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January 27, 2017

The value-add strategy for multifamily assets is here to stay, but in what form remains to be seen. That was the topic of conversation during a panel centered on investment strategies for the country’s aging apartment stock at this year’s National Multifamily Housing Council Annual Meeting in San Diego.

“One thing that remains clear is that it is all about being able to tell a story about the property, and that story right now is focused on affordability and job growth,” noted Ruseel Minnick, President and Managing Director of Bridge Investment Group Partners., a managing director at a private real estate investment firm.

The job growth engine

While opinions differed on the best markets in which to invest, there was one constant: markets where there is job – and therefore population – growth are key to any value-add strategy.

The strategies aren’t one size fits all, but rather focused on key submarkets where specific companies are driving job growth. Secondary markets where large tech and education industry players are staking a claim are of particular interest for investors looking to enter the space.

“But how far can this record job growth go?” questioned Robert Hart, President and CEO of TruAmerica Multifamily. “That’s a question that will only be answered with time, and there are a multitude of factors influencing it.”

A need for affordability

“The fact is, it’s very tough to buy a single family home right now, and that is putting pressure on multifamily demand,” noted a panelist.

With all signs pointing to multifamily rent growth normalizing, especially in the luxury space, investors continue to look toward housing stock that is less costly for consumers, while simultaneously  less costly for investors.

“These Class B or B+ assets are competing with Class A overhang,” said one Minnick. “With labor and construction costs rising significantly in the recent past, the cost of replacement is being bumped up. Even if it’s minimal, like adding a backsplash and changing lighting, value-add projects excite tenants and allow you to tell a story about the property.”

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