emerging market trends

Why Focus on Multi-Family?
Over the past decade, U.S. households grew by 7.6 million, and while households headed by owners stayed relatively flat, households headed by renters grew by 10%, according to a 2017 Pew Research Center analysis of Census Bureau housing data. As a result, there are more renter households in the United States now than at any other point in the past 50 years, and this trend is expected to continue.

The rental housing situation is further challenged by the U.S net population’s growth, with immigration playing a notable role in this expansion. This fact, along with estimates that 4.6 million housing units are needed over the next decade (according to a study commissioned by the National Apartment Association and National Multifamily Housing Council), severely magnifies the immense pressure on the U.S. economy, especially if the economy does not grow in proportion.

There is unprecedented demand for rental units, as more households are opting to rent versus own by choice. Developers’ ability to meet that demand is challenged by a number of factors, including permitting, zoning laws, construction costs, and availability of land and buildings, among others. Adding immigration growth – along with the fact that during downward economic cycles many Class A and Class B renters downgrade to emerging-market Class C units – creates the groundwork for what could become a full-blown housing crisis.

Hancock Investment Group, LLC, through its Hancock Growth & Income Fund, LLC, has strategically positioned itself to take advantage of emerging-market housing assets that need to be repositioned and optimized for highest and best use for an exponentially growing demand by new renters entering the market.

Multi-Family Market Data
Marcus & Millichap’s 2018 Multi-family North America Investment Forecast called the outlook for apartment investments “particularly exciting.” The growth of the “renter nation” that began with the housing and economic crisis of 2008 continued through 2018, and it still shows few signs of slowing. Millennials, who by and large prefer the ease and “portability” that apartment living offers, have surpassed baby boomers as the largest living population, and their prime rental years have not yet peaked. Plus, as baby boomers age, they are increasingly choosing to downsize, with more and more opting for renting over home ownership. Add to that, increased clarity on tax code revisions, and investor sentiment seems poised for noticeable invigoration.

As 2017 began, the general consensus among analysts and other interested observers was for continued moderate growth in demand for apartment living along with rising rents and property values. Even a brutal onslaught from Mother Nature late in 2017 did not derail that projection. The economic tailwind carried through 2018, as factors conducive to economic and industry growth converged. And those factors — rising wages, increased job openings and growing consumer confidence — are continuing to lead to greater household formation, including by millennials moving into their first residence.

To meet these housing needs, construction of multi-family properties increased dramatically in 2017-18, while not always keeping pace with demand. Thus, vacancy rates decreased while rental rates increased – good news for Investors. Most of the new units that have been built most recently have catered to high-end apartment dwellers, and there remains an unmet demand for Class B and Class C Properties.

For 2019, CBRE is predicting another healthy year for the multi-housing industry, with demand mirroring the high level of 2018. With new supply continuing to exceed demand, CBRE says, rent growth will be limited. The Marcus & Millichap report noted that the imbalance between additions and absorption would “most substantively affect areas where development has been focused, such as the urban core where vacancy rates have risen above suburban rates for the first time on record.”

The multi-family investing climate is maturing. Marcus & Millichap notes it is moving more and more from aggressive growth to a more stable yet positive trend. Investors are having to look more closely to find opportunities with good upside potential. According to a Market Watch study, consumer confidence reached an 18-year high in September 2018, with trend forecasts almost universally anticipating a steady uptick. Hancock Investment Group, LLC will continue to conduct extensive analysis and due diligence to identify markets with favorable potential profit for investors.