Executive Insights: Bryan Keller, RubinBrown

Bryan Keller, partner in charge of RubinBrown’s Real Estate Services Group, offers insight from the consulting firm's recently released multi-family report.
Bryan Keller

RubinBrown, one of the  largest accounting and business consulting firms in the United States, with more than 450 team members working in Denver, Kansas City and St. Louis, recently released a new report on the nation’s multi-family housing industry. The 2014 Apartment Statistical Data is an annual survey compiled by RubinBrown’s Real Estate Services Group. It includes operational data for 2013 and represents approximately 420 apartment projects in roughly 30 states.

According to the report, the apartment sector posted a strong economic position in 2013, thanks to strong demand, which continued to outpace supply. This positive trend continued into 2014, with rental growth and occupancy levels remaining consistent. Not only did they lead to a stronger financial position for the industry but they also helped spur property value appreciation to pre-recession levels and brought multi-family investors back into the market.

RubinBrown expects the U.S. multi-family housing market to perform strongly in the coming years. The report said that economic and demographic indicators point toward a solid, healthy market. However, it also warned that it is important not to lose sight of looming threats, such as immigration reform and tax reform. You can read the entire report on RubinBrown’s website, www.rubinbrown.com.

Bryan Keller, CPA, partner in charge of RubinBrown’s Real Estate Services Group and author for a number of trade publications, has agreed to tell us more about the nation’s apartment market.

Q: How did the U.S. apartment market perform in 2014?

A: The apartment market is certainly on fire as we near the close of 2014. Sales volume is hitting record highs across the country, especially for apartment projects with 100 or more units. It is a seller’s market.

Q: Which states or areas performed best, and which worst?

A: The highest prices are obviously located in the largest metropolitan markets: the West and East coasts, for example. But areas such as Denver, Nashville, Seattle and other dynamic markets are thriving. Developers have not built enough units in these markets to keep up with natural population growth as well as anticipated growth of transplants.

Q: What were the most important drivers?

A: To name a few: Rents have remained strong, vacancies low and investor demand strong, with access to low-interest mortgage rates. Developers have not built enough new properties to absorb the demand for multi-family rentals. Several factors are influencing these trends: shifting demographics, with Millennials who prefer to rent instead of buy and expect a full array of amenities, which developers are providing in new product; record-high student debt loads; tougher first-time underwriting requirements; the for-sale condo market has not recovered since the financial downturn. There is a significant amount of equity looking to invest in multi-family real estate­ – much more than there was five years ago.

Q: What are the top three most expensive and the top three most affordable markets in the nation?

A: Northern and Southern California, New York City, Washington state and Washington, D.C., come top of mind as most expensive. Most affordable markets are secondary or flyover states: Missouri, Kansas, Indiana, Kentucky and smaller markets. That said, active buyers, developers and investors are looking for deals in the secondary states due to being priced out of bigger markets.

Q: What can we expect in the future?

A: We expect 2015 to remain very strong for both conventional and affordable apartment communities. We have not seen an overbuild situation and wouldn’t expect that for next year. New product has not fully absorbed demand across all segments – affordable, entry, mid and upper end.  There remains demand across all these in both new construction and acquisition/rehabilitation apartments.