managed, they need not look any further than online apartment rating services, renter blogs, and social media. Clients/renters are speaking and would-be renters are listening, so managers need to react accordingly. In the future, this will become even more critical as analysts harvest this online information and apply “fuzzy logic”-based algorithms to the cognitive process of understanding what people are collectively thinking - also known as “big data” analytics. With these types of trend analyses we will have a much clearer vision of future market demand, pricing, lifestyle considerations, migratory trends as well as professional accountability to name a few. Managers will find empirical customer “groupthink” data driving their public reputation and their operational decisions.
CIRE: Describe your experience at the RealShare Apartments East conference.
Anderson: For me there are two key factors that sustain a successful real estate career: what you know and who you know. What you know can be gained by how-to training such as CCIM's top-notch education, through mentors, and by the doing process. But who you know comes from only one source - networking. RealShare Apartments was the most productive networking event I've attended in my career. Of the approximately 500 attendees, about two-thirds were decision makers or principals in their firms. The remaining third were service providers, such as lenders and brokers.
As a major event sponsor, the CCIM Institute brand was everywhere. Denoting oneself as a CCIM by wearing the pin was an amazing door opener, and I left that two-day conference with a pocket full of business cards garnered as a result of making personal connections. To top it off, at the conference I started the framework for a $100 million merger and acquisition transaction that was facilitated by a fellow CCIM attendee.
CIRE: You've been affiliated with the CCIM Institute for many years at the local and national levels. How does your involvement assist in your business?
Anderson: Years ago my partner and I decided to become CCIMs with one very specific objective in mind: We wanted to associate ourselves with the best of the best. Our early business model relied heavily on affiliated relationships with brokers around the country, and the CCIM demographic, education, and standard of professionalism met the need perfectly. And, many years later, when referring our entrepreneurial investors' transaction business, we still rely almost exclusively on CCIMs. We became CCIMs for the opportunity to network with other designees, but getting involved at the chapter as well as the national level has offered the chance to make long-held collegial and personal friendships. My friend Mac McClure, CCIM, summarized it best: “CCIM is where I come to meet my friends.”
Jennifer Norbut is senior editor of Commercial Investment Real Estate. If you have a story worth sharing in CCIM Q&A, send it to firstname.lastname@example.org.