Multifamily has been a preferred investment class whether for development or acquisition for the past few years and while there is certainly cause for caution and tighter than ever underwriting, it appears to be an asset class that will weather the test of time for at least a couple more years. With a multifamily fee development project underway, the team at KimbleCo is watching the market closely.
The year of 2020 saw a robust pipeline with the pandemic resulting in the loss or pause of some of the new development projects that had not yet broken ground. Communities remain focused on the need for affordable housing and seek every opportunity to retain NOAH or Naturally Occurring Affordable Housing. Some communities are better prepared with their affordable housing toolbox than others making new development easier or more difficult as the case may be. There also remains a shortage of gap funding for affordable housing.
Last year we saw negative impacts to the urban core with residents leaving (need to use public transit, increase in crime, civil unrest), increased vacancy and resulting loss in rents in student housing, late rent payments increasing overall, and higher vacancies in luxury and class-A properties. The impacts of the increase in unemployment, work from home and supply chain issues were evident.
On a positive note, low interest rates remain, the suburbs are starting to benefit and the recovery to rent collection appears to be happening sooner than originally predicted—and there is less loss in rent levels than was anticipated. With a wait-and-see attitude impacting single family home sales, apartment owners continue to benefit from this lack of supply for the buyer market. The Twin Cities remained a favorable market for investors both local and national during 2020 and will do so this year as well.
As we look forward, we will continue to watch for trends in:
Rents and concessions
Vacancy and absorption
Construction pricing (especially impacts of lumber pricing)
Affordable and inclusionary policies in each community
Availability of incentives and resources for affordable units
Changes in lender underwriting
Trends in amenities, design accommodations and alterations to operating policies such as reduction of touchpoints, shared coworking space, work “nooks” within the unit, HVAC and air filtration, attention to package rooms and operating policies around cleaning and shared spaces
Technology that adds value that residents truly care about
Sustainability
Urban core flight to fringe urban and suburban—how long will this continue?
We find the Q4 2020 Marcus & Millichap Market Report for the Minneapolis St. Paul area helpful as it provides snapshots and positive findings for things to watch. The following is a snippet from that report.
An uptick is on the horizon. In fact, the KimbleCo team was proud to work on a beautiful new and inclusionary multifamily family fee development project that is poised to start construction this year. Good things are happening for multifamily in the Twin Cities; it is a market that is pushing boundaries, supporting projects and learning to push through the pandemic.