We sit at the controls of an industry that fuels our economy, even as other sectors waiver. Fuel prices, defunct mortgages, the economy, sure, they get the headlines. But multifamily is a steam-liner, forging ahead with strength and grit, causing some to finally relent with a sigh, “Well, people will always need a place to live,” as if apartments run themselves by sheer supply and demand, and a little dash of demographic default. Don’t think so.
In Q1 of this year, much of the talk circled around a U.S. recession.
As word would have it, we were either close to one, heading into one or, simply, in one. From Warren Buffet to our British friends at The Economist, it seemed most were in agreement. Then, there was that one guy, the Grave Dancer, himself.
In February, Sam Zell, a quirky, multifamily rock star of sorts, who made his billions from the fields of commercial real estate and began what has become the nation’s second largest apartment REIT, Equity Residential, bucked the tide saying that he didn’t think the economy was in a recession–nor would it go into a recession. (See September/October 2007 cover story).
Only months later he’s been mostly vindicated–recession worries are now passe. Talking heads have moved on to the next big fear: inflation.
“I believe the overall market has already started to ease,” Zell said. “Is it in large volumes? No. Is it the first natural step in the evolution? Yes.” Zell attributed much of the current economic troubles to fear-mongering and politicking by presidential contenders.
“The reality is that if you live on Wall Street and you’re in the credit markets, the world couldn’t be worse. If you’re a farmer and you’re getting $25 for your wheat, you’re having a great time. If you’re a CEO and you’ve got a balance sheet that’s bullet-proof, you’re in a great position. This whole thing is way out of control, way out of hand,” says Zell.
One measure of the cost of commercial real estate borrowing, 10-year fixed conduit spreads, dropped 28 percent in the last month, according to Morgan Stanley.
It may be that commercial real estate is an industry that looks for the good news, and treads water on the rest. Nevertheless, times are good in multifamily, and owners and operators should be proud of their portfolio building and operational integrity. The high tide is not merely the remnant of stalled home loans, but an outcome of solid investments, improving operational integrity and good old-fashioned ingenuity on the part of multifamily owners and operators. Good job, folks.
So let’s meet in Orlando at the National Apartment Association conference in June and have a great time. We always do. And there is much to celebrate.