Multi-Family Real Estate: Rent Growth and Sub Markets

With rent growth picking up where it left off in 2015, real estate analysts are bullish 2016 will be another year of above average multifamily rent growth. However, they also agree that we are nearing the end of this unprecedented growth stage and trending towards a more stabilized growth period in a few years. Although we may be at the tail end, the tremendous growth period we have witnessed the past 5 years has created a large pool of underperforming assets.

While “market” rents have significantly increased in recent years, proper management, or lack thereof, decides whether an asset will participate in these rental increases. Due to many property managers not picking up on economic trends, there is a huge stock of mismanaged multifamily properties that have not taken advantage of the rental growth. Value is just waiting to be added to these properties… and that’s where we come in!

While major cities are accustomed to institutional investments and proper asset management, sub markets in the markets “path of progress” are a great place to find underperforming properties due to lack of professional management. With cranes up in every big city bringing new housing units online and increasing “supply”, sub markets tend to lag the markets economic leader. Finding a sub market showing signs of job growth (while housing units remain stagnant) is a sign of the “path of progress” within the market.

By acquiring underperforming assets in a market’s path of progress, value will be created to the asset. This is accomplished through proper asset management, while the asset appreciates as the sub-market matures in the market cycle.