STRONG FUNDAMENTALS
The multifamily market remained healthy relative to other CRE sectors . With the U . S . economy poised to rebound from the pandemic through 2021 , it could attract plenty of attention from investors .
No two crises are alike — and that ’ s a good thing for the U . S . housing sector in the wake of COVID-19 . Compared to the Great Recession of 2008 , which saw the housing bubble burst , the pandemic led to strong federal initiatives to keep people in their homes amid significant economic disruption .
Considering the relatively strong position of the multifamily sector , we spoke to Pat Jackson , founder and CEO of Sabal Capital Partners , a financial services firm focused on investing and lending in workforce housing . He details the challenges in workforce housing , including tight margins , changing demographics , and aging properties , while highlighting some opportunities for CRE professionals in a post-COVID-19 world .
CIRE : THE SHORTAGE IN WORKFORCE AND AFFORDABLE HOUSING ACROSS THE U . S . IS A PROBLEM WITH MORE THAN A SINGLE CAUSE . CAN YOU BRIEFLY SUMMARIZE WHAT LED US TO OUR CURRENT SITUATION ?
PAT JACKSON : There are two basic aspects behind this historic shortage . One has been the supply over the last decade , having to do with the availability of places where people could rent , and the second , of course , is the demand , which has been increasing as well .
There are a lot of factors involved , but let ’ s look at demand . One big shift is that people are staying in rental properties longer than they have historically . The American Dream was always that I ’ m going to rent until I can buy — and then I have a home . But that ’ s not the driving motivation for a lot of people like it was in prior generations . In part , this is because there ’ s a lot of flexibility in renting — when a lease ends , you can move .
I think a lot of younger people saw parents lose equity in the global financial crisis , when people were underwater in homes they thought were their nest eggs . There ’ s fear about that . Renting also provides a convenience factor . You don ’ t have to worry about property taxes or maintenance issues . You can call the super to come fix it for you , so there are a lot of things driving demand .
Let ’ s also not ignore the fact that credit standards are much tougher . Since the global financial crisis , down payments are typically a lot higher , credit scores are more rigid , and the ability to prove you ’ re able to pay a certain amount is tougher . The reality is that it ’ s become more difficult to save enough for a down payment on a house when people have depleted savings .
On the supply side , when you look at the rent you can get for affordable or workforce housing , you will only be able to build a certain cost per unit to be able to get a return . As building costs have steadily increased , the emphasis on apartment buildings has been more focused on class A and luxury , where they can get a higher rent profile to be able to make it pencil . Therefore , we haven ’ t seen a ton of new supply coming into this space compared to higher amenity properties .
There ’ s a natural governor in workforce housing — the ability for someone to pay a certain percentage of their overall income . There is a point where you just don ’ t have any more money . The tension between supply and demand has kept the ability to price to market in this space under wraps somewhat .
CIRE : WHAT ARE THE PRIMARY FACTORS THAT DETERMINE A HIGH-QUALITY INVESTMENT ?
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SUMMER 2021