Kiss Those Huge Returns Goodbye
Austin’s multifamily fundamentals still look great, but one thing is slipping: Experts at Bisnow’s Austin multifamily event yesterday says oversized returns are going the way of the dinosaurs.
CWS Capital Partners partner/CIO Mike Engels says rents have been increasing far faster than the rate of inflation, which has been great for values, and his company’s been benefiting from exceptional development returns. But it’s coming to an end, especially with more competition and higher costs. With higher costs, he expects the construction pipeline to taper and new challenges with getting financing. Mike’s second from the left with FourPoint Investments’ Chris Epp, HFF’s Matt Pohl and FourPoint director Kevin DuFour, our first panel's moderator.
Lynd CEO Mike Lynd Jr. (snapped with LFI’s Leslie Fossler) agrees risk-adjusted returns have been “too high.” He says people have come to expect returns in the high teens or more, which is unsustainable. Equity needs to update its expectations, which he thinks may happen next year. ARA Newmark senior managing director Matt Greer says an 8% risk adjusted return is favorable compared to other capital placement options, so the 15%-plus returns some have been enjoying are crazy and won’t continue.
About those solid fundamentals: Axiometrics VP Stephanie McCleskey says Austin multifamily is 95% occupied, which the firm considers functionally full. Demand is strong, even though we’re six years into this cycle. Austin is posting 4.4% annual rent growth, above the national average. Things are starting to decelerate from the intense growth of the last few years but are still looking great, she says. Stephanie expects a gentle run with no downturn in the next few years. Pictured: 245 attendees joined us at the JW Marriott Austin.
