Ongoing Housing Shortage Creates Investment Opportunity – August 2022 Round-Up

As August 2022 begins, continued interest rate hikes and recession fears continue to dominate discussion and impact the multifamily world. Still, in spite of some economic headwinds and greater financing challenges, housing demand, particularly for multifamily, remains strong. Some sectors such as Student Housing are even setting records.

Jimmy Atkinson, Founder of The Opportunity Zones Database joins Scott to discuss.

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Episode Highlights

  • How regulations impact the costs of multifamily development.
  • Whether or not rental rates have hit their peak, and what might be behind declines.
  • The impact of the Fed’s interest rate hikes on multifamily investment and development.
  • How demand continues to shift from owning to renting, and what this says about multifamily.
  • News about Urban Catalyst’s second OZ fund.

Today’s Guest: Andy Hagans, AltsDb

About The Multifamily Investor Podcast

The Multifamily Investor Podcast covers trends and opportunities in the multifamily real estate universe. Host Scott Hawksworth discusses passive investment offerings in the space, including direct investments, DSTs, opportunity zones, REITs, and more.

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Show Transcript

Scott Hawksworth: Hello, and welcome to the Multifamily Investor podcast i’m your host Scott Hawksworth today joined once again by Jimmy Atkinson the founder of the opportunity zones database and it’s time for another round up. The August multifamily investing news Roundup. Jimmy welcome to the show, and thanks for being here.

Jimmy Atkinson: Hey Scott it’s always a pleasure to hang out with you and I like talking about opportunity zones, but hey let’s talk about multifamily today.

Scott Hawksworth: Let’s talk about multifamily there’s a lot going on.

Not only within the multifamily world but also outside of it, and a lot of impact being felt there, so if you’re ready let’s just jump right into the first article, we have for today.

Jimmy Atkinson: Go for it Scott.

Scott Hawksworth: All right, i’ll pull it up on my screen here, and this first article is from the New York Times, and the headline is the housing shortage isn’t just a coastal crisis anymore and.

it’s says that an increasingly national problem has consequences for the quality of American family life, economy and the future of housing politics.

And you know Jimmy we’ve talked a lot on this show about the housing shortage and there’s a lot of a focus on, you know you’ll hear about California you’ll he’ll hear about New York City.

But what this article is saying is is that this housing shortage is is not exclusive to areas like that markets like that you know even right here we’ve got this.

This graph here that this map that shows okay here’s the areas with a housing shortage in Brown and you see okay you’ve got those coastal areas and then you go to.

And you see, there is a lot more brown as opposed to this purplish blue.

Which is the surplus and you’re seeing that across California you’re seeing Florida, and those coastal areas, but then you’re seeing even here.

You know where I live here in Chicago land, you see a housing shortage of course across parts of Texas, where you’re located, so I guess to start Jimmy what’s your perspective here clearly, it seems that this housing shortage is it’s not getting better it’s getting worse.

Jimmy Atkinson: yeah I agree with that i’m looking at my monitor now i’m looking at what you’re looking at Scott.

Well, you know one thing i’d like to point out, is this article is quick to say that the housing shortage is spread to more parts of the country.

And so I got a couple of thoughts there one is yeah that does appear to be true, given their data, I would also say, though, that.

along the coasts it hasn’t gotten any better it’s gotten much worse, so the the, the main problem with the housing shortage in our country.

it’s not limited to the coasts, but it is by far worse on the coasts and in these densely populated metropolitan cities.

predominantly located on the coasts than they are in middle America or in the southeast region, even though it has problem has spread a little bit there as well.

And then the other issue is in the article touches on this actually a little bit maybe we can get your thoughts Scott is what is it.

What does it mean to be in the housing shortage exactly what what how much housing is enough housing for each area of the country for each region or state or city.

Part of that is is a hard question to ask and a hard question to answer some of its a value judgment, some of it depends on you know what.

Your opinion of a healthy housing market would be in those locations, so these aren’t really hard and fast numbers I think anecdotally you can look around, and you can say yeah there’s a housing.

