Buy, Sell, Hold: Multifamily Investments in an Unpredictable Market

Deciding whether to buy, sell, or hold multifamily investments can be especially vexing during an economic downturn. But managers and investors who dive deeply into currently available high-quality multifamily market data can effectively navigate tricky markets such as the current one and make sound decisions about asset disposition.

Naturally, acquiring distressed properties may make good sense when the economy tumbles. But knowing which markets offer the most promise in recovery isn’t always obvious because not every market or submarket is the same.

Downtown high-rises in Dallas and Houston may have similar profiles, but surrounding environments and performance factors ultimately determine their abilities to excel. Even markets in the same area of a state can be driven by very different metrics. What appears to be a good multifamily investment or divestment based on peripheral market data may reveal a different story in light of deeper local data.

Real-time multifamily market lease transaction data enables multifamily investors to make decisions based on facts, no matter how counter-intuitive. Records of actual lease transactions offer valuable insight into how a market is currently performing and where it is headed. Investors can leverage the information when buying, selling, renovating, or building from the ground up.

Market analytics tools help enhance operational sustainability

The obvious benefit to hyper-local multifamily housing data is that it gives the real-time pulse of a market or submarket. Properties that effectively navigate the ebbs and flows of business by leveraging this data are naturally more attractive to investors. Their numbers speak for themselves.

Property management companies have begun relying on real-time, meticulously scrubbed data based on daily lease transactions. This data intelligence enables them to make educated investment, divestment, and rehab decisions about pricing, budgeting, and forecasting, in addition to investment-related decisions. And of course, property performance and asset value are two sides of the same coin.

Analysts and revenue managers at BH Management, White Oak Partners, and Simpson Housing tout the value of market analytics tools in navigating a down economy. Bryan Hilton of Simpson Housing, Sierra Garza with BH Management, and Steve Pribonic of White Oak Partners each noted the key metrics that they began observing when COVID-19 sent the U.S. economy reeling in a recent webcast (see “Play Ahead with Next-Gen Market Research”).

Remolding strategies for multifamily investments

Market Analytics is helping these property management companies perform through tough times by maintaining occupancy and managing rents and renewals, they said. They are also reaffirming the road ahead for investment purposes.

BH Management is a value-add company that is now the ninth largest property management firm in the country. The company oversees a broad range of properties, including Class A, B, and C assets.

Sierra Zielke Garza, who serves as a senior revenue manager, says BH Management has been watching lease trade-out, new development pipelines, and effective rate change as the pandemic has unfolded. The coronavirus has halted many value-add projects, Garza said, having stymied the favorable rent change that has been the recent norm.

The wealth of information available through data generated within Market Analytics and commentary provided by RealPage economists and analysts, including multifamily forecasting, have given BH Management a greater perspective on the market.

“That's led us to really look at property trends, market trends, and even publications within Market Analytics,” Garza said in the webcast. “Especially with the new forecast information, just due to the impacts of COVID, we've been able to monitor those expected trends even closer now than ever just to help stay ahead of the curve.”

While BH Management doesn’t always monitor concessions, the company is paying closer attention to properties within markets that are offering incentives to boost occupancy.

“Property trends and market trends have been that key data source to help us really bend and remold our strategy and come to the table with conversations with our partners and our clients and operators,” Garza said.

Transactional data offers a more comprehensive view

The transaction data behind Market Analytics offers a truer barometer of market performance than rent comp data. Market Analytics adds a perspective that hasn’t been available before, unlike with survey data that doesn’t tell the full story, says RealPage Chief Economist Greg Willett.

“We certainly see this right now in the marketplace, when the survey data says that rents are coming down a little bit and the transactional data says the rents are coming down a lot,” he said.

RealPage Deputy Economist Jay Parsons likens rent comp data to marketing data, which is not a reliable basis for multifamily investment decision making.

Rent comp data is a lagging indicator and not investment data, he says. Effective property management analysis presents lease trade-out, rent roll movement, revenue movement, retention rates, and other metrics that allow a more comprehensive view of what’s actually happening in the market, Parsons says.

What really matters for apartment investors and operators is the rent roll because it dictates value and cash flow.

“And at the end of the day, that's what it's all about,” he says. “You've got to have actual transactional information. That's how you know what's really going on.”

Click the link to learn more about how Market Analytics drives asset performance and informs smarter multifamily investments.