I attended the Multi-Family Executive (MFE) Conference held at the Sands Expo in Las Vegas October 3-4, 2007. I went with an open mind as it was my first time attending. I enjoy being around and learning from people who are long time professionals in this industry.
Linwood C. Thompson, Managing Director National Multi-Housing Group and Hessam Nadji, Managing Director Research Services for Marcus & Millichap (M&M) were two of the main presenters. Marcus & Millichap is one of, if not the, largest commercial brokerage in the United States. Combined, Thompson & Nadji have at least 30 years of experience in the real estate industry.
Overall, M&M was very bullish on the U.S. Apartment Market for at least the coming 10 years. Granted, they work for a brokerage company, who naturally has an incentive to generate more buy/sale transactions, but to their credit they did back up their position with a number of facts.
- The sub-prime issue is over-blown by the media. Less than 3% of the total loan value is at risk, which can be absorbed by the large financial institutions. Here’s the break down: total sub-prime market is $1.5 trillion. A third of this is expected to default, which is $500 billion. Of this amount, these sub-prime loans will probably need to be sold at discounts of 30%. Let’s assume a more conservative 50% discount which is $250 billion. Of the $11 trillion mortgage market, a $250 billion write-off represents a 2.27% exposure. The bigger question mark they pointed out is the psychological impact it may have on the market. How will the media portray the issues? How will the public perceive and then react? Let’s see how this plays out.
- Inflation and the 10-Year Treasury are at historical lows. See slide 29.
- Commercial delinquency rates are at historical lows. See slide 27.
- The “echo-boomer” population is getting older and beginning to reach the prime rental age range (25-35). See slide 46. The echo-boomer population (approx. 72 million) is the children of the baby-boomer population (approx. 80 million).
The full powerpoint presentation is posted below. Be sure to see the recap / summary on slide 52.
Perhaps most interestingly, Thompson said, for the first time in 7 years, he’s predicting the possibility that cap rates may actually go up about 25 basis points (he said he’d be surprised if they went up as much as 50 basis points). As a quick refresher, 25 basis points is the same as 0.25%; every 100 basis points is 1.0%. To the relief of buyers out there, cap rates seemed to have finally reached a floor… see slides 34-35. Click here for What is a Cap Rate?
It’s an exciting time to be in real estate. But then again, isn’t that always the case?