Crisis in the Bay area there’s a housing shortage in New York City there’s there’s there’s a lack of affordable housing throughout a lot of these markets.

In the United States, and it certainly is spreading to other parts it’s no longer just a blue state or blue area issue, it has spread to other parts of United States, so I do agree with that, but Scott, what do you think here what what what is this article tackling here.

Scott Hawksworth: How would you add, I think.

I think there’s a lot of angles, to look at it, I think, when you talk about housing shortages.

You know the the very basic it’s just okay well the supply isn’t meeting with the demand and there’s a lot of different factors that can go into that I mean we look at California.

we’ve talked a lot about California on this show we’ve had recent episodes where we drove all into you know the housing shortage in California and.

possible reasons behind that so you have some that are just built in, and then you have you know, the fact that we’ve had so much population, migration that is always continuing and you look at some of these other areas where okay.

that’s just population is going to an area that simply doesn’t have the supply to meet that influx of people who are looking for housing.

And I think those are two very different kinds of issues, if you look at one where, for example, California, you have a lot of regulatory challenges and historical zoning and other various.

problems, so to speak, that have constrained that supply and then you look at some of these other areas i’m looking i’ve pulled up the metros with big shortages that once had enough housing.

You know a lot of this look at phoenix Mesa Chandler Arizona, I mean that’s that is so driven.

By population movement and and folks going to the sun belt and going to the southwest, so I think that’s another aspect to look at and this article.

Of course, is trying to tackle you know what what is causing this and what can be done about it and there’s a lot of discussion about policy looking through here, I want to.

try to find this specific area with zoning yeah so members of Congress of both parties have increasingly called.

For you know critiquing zoning and looking at zoning in which the federal government would give priority for grants to local communities that ease zoning restrictions or build denser housing.

So, and also the bite administration released a long list of ideas, this spring for boosting housing supply.

Controls few levers to do that, especially without Congress funding more affordable housing programs obviously New York Times is taking the tack that they need to have affordable.

bends to any kind of legislation or efforts to attack this so.

A lot of focus on okay we’ve got this problem, we see that it is not just on the coast, how do we address this and i’m glad that they mentioned zoning because that’s something.

When i’ve talked to folks certainly those located in you know California or.

New York City there’s a lot of this well, we want to build this housing there is this need, but we can’t.

Because of the the regulatory landscape and because of some of the challenges there and even developers that have had success, many of them have success because they.

Have they have contacts within you know the government, the local government, and they have folks that can help them navigate.

navigate this this landscape, so I think I think that’s really what this article is saying, and I think from the investing side.

Really it’s it’s a it’s a simple fact of the the supply is not meeting the demand and that creates opportunity now, the question is, is how do you incentivize more housing created.

creation, because of course that’s what we all want, you know do well, by doing good that’s what you want to see.

So that’s kind of my perspective on what this article is saying i’m curious if there’s anything else you sort of saw that that would really speak to I guess this this housing shortage.

Jimmy Atkinson: yeah I guess there’s like two lenses to look at this through one is.

there’s there’s the intractable social or policy.

issue, which is lack of affordable housing in many markets all over the country and that’s spread to regions that it wasn’t in.

As much you know just 10 years ago.

The other side is looking at through the investor lens from an investor’s point of view, you know, this creates.

A a demand that the supply can’t meet and when demand outstrips supply costs go up prices go up and from the investor’s point of view returns can go up and revenues can go up right if you’re.

An owner.

You know you’re in a pretty good position here the intractable social issue aside and the policy issue aside and how much.

Federal Government should do to address the concern put that aside just from a pure investment point of view, this is a good problem to have if you’re sitting on land, if you are an owner or a landlord in one of these buildings.

And you know to your point Scott if you’re a developer and you’re trying to come in and build housing stock in these areas, and you can get around some of the zoning issues and the nimbyism.

issues that are well positioned to be able to capitalize on that.

extra demand it’s gonna be hard to overbuild I think in a lot of these areas.

