Limited Supply a Plus for Apartment REITs

http://www.reit.com With new development in the sector on the backburner, apartment REITs are benefiting from a tight balance between supply and demand, according to David Neithercut, president and CEO of Equity Residential (NYSE: EQR).

Neithercut gave his analysis of the apartment market dynamics in an interview with REIT.com at The Real Estate Roundtable's fall meeting in Washington. Even though multifamily REITs have seen significant growth since the start of the ongoing economic downturn, Neithercut said there's "absolutely" more room for growth in the sector.

Neithercut noted that despite general economic concerns about job losses, the unemployment rate among the college-educated, his company's core tenants, currently stands at approximately 5 percent. The lack of new supply is also lessening apartment REITs' need for greater job creation, according to Neithercut.

"While jobs have been very important to the multifamily space in the past, and they continue to be very important, we've needed jobs to fill the new supply being added to the space," he said.

Additionally, Neithercut speculated that a change in the American attitude towards homeownership could provide rewards for the multifamily sector. In the past, Equity Residential's residents were striving to eventually move out and buy a single-family home. However, the woes in the housing markets have affected that goal.

"I think it will be a long time before single family homes are looked at as an investment again and not something that one consumes," he said.

Neithercut also discussed his company's decision to focus on urban markets. He said the company had decided within the last decade that its target renters would prefer living in cities, particularly in light of trends in job growth.

"We just felt that garden apartment products near the freeway interchange was not where we wanted to be," he said. "By adding assets to our portfolio that were higher-density urban assets, those would be in the markets where the jobs would be."

Neithercut indicated that the latest developments in the apartment sector have validated the move. He noted that both rents and property values have already recovered in the top-tier markets across the country, while non-core markets are still struggling to recover.

"In the gateway cities, you've seen not just return to peak rents, but higher peak rents," Neithercut said. "You've seen valuations that have certainly recovered."

By Matt Bechard

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News & Politics

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• Real Estate Roundtable
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• apartment fundamentals
• multifamily housing
• apartment rents
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