multifamily challenges 2024

2024 Multifamily Challenges: Changing Landscape Forces Owners & Operators to Adapt

During the 2023 Interface Multifamily Southeast Conference, held last month in Atlanta, industry leaders from Alabama, Florida, Georgia, North Carolina, South Carolina and Tennessee gathered to network and find answers to current and looming industry questions. During the session What’s Changed and What’s Not Changed in Terms of Occupancy, Rental Rates & Operations?, moderated by LeaseLock President Ed Wolff, expert panelists shed light on the biggest challenges they anticipate in the coming year.

Panelist Walt Lamperski, president of Stonemark Management, outlined five issues:

  1. Owner expectations in a softening rental environment
  2. Managing the mindset of on-site associates amid challenging leasing conditions
  3. Dealing with eviction backlogs
  4. The negative impact of general liability insurance
  5. Continued hiring and associate retention challenges

“Owners have become much more hands on, especially as it pertains to expense control,” Lamperski said. “And, we have a lot of third-party managed properties changing hands. Owner patience is running thin due to cash flow concerns brought on primarily from rising interest rates/debt and service expense.”

Current conditions have put a microscope on industry partnerships, said panelist Teresa DeVos, senior managing director and head of portfolio management at DLP Capital.

“As the owner, we have to see continued operational results that in turn help us navigate through the impact of the non-controllable items,” DeVos said. “We expect our operating partners to control what they can to the highest degree to help offset the negative impacts of the non-controllables, like insurance and interest rate increases.”

Rising interest and insurance rates are making deals difficult to pin, said panelist Sherry Freitas, executive managing director at RangeWater Real Estate. In addition, she said, increased cap rates are causing deals to be held longer, especially those from merchant builders who can’t get the returns they underwrote in today’s market.

“Variable rate mortgages are causing stress for owners, where loan payments have doubled in some cases and caused cash flow issues,” said Freitas. “Our industry got used to larger rental increases, which are not happening now and causing stress because of how they underwrote deals.”

Housing affordability has also pushed to the forefront in decision-making, DeVos said, as Americans currently face the worst affordability levels since 2006.

“Our mission is to invest in and finance quality, attainably priced housing communities for working families,” DeVos said. “We are mostly owning, developing or providing financing in secondary and tertiary markets. What we have seen is that occupancy has remained fairly stable while we continued to improve collected rent from lower levels in 2022, and release those apartments and achieve average rent growth of over 6% in 2023.”

Operators are also learning to live with a ‘new normal’ for occupancy rates.

“Across portfolios, occupancies have declined but remain strong based on historical standards,” said Karen Key, Southeast division president at Asset Living. “We are no longer seeing 98% consistently, but 94% to 95% is consistent in most markets. There are some pockets across the Southeast where occupancies are 92% to 93%, but there is no immediate indication of dropping to alarming levels.”

Freitas noted operators face changing renter and staffing dynamics, as well. Renters now communicate primarily through social media and expect near-immediate responses from on-site teams. She said communities must increasingly deploy technologies — like chatbots, smart home solutions, self-guided touring platforms, and automated and AI-powered delinquency services and renewals, as well as fraud detection software — to expedite processes for teams and empower them to meet renter demands.

“Our renters have changed. They’re sensitive to rent increases, and they’re narrowing their searches way before they ever step into our properties. Our online presence will make or break us,” Freitas said. “As a result, we’re leveraging technology and making more data driven decisions. We’re also elevating our teams and teaching them to recognize trends and execute on basics.”

Moving forward, panelists believe renting will become increasingly more economical than home ownership, keeping demand and occupancy strong. Centralization and operational consolidation efforts will continue, bolstered by technology, to drive efficiency and reduce expenses. And, at least through the first half of the year, markets will continue to soften and right-size. Multifamily operators need to be prepared, with strategic processes and solutions in place, to successfully adapt to the ever-changing landscape.

The mantra all panelists subscribed to was “Survive to 2025,” indicating the next 12-18 months will be challenging.

“It will be more important than ever for the industry to focus on the basics, drive incremental revenue and reduce expenses.” said Wolff.

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