Scott Hawksworth: I think so, and I think, then the other, the other aspect that some people will cite as they talk about that affordable housing and Okay, we need to build new housing, but we need to build affordable housing and then that kind of goes back to.

Maybe some of the challenges that developers have in terms of construction costs in terms of you know, again navigating those those regulatory landscapes.

Jimmy Atkinson: yeah so it’s another regulatory stuff, by the way, if I can just.

point out, I had an example that this article gives and I was speaking with somebody who’s developing in Seattle on my podcast last month.

And it’s the same thing so many of these areas require you to build on a footprint larger than you might want to and they require you to build a certain amount of parking that your residents don’t need and that take up.

Extra real estate that’s being underutilized or poorly utilized driving up the cost, so a lot of it is.

A lot of it is regulatory at the local level that needs to be sorted out zoning issues and it’s it’s it’s a really it’s a tough problem and I don’t have.

All the solutions or the all the answers on today’s podcast but again just looking at through that investor lands there’s certainly an opportunity there, and especially if you’re an existing owner or you’re looking to invest.

In multifamily real estate or any type of residential real estate I think you’re well positioned to get a nice return.

For the you know the long run, is the demand problems, probably only going to get worse before it gets better.

Scott Hawksworth: You know I think that’s a good segue to the next article just you know if you if you look at okay well where’s the problem.

Right now, and how’s it going to get better and this from biz now us needs 4.3 million apartments over the next decade, just to tread water and that’s that’s that’s I mean that’s pretty shocking there, and this was a study.

And it includes the current shortfall of 600,000 units, and this was a new report published by the national multifamily housing Council.

And I mean, I think that says it all right there again that we just need more, and the country needs to build 260 6000 apartment units each year to meet demand.

As households form among young workers, leaving college or home immigrants come to the US and older people downsize from home ownership among other demand drivers.

And then, this this highlighted some markets, specifically and Jimmy you’ll be familiar with the first one listed is Dallas Fort worth and then you’ve got Houston New York phoenix Austin and Atlanta.

will need them most and and it’s interesting is that its population growth is driving less of this demand.

than it is simply migration and then there’s also immigration is another factor so there’s a lot of wild cards that this this article CITES, it says other wild cards include homeownership rates.

and housing affordability and interest rates and inflation all impacting how we can meet this demand, so I think that that really kind of.

I don’t know puts puts a fine point on what we’re talking about of we’ve got this shortage and we have yes there’s this interest in developing yet, but even even if we’re hitting all the targets that’s just to tread water.

Jimmy Atkinson: yeah and we’re already building, I think I read maybe it’s in one of these articles that you had me read a little while ago, I think we’re building more housing now than we have since the 1970s, so we are currently.

Building a lot of housing in this country, more so than we have in my lifetime, you know, over the last.

You know, several decades here.

I don’t know what more there is to say on this article than we are.

against what we already covered in the previous topic Scott, other than yeah there’s there’s a huge demand for housing in a lot of markets, all over this country and.

People are gonna, by the way, I do think people are going to find a place to live and that kind of speaks to what that last article said as well.

Last sorry I had to go backwards here with the last article peddled out the number that Los Angeles, has a housing shortfall of 400,000 housing units, and yet we don’t see 400,000 households worth of homeless people on the streets in Los Angeles.

right as bad as their homeless problem is in Los Angeles it’s not that bad.

it’s what it is it’s a bird.

Choosing to have multi generational households or they’re choosing to have roommates for longer delay homeownership live with their parents Whatever the case may be, so the.

The rental market isn’t or the housing market isn’t as healthy as it should be, you know um I I do think that.

The market will sort this out over time and maybe we just need to be a little bit more patient I don’t know that the Federal government’s always the answer to all the problems here, I do think it’s going to be.

A supply and demand free market issue that’s just going to get settled over the next you know, several years or decades to come, I think.

My guess is these things, probably Evan flow over the course of the long term period and currently we’re in a period where supply is is.

is greatly overwhelmed by the demand, which again i’m just looking at through the investor lens now is a good thing if you’re an investor in these in these types of properties.

