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Commercial Department: Q&A: Doug Culkin, National Apartment Assocation: January 2014

 

Q&A: Doug Culkin, National Apartment Assocation

Doug Culkin, president and CEO, National Apartment Assocation

Apartment living has become a lifestyle choice.

As many continue to demand rental units that fit their preferences, the multifamily market is likely to stay strong despite the recovery in the single-family housing market. We spoke with Doug Culkin, president and CEO of the National Apartment Association (NAA), about the future of rental housing and what risks may exist in the market.

What role does the NAA play in supporting the multifamily market?

Our mission statement at the NAA is to be America’s leading advocate for quality rental housing. As a result of that, our job is to support our members and affiliates around the country, provide them with the education and the resources they need to offer the best housing solutions possible. We feel that we are the go-to resource for apartment-management professionals.

What are the opportunities and risks in today’s rental property market?

There is a significant need for rental housing around the country. We particularly are finding this with the echo-boomers coming out of college, young professionals and young married who don’t have children, because [rental housing] gives them the flexibility to move around the country and take jobs that they might not have the ability to take if they [owned] a home. [In addition], legal immigrants coming into the country generally tend to live in apartments for 10 years or longer before they make a decision about buying a home.

One problem that our members have to be on the lookout for — and this is an ongoing problem — is to make sure that we don’t overbuild. Since the 1990s, there has been a tendency amongst our owners on the development side to build more units. The key is to make sure that the units that we are bringing on match the demand. There is always a risk of oversupply when the market is very strong.

Do you expect today’s strong rental market to be affected by the recovery in the single-family market?

There is always an ebb and flow in the housing market in the U.S. That is a challenge with multifamily. There are a couple of factors right now that probably weigh more heavily on the side of apartments. One is that [apartments] are a lifestyle choice. They provide flexibility to get and move with a lot less pain in the relocation. The second thing is that homeownership now is not perceived to be the big benefit that it once was. For many families, their home for years had been their retirement program. Now the market is such that the value of homes isn’t on this ever-continuing rise we always believed it would be.

As a result of the subprime meltdown in 2008 and the economic recession, banks are much stricter in their lending practices than they were five or six years ago. Banks have gone back to the model that kept them healthy through the years. That is, [they require] 25 percent to 30 percent down; having good credit, [and] passing all credit requirements. For the young married or young singles coming out of college — absent of parents going in and providing them the money for downpayment — it is going to take them significantly longer to reach the downpayment amount in savings. Obviously, this is a downside on the housing market. If you take all of those factors and compare them, I still think the market for rental housing is going to be very strong.

How available is credit for acquiring and developing rental-housing properties?

When the market went south, 99 percent of the losses were in the single-family home market. The losses in multifamily were about 1 percent of the entire portfolio, which is almost insignificant. Banks and other organizations that provide financing are going to look on that more favorably. Now, [if] someone is brand new going into the business and doesn’t have a track record from a financing standpoint, I’d say the criteria certainly will be tougher than an organization that has a long history. At the same time, depending on where the building is going to be and the need for housing, banks and other financial institutions certainly understand there is a demand for housing, and there is more household formations occurring.

What issues should commercial mortgage brokers keep in mind when they arrange apartment loans?

As a percentage of the money that is out there in real estate loans, multifamily is the safest. The defaults on multifamily lending is [more or less] 1 percent. It is a very stable well-performing market. A lot of the developers hold on to those properties for five to six years. Then they sell them, use their proceeds for a sale profit and invest in new properties. Based on the history of the industry — of course, all lending is based on the performance of the individual company or the individuals — this should be a great market for the next 10 to 15 years.


 

Rania Efthemes is editor in chief at Scotsman Guide Media. Reach her at (800) 297-6061 or raniae@scotsmanguide.com.

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