The US conventional multifamily industry is a deep and well established asset class that is in the midst of a positive “perfect storm”. Demand remains high as a result of tailwinds from the crisis in single family housing, sufficient new job formation, and a large demographic bulge of people in their prime renter years. Supply is only now returning to the long-range level of 1% of housing stock (300,000 units/year). Debt costs are low (200bp over the 10 year Treasury through the GSEs), and rental and NOI growth sustained, with capitalization rates touching back to 5.5% or lower and asset value now above their 2007 prior peaks.
In this environment, understanding, meeting, and being compensated for the value delivered to consumers is the paramount challenge for US multifamily owners and operators. US renters are increasingly technologically savvy and demanding, placing increased importance on transparency of the living experience and clarity in pricing strategy. While, the recessionary years placed significant emphasis on cost reduction in contracted services, this stage of the cycle is about enabling consumer’s aspirations. However, different than previous cycles, there is a reduced emphasis on opulence, and an invigorated emphasis on quiet comfort and community.
We developed product lines targeted to different consumer segments and relative price points (from luxury “A” , to workforce “B”, all the way to affordable “C/D”) to create the most value for each, which refined not only the product offering, but the elements of cost as well. Web based marketing, social media reviews, transparent unit level pricing segmentation, and product finishes tailored to defined customer segments have been unique levers utilized to create value. Web based Consumer experience and employee engagement surveys have been critical, yet little recognized, feedback loops to ensure adoption of programs creates the value intended and drives the business culture necessary for success. These tools when wielded with the basic financial tools provide mid-teen IRRs with good single digits current yields, incredibly attractive in a low yield investment climate.