Scott Hawksworth: Absolutely, and you know one thing i’d add to that, especially for the value add folks out there there’s a lot of.

Great great projects out there, you know, taking existing properties and adding value and improving them and bringing them up from maybe a class C to a class B or.

Class B to class a and so on, and this report found that the US has an aging apartment stock with 46% of all units.

built before 1980 19% were built before 1959 and 24% date from any time in the 21st century, so this also creates other opportunities as you look at.

All the properties out there that maybe you know are deteriorating a bit that they’re distressed they’re not being fully utilized whether it’s their space, whether it’s their units.

Maybe they’re just unappealing where even if someone needs a home they’re saying you know what i’d rather compete for something that’s.

compete to rent something that looks a little nicer than go with this more dilapidated building and I think that’s where again from the investor lens it’s not just ground up development that can.

Can you know, create this additional supply it’s looking at what already exists, and how can we not only utilize that better but bring it up to a standard that many people have come to expect from their apartments from their homes right.

Jimmy Atkinson: Well yeah and can I point to a Another example is adaptive reuse I was.

Speaking Chris loeffler The co founder and CEO of caliber companies, I think, a week or two ago, and he brought up the fact that.

New construction costs are rising and values may be starting to come down it’s possible getting to a point where his firm does a lot of.

ground up construction but he’s looking at possibly buying up existing assets, particularly maybe doing some purchases of some older suburban vacant or largely empty office parks right.

In these these old ugly.

Looking suburban office parks that were built in the 70s and 80s, that are underutilized these days and converting those into multifamily units we’ve got a lot of those.

All around the country you probably get in your car and if you’re in any big city or suburban area, you can probably get in your car and drive within a few minutes and find one or two of them, you know what i’m talking about and.

Scott Hawksworth: mm hmm.

Jimmy Atkinson: Why don’t why don’t we turn more of those in the multifamily that’s another option there, I think.

Scott Hawksworth: Exactly so there’s a lot of solutions out there.

So I think I think we kind of hit it, the fact is, is that the housing shortage is continuing and that creates a lot of opportunity yeah Of course some challenges but.

You know that’s where multifamily developers and investors and and folks interested in this can stand to to do well, by doing good and and helping solve this problem.

Moving on, I want to talk Jimmy about specific sector here.

In multifamily and that’s student student housing, excuse me, and this is from multifamily executive student housing sector, sets records.

Industry analysts cite strong rent growth and pre leasing rates for upcoming school year, so you know we’re closing out the summer here we’ve got a new school year coming.

Much of the pandemic is is thankfully behind us and the fact is, is that student housing there’s things are looking up when it comes to student housing and.

i’ve talked to a number of folks who said oh yeah you know student housing was really great and then.

Then we kind of had a bit of a drop off and certainly with coven a lot of you know question marks around it and.

You know, there is a there is a lot of optimism in student housing just to read this quote at the core 175 universities tracked by real page 86.2% of beds were pre least for fall.

academic year as of June, marking the highest ever reading for that month as well as higher than several recent July readings, the year over year asking ren was at 5.8% in June matching maze reading, so the kids are going back to school Jimmy.

Jimmy Atkinson: yeah they definitely I mean what a difference 24 months makes right 24 months ago I don’t think.

what was going on 24 months ago schools were shutting down.

yeah we were doing in person.

On campus classes and a lot of cases, so there was really no incentive for students to come back and physically be there, which.

Was not great, if you own student housing you saw your vacancy rates increase and your occupancy rates plummet over that period from I guess 24 to 30 months ago, roughly.

yeah it’s back, though, and not only is it back, but I think.

You know enrollments that a lot of these colleges with student housing has increased and it’s probably been just as difficult to build student housing, as it has been to.

build regular multifamily housing, so this should be no surprise it’s a great asset class to own and in certain markets, especially if you’re centered around a flagship.

Institution thinking thinking South bend indiana maybe Scott or Columbus Ohio maybe utah you know those types of areas that are anchored by flagship universities close by.

