Markerr recently attended the 2024 NMHC Research Forum in Nashville, TN. The main topics of conversation were around the economy, interest rates, operating fundamentals, asset values, and market selection. The other interesting topics that continued to come up were data and artificial intelligence (AI). NMHC has successfully stayed ahead in incorporating technological topics in the traditionally slow-evolving real estate industry. Last year, they held a panel on the evolution of data in real estate and this year, they hosted two panels on AI.
Economic Backdrop
Similar to last year, the U.S. economy is performing well. Inflation has come down from the extreme highs over the past year with the rapid rise in interest rates from the Fed. With the economy performing well above expectations, there is a lower likelihood that all three of the anticipated interest rate cuts will be realized. This can be reflected in the 10-year treasury yield jumping above 4.5%, up from sub-4% during the time of the NMHC Annual Meeting in January 2024 and a decline in overall interest sentiment.
Operating Fundamentals
Investors remain cognizant of the more challenged backdrop for real estate in the coming year and beyond. The near-term outlook for rent growth is subdued due to a surge of new supply that entering the pipeline, especially in Sunbelt markets. Concerns are rising over increasing property taxes and insurance costs in operations. However, pressure from property taxes is likely to decrease with asset values declines. Concerns about insurance costs remain high due to the increasing number of natural disasters, especially in the Florida markets.
Asset Values
Multi-family asset values have fallen ~20% since the peak in valuation, with cap rates increasing along with the 10-year treasury and high-yield bonds. Despite still high debts costs and a tougher operating backdrop, investor sentiment is beginning to turn slightly positive. This conference did land right after the ~$10 billion Blackstone acquisition of AIRC for a large premium, which puts a lot of dollars behind Jon Gray’s comments on the market bottoming. Markerr’s client base has also been targeting more acquisition volume since the beginning of 2024. While the acquisition market is thawing, the development market remains difficult. This will ultimately result in a large drop-off in supply in 2026, which should help contribute to stronger operating fundamentals in ~18 months.
Market Selection
This year saw the most focus on Rustbelt markets in my entire career, as they proved to be low-beta as expected. Tertiary (or satellite) markets also received attention due to the lower supply risk in those areas. Markerr has developed an in-house thesis using a proprietary machine learning based approach for how the next five years will look for multi-family performance.
