This year we witnessed an improving apartment market even with the single family and mortgage markets continuing to see issues. Apartment rents are on the increase, and in some markets rising in double digits. Single family home values have been hurt after the bubble burst some time around 2006 as experts tell us, and while there was money available by lenders qualification standards and skepticism with all the record foreclosures have lenders a little lets say "cautious."
Development of new sites has again started back up, with permits for new sites on the increase in many areas of the country. Cap rates have not changed significantly over the past year, and there are still bargains out there for investors just as with the single family and condo markets. There have been an increase in affordable communities permitted according to the federal government, and as you would assume some areas of the country are seeing growth were others are not. Reports show that approximately 90% of the loans by Fannie and Freddie in 2011 were affordable communities. Most of the new construction is not with REIT's or real estate development corporations but with individuals. According to the National Apartment Association and National Multi Housing Council the 2011 statistics show almost 50% of all new communities were built by individuals and not corporations and investment trusts we witnessed as significant contributors to the inventory back in the late 90's and early 2000.
Legislative issues in multifamily in the coming year will no doubt have a huge impact on the future development, as well as how investors will look at apartments as an investment opportunity. Tax laws including Dodd-Frank and its 200 regulations as well as what happens regarding Capital Gain Tax laws may play a bigger part than first thought. Even though apartment foreclosures do not represent a large percentage of defaults, changes in the laws and how they are in-acted will play a significant part to determine if investors will continue to put their assets in multifamily.
While tax issues will be at the forefront in the coming year other issues include energy efficiency requirements, communications, environmental issues, immigration, insurance, sub-metering, privacy, EPA standards, and a host of other priorities will be at the forefront. This is not including state and local issues we continue to battle such as rental licensing, life safety, impact fees, special assessments, taxes, and maintenance licensing.
So what does the crystal ball tell us? The overall market is looking up, but of course could change if our federal government doesn't get its act together regarding taxes. Changes in employment nationally impact employment in sub-markets, which can change rapidly if things go downhill. The investment market will be up and it will be down. Basically, the more things change the more they stay the same in our business. I was on a panel discussion for a local apartment association in 2008 with developers and experts in our field. All but myself said the market would improve in the next 12 to 18 months. I predicted it would be 24 - 26 months before we saw real improvement, and not to be bragging but I was right. I also stated that tax changes from the federal government would have a more significant impact on future investments especially if capital gains and investments were changed. Looking at the new today as we near the so called "fiscal cliff" I can say I appear to be on the money again. We'll see over the next few days and weeks, and I do have concerns for investors in the coming year. Let's hope I'm wrong about my next prediction or we're in for some rocky times ahead.