Scott Hawksworth: yeah absolutely place to live and their enrollments are.

Jimmy Atkinson: Growing and there’s there’s demand to come back to campus these days so.

Scott Hawksworth: I would say so, and you know even even, not only are looking at what’s you know what these pre leasing rates are you know you already matrix here also says, you know.

5% rent growth as of June, the highest yardy matrix researchers have seen, thus far, so not only do you have you know these units filling up and leasing up you know at rates we haven’t seen in a while and some of the highest ever you also have these rent growth.

happening, along with that and that creates a tremendous amount of opportunity for investors, you get those you’re juicing that.

That noi through that and and really that makes this a very, very attractive sector, and you know one thing i’d add in we’ll get to this in a minute here there’s economic uncertainty.

That we’ve been talking about on this show and Jimmy I know you’ve talked about it on your show you’ve got inflation you’ve got.

You know interest rate increases all these worries about a recession, well, I will tell you what did we see.

What have we seen in recessions a lot of folks go back to school or a lot of kids stay in school longer and they say Oh, the job market isn’t.

What I want to see i’m going to go back and get that Grad degree or what have you, and so, when you look at economic turmoil, a lot of folks decide to go back to school.

During that and from what i’ve seen, and so I think that that also is a bullish signal for sort of the long term, when you’re looking at student housing, even if you are saying okay we’ve got this wider economic uncertainty happening.

Jimmy Atkinson: yeah no argument there I don’t know about long term long term you never know but certainly in the short to mid term, I think.

we’re in a recession, it looks like yeah I could I could see you being spot on there Scott folks staying in school longer because the job market doesn’t look that good, I would say, higher education is probably more or less inflation resistant.

Just kind of funny because it’s very expensive but that’s just the way it is.

Scott Hawksworth: that’s just that’s just you know the that’s higher education they’ve got loans, I know there’s been talk about loan forgiveness and things like that, so I think that the incentives, of going back to school.

Will will remain in that, and if you are doing that and maybe you’re a little older.

You don’t want to necessarily live in, you know pure right on the on the university housing well that’s where a lot of these student housing options.

can be really fantastic and Jamie i’m sure you in your time in college and I know in mind, there are a lot of great great slight off campus or close to campus but non university housing options out there right.

Jimmy Atkinson: Oh yeah for sure and it’s only gotten more ridiculous in terms of how luxurious they’ve become since since i’ve been out of school at least.

Scott Hawksworth: Well, especially if you play football right.

Jimmy Atkinson: I did not but.

Scott Hawksworth: I think you were not either.

Okay, I want to move on to the next article, because I was kind of teasing you know, we have had this this runaway inflation, for months now, and unfortunately it hasn’t slowed down.

And we just last week, you know the the Fed raised rates again another 75 basis points and this article is from multi housing news, it says multifamily braces for another fed rate hike.

And this is something we’ve talked about and i’ve had a lot of guests on multifamily investor and i’ve been asking them how, how are these you know rate hikes impacting things.

Their deal flow and certainly things on the finance level, you know a lot of folks it’s it’s changing their calculations their underwriting their pro forma because you you can’t necessarily.

handle debt, the same way and and if you’ve got you know variable interest rates that’s that’s something that is a bit trickier and creates more challenges.

So this article really speaks to some of the some of the impacts of this.

So I want to read, just a few few paragraphs perhaps here so higher borrowing costs will mean that acquisitions.

New developments or capital improvements may be put on hold scaled back or cancelled entirely this is Paula monger.

A VP of the national apartment association and it’s important to keep in mind that, even if the Fed goes through, with all of the expected rate hikes in 2022 interest rates will still be historically low.

She said, and for the moment rent growth remains strong, if not at record breaking levels and we had another perspective here from kimball ratliff of the national multifamily housing Council.

VP government affairs, he took a slightly different view, investment and development may slow, along with rising interest rates, but capital will remain available.

