“Capital Insights” with Jack Kern: NMHC Apartment Strategies Conference

Palm Springs, Calif.

The just concluded Apartment Strategies Conference (ASC), which is part of the National Multihousing Council’s programming is a study in contrasts. The speakers throughout the day commented on real estate and capital market issues and while what could pass for highlights and good news were few, this meeting was a remarkable transformation over prior years and some other industry conferences. One might have had the feeling from the content in the presentations that bad news and industry stress rules the day, but in fact, I believe there was a different message.

No one who attended the ASC was surprised to hear about financing difficulties, slow dealflow and deteriorating fundamentals in lots of markets. The attendance, peppered with some affiliated companies that didn’t own units all recognized conditions are tough right now. It’s also, in a word orderly. There is no wholesale panic, no evidence of owners in distress deeply discounting assets and very few stories of broken deals so far. The impression is that more issues are probably forthcoming, but I believe most of the attendees could clearly see that we’re running on empty, not out of gas.

To give you an example, Barack Obama began his presidency with Supreme Court Chief Justice John Roberts swearing him in with the wrong language. Obama, ever worried about a supreme court challenge (everything eventually gets into the supreme court, think faulty cheese and too hot coffee) so he was sworn in a second time just to be sure. (The first swearing in made Obama the president of Ghana by accident.)

The ASC was, for many the second time, or the proverbial round 2 in the battle of apartment values and seller desires. Having heard from others in their home markets that deals could be struck if only the buyer/seller was more reasonable, we now know that the system, and lack of transparency and trust is really to blame. We need an effective and efficient capital markets structure for all of this to work. Even Fannie/Freddie are worried. For now, the capital markets system is stalled. Thankfully there is such a huge number of people and companies with an economic incentive to make it work, that 2009 should bring some positive steps.

In the coming weeks I’ll bring you forecasts and some conclusions once the NMHC meeting ends. For now, if you hear about a dark and disappointing forecast for the industry, you need only remember how the participants at the ASC opened up, shared perspectives and ideas and will be leaving here determined to solve the problems. I’ve met many of them and believe me, they’re going to make a difference.
(Jack Kern is the Managing Director of Kern Investment Research and can be reached at 301-601-1900 or JKern@KernIRC.com.)