'We've Got To Figure Out How To Turn That Around': Multifamily CEOs On The Industry's Image Problem

Multifamily landlords are feeling the burn of unfavorable perceptions of their industry. 

Affordable and market-rate apartment CEOs speaking at the Bisnow Multifamily Annual Conference this week in Los Angeles agreed that their industry had an image problem. 

"We have to change the perceptions of the industry," Avanath Capital CEO Daryl Carter said. Avanath owns and operates about 16,000 apartments across 14 states. More than 80% of their units are affordable in the traditional sense, including tax-credit or Section 8 properties.

Carter said the AMI in the markets where his company is increased by around 12%, but he didn't think that he would be increasing rents that much, even though that measure dictates how much rents at his largely subsidized affordable apartments can go up. 

"We have to think about the fact that we could do a 15 or 20% increase doesn't mean that it's responsible to do that," Carter said. 

The pandemic brought a roughly two-year streak of runaway rent growth that now seems to be coming to a definitive halt. Stories of how well large multifamily owners did financially during the pandemic were a stark contrast to the tales of families with mounting rent debt. 

"I think landlords, unfortunately, have become pariahs," TruAmerica Multifamily CEO Bob Hart said. "And now, we've got to figure out how to turn that around."

Langdon Park Capital CEO Malcolm Johnson, however, had a different perspective, saying that, over the last two years, "I've been met with more optimism and interest from great talent in joining a company like ours." 

Langdon Park Capital's focus is on naturally occurring affordable housing in higher-cost areas like Los Angeles and Washington D.C., attempting to fill in the so-called missing middle housing for those who make too much to qualify for low-income housing but who are still renters by necessity because of the high cost of housing. 

"I think today's worker wants to have some sort of passion about what it is they do and what it is we do presents that opportunity," Johnson said.

The public's negative views on apartment landlords are more than just words. Carter noted that these negative sentiments have undoubtedly fueled legislation in the Los Angeles area, like Measure ULA, and nationally, as rent cap laws have made a strong showing in markets where they were on the ballot, NBC News reported.

Some panelists acknowledged local legislation was a direct response to that anti-landlord sentiment, one that could have an impact on a big part of their business. 

"It's going to affect buying and selling patterns in Los Angeles," Hart said of Measure ULA. It would likely, in the near term, be good for brokers, as some sellers push up their timelines to sell buildings before the tax goes into effect, said Hart, whose firm has over $10B in assets under management. 

Panelists also discussed changes to the market that have come from rising interest rates, namely the return of negative leverage, or the phenomenon of interest rates on a property's mortgage being higher than the property's return rates. 

"The reality is, we've had a universe where we've done lots of business at higher interest rates and at negative leverage," Carter said. "I think, to me, what stands out in the housing business is that we have an undersupply of housing that is chronic, and the fundamental demand drivers are very, very strong." 

Hart said that prior to the Great Recession in 2008, doing deals with negative leverage was not uncommon. Hart said it remained to be seen whether that will once again become normalized and people will find a way to do deals again in similar circumstances.

"We're going to be banking on growth," Hart said. "That's what's driving the durability of this business, and you're going to suffer in the short term from less cash flow. Whether the investor wants to take that ride, time will tell."

BRIDGE Housing CEO Ken Lombard said that he fully expects people with well-capitalized projects to continue to wait for conditions to improve, knowing that the cyclical nature of the business means that conditions will, eventually, improve. 

"If you've been around the block, you've seen numerous cycles similar to the one we're in now," Lombard said. Lombard is at the helm of one of California's largest affordable housing developers with a $3B portfolio and 14,000 units under management.