It just might be more expensive ratliff added thinly capitalized properties or properties, with a narrow debt service coverage ratio and floating rate debt.

may be those with the most concern further borrowers who use debt fund capital in recent years, with higher leverage and lower rates will have to accommodate both adjusting which may be a challenge so.

kind of two sides of the coin, there you have.

You know reason for continued optimism and saying well the fundamentals of multifamily are still strong they’re still these rent rate growth that we’ve seen.

But then there’s the other side of yeah but if there’s a specific project a specific.

You know deal that maybe had some more creative financing and you know creative use of debts and and maybe had different leverage.

Higher leverage they may have to look at that and that may create some challenges so i’m curious if you have any thoughts on that and then what you’ve seen.

Jimmy Atkinson: Well, man you threw a lot at me Scott that’s a lot to digest.

Scott Hawksworth: But all around foul balls today it’s baseball season still i’ll.

Jimmy Atkinson: say this man those three different quotes.

A paint slightly different picture, all three of them it doesn’t seem like there’s a consensus on what’s going to happen and all of the modeling and all of the thoughts that you have on what happened in the past and what may transpire in the future.

it’s kind of a guessing game we’re in a place economically that we haven’t really seen before we’re coming out.

Of a once.

In 100 year pandemic which shocked the economy and the Labor market, unlike anything else.

In over the last hundred years.

Right, maybe, save for the world wars, I would suppose.

But call it 75 years at least.

sure we have incredibly high inflation 9.1% was the last CPI print we just had.

The fed raised in interest rates by 75 bits at each of their last two meetings, it looks like we’re headed toward or in a recession but it’s not just a recession it’s a stagflation airy.

Recession it’s very it’s a very, very bizarre economic time that we’re in right now so it’s very difficult.

To be able to say with any certainty what’s going to happen next, because we’d never been here before, and these quotes are all very different.

The first one, I don’t know that I necessarily agree with this person says that who is it that says this i’m sorry it looks like it’s.

Alexander APP fel Vice President of concord capital partners.

The most immediate effect of the rate hikes will likely be a widening of the disconnect between buyers and sellers, I agree with that buyers will expect price adjustments to offset the increased cost of capital and lower growth projections.

This is all going to cause substantial Lol in the multifamily market.

That might happen in the short term um yeah I don’t disagree with them too much, but I think eventually what we’re going to see.

Is we’re going to see the market react buyers and sellers are going to meet at some point they’re not going to have a disconnect, for you know into perpetuity at some point.

One side is going to give and, in my opinion, I think it’s going to be the sellers are going to give I think values have to start coming down CAP rates of compressed so much interest rates are going up.

and actually I think it’s the second or third quote says they’re really not that high historically speaking.

yeah we’re nowhere near like you know we’re we out, we were at like you know much higher interest rates just about.

I want to say, probably like 2000 678 that time period were much higher than were today and then going back a generation much, much higher.

In some parts of the 70s and 80s right.

Right so we’re still fairly low, although you know point and a half in fed rate increase over the last couple of months here is a bit of a shock to the system.

Scott Hawksworth: that’s significant yeah.

Jimmy Atkinson: yeah, but I think what’s going to happen is.

Maybe we’ll talk about this more in the next article so sorry if i’m jumping ahead, but the next article asked will increased borrowing costs dent sky high apartment valuations I think it kind of has to at some point.

Scott Hawksworth: yeah actually a good segue.

So yeah I mean if you have thoughts on this, this is from multifamily dive and it asks that question will increase borrowing costs dense sky high apartment valuation so yeah go ahead Jimmy.

Jimmy Atkinson: yeah well i’m actually going to refer back to that podcast interview that I did with Chris la fleur week or two ago i’m.

CEO of caliber and we were talking about this very issue, and you know one thing that he brought up was that it’s been very popular over the last few years to you know refinance your projects with a bridge loan or mezzanine debt financing.

Right after just a few years, and if your pro forma.

was expecting a two or 3% interest rate loan and now all of a sudden that’s five or 6%.

The cost of your debt has doubled that’s going to just destroy your pro forma.

Right, so what he thinks may happen is that’s going to cause a lot of people just to unload a lot of these assets.

And when people start unloading these assets, because their pro forma is no longer work and they just want to get out that’s going to cause a.

Supply gluts on the marketplace a glut of supply on the marketplace for investors to scoop up potentially what’s that going to do if there’s if there’s too many properties hitting the market all at once, over the next I don’t know call it three 612 18 months.

you’re going to see values come down they they just they have to.

Aaron Cohen says as much right here, right he’s the.

right here, oh yeah.

he’s plus values have to come down.

Scott Hawksworth: He said.

Jimmy Atkinson: They felt he’s not even addressing the issue that I just address he’s just addressing CAP rate compression.

Right and interest rates going up.

CAP rates have to decompress at some point, because we’re getting to a point where, if CAP rates don’t decompress buyers are essentially using negative they essentially have negative leverage and they’re underwater from from day one, and.

I mean there’s a whole lot to unpack there Scott, but i’ll i’ll shut up for a second see if you wanted to take this in a different direction.

Scott Hawksworth: No, I think that’s I think you, you make a great point and it goes back to what you were saying earlier, in the sense of that seller pressure.

is going to be created and i’ve had conversations with folks who are saying you know they’re they’re out in their deal flow and there’s still people saying like Well, no, I, this is the price i’m not moving i’m not moving and they’re they’re still back in 2021.

And it’s it’s well that’s not what this current current market is, and it will become more apparent.

You know the thought is that that the sellers are gonna have to move they’re either going to just completely take it off the market and say okay well we’ll try again in some years or they’re going to have to accept.

You know that that we are seeing this CAP rate expansion and that they are going to you know be selling at a lower price than maybe they would have had they sold at the top of the market.

So I think that really does speak to your point and then, if we have this sort of glut of supply coming out, especially as some of these deals their their their financing, you know whether it’s that bridge loan whatever they might be doing.

doesn’t really make sense anymore, with their pro forma due to these higher interest rates, I think you kind of have that sort of perfect.

perfect storm for prices to to lower, and you know Cohen, are here Cohen estimates that prices fell 10% below the brokers opinions of value.

Or the next six months, he expects values to drop between 20 and 30% and he says it’s just the beginning, right now, interest rates going up.

keep going up the value has to go down or else, people are telling investors to expect way lower returns and and obviously.

You know, no one wants to tell them that, and you know the another individual in this article CEO and founder of Houston based apartment owner nia capital agree, I think pricing is just going to come down on these assets, a lot, this is just the beginning.

And what’s interesting is you know another individual wait and he said I don’t think we’re there yet.

In terms of the the prices, he says what we’re keeping an eye out on is what’s to come 12 to 18 months from now, if rates rise and financing becomes more expensive, it will continue to push on value so there’s.

there’s individuals, not only saying Okay, this is the environment now they’re looking well what’s 1218 months down the road and as this pressure continues.

you’re going to see that now there’s that’s going to create a tremendous amount of opportunity for for investors and for buyers.

Looking to find those great deals find those great opportunities, and I think to Jimmy what I would say is.

This kind of environment where wherever it goes, you know no not none of us have the crystal ball we don’t know it could it could zag when we thought it would sig.

But what this does do is is make everyone be a bit more conservative in their approach you know into into their approach to.

To debt to how they are evaluating their their properties, the the cost the ltv all of that and, and this is the time where i’m seeing a lot of.

folks in operators kind of turning that dial down a little bit and really trying to.

To be a bit more conservative than maybe they were before because we don’t exactly know where this is going to go and and.

From the investor side, I think, also as you’re looking at deals if you’re seeing a deal that you know builds in oh yeah the CAP rates, going to be this.

and expect this compression to continue I would I would take a long hard look at that, because a lot of the lot of the signs are that that may not be the case, depending on the market, of course.

Jimmy Atkinson: yeah and then just kind of round out my thoughts on everything here I think if you’ve got some dry powder particularly.

I think there’s going to be kind of to your point Scott, there should be some incredible buying opportunities or investing opportunities scooping up some of these real estate assets over the next 612 18 months or so.

A debts going to become more expensive developers and asset managers investors who are looking to buy real estate assets might need to raise more equity in order to.

purchase the same building they might bring their leverage to debt to value ratio, excuse me down a little bit as debt becomes more expensive so just be on the lookout for some of those enticing deals, I would say over the next six to 1218 months or so.

I could be totally wrong about this to Scott, who the heck knows the one other thing is, I guess the good news for investors of existing properties, is that rental rates have continued to go up right.

So relax rates are more than keeping up with the level of inflation, if i’m not mistaken Scott so that’s kind of helped to offset a lot of these.

increased costs increase operational costs and increase debt servicing costs that existing owners have but still I think there’s going to be enough people who.

Are whose performers aren’t penciling out anymore, who are kind of getting themselves in some trouble with some existing assets that they’re going to unload them and.

We may see that supply glut flood the marketplace here over the next 612 18 months, as I say again, I can be totally wrong, but those are just it’s just my thoughts at this very moment in time.

Scott Hawksworth: Right well and that’s why it’s important to you know evaluate all of this on a deal by deal basis on a market by market basis.

Because there are going to be folks that say well you know i’m not.

i’m not selling at this lower value because look at my look at this rent growth and i’m going to continue to.

to collect these rents and you know what i’ll just i’ll just hang on to this and that may work for some, but then others if they have you know if they’re if they’re financing.

When a little bit sideways not in the way they wanted it to go, then you know their their their hands, going to be forced and then that can create that opportunity so.

Jimmy Atkinson: And then one more thought Scott.

yeah, if I may, and then i’ll let you close us out if we’re ready to close out I don’t know if we have do we have another one or was that the last one.

Scott Hawksworth: I think that’s, this is the last one so we’re going to close after this so.

Jimmy Atkinson: So my last.

arm my parting shot here is.

i’m a pretty boring investor I don’t go in and out of deals very frequently I like to identify an investment and then buy it and hold it for as long as I possibly can.

Scott Hawksworth: Because I like the alarm and my own read that Jimmy, so I would say that.

Jimmy Atkinson: No, no matter what is happening with the economy today or yesterday or tomorrow, no matter what’s happening in multifamily.

today or yesterday or tomorrow over the long term, over the next 1015 2050 years I think it’s going to be a great asset class to own and hold.

I don’t know about the ebbs and flows over the next couple of years, and whether or not you can time it just right, but I would say, overall, my vision is and.

This is not an investment advice, because i’m not an advisor please consult your professional but I don’t know if there’s a better asset to hold long term, other than stocks and and multifamily real estate, those are my two favorites Scott so.

Long term keep your eye on the prize way down the road, if you got a long investment horizon I think you’re in good shape.

Really, no matter when you buy, of course, you want to buy at the bottom, but easier said than done.

Scott Hawksworth: Right, and I think all of that circles back to the sort of first half of this episode, where we talked about those housing shortages, the demand the need.

For housing and and either way you cut it whatever’s happening in the economy is people need a place to live.

So I think that does does bode well for this, but you know you’ve gotta gotta be wary of.

Specific deals and and what’s happening at those moments in time and, of course, make make those prudent investments and prudent decisions.

with of course as much information as you can get Jimmy Thank you so much for joining me on the show today another round up in the bag here and.

For folks listening, if you want to find out more you want to check out some of these articles, we will have links to all of that, in our show notes on multifamily investor.

calm and Jimmy if folks want to find out a bit more about opportunities zones and some of the exciting things you’ve got going on over there, where can they do that.

Jimmy Atkinson: yeah i’m the founder of the opportunity zones database, we are at opportunity db.com you can find our podcast there you can subscribe to us on YouTube we’ve got a video podcast just like this one, that Scott has and.

yeah got a lot of opportunities, own resources at that website so have at it.

Scott Hawksworth: awesome thanks again Jimmy.

Jimmy Atkinson: awesome thanks Scott.