Fact: There are 100 million housing units in the U.S. for 260 million people.

Fact: 33 million of those units are rental.

Fact: 20 million of those rental units are apartments.

That is one huge property market for any organization to represent, but led by some of the brightest and most astute minds in the multifamily industry, the National Multi Housing Council (NMHC) has charted a clear course toward the future for the developers, owners, managers and investors in multifamily housing.

First a bit of historical perspective. After its founding in 1978 to address rent control matters, the council fell on hard economic times until it hired Jonathan Kempner as its new president in 1987. In the interim, Kempner has grown the membership from 100 to about 600, and along the way turned the financial picture around so that now the council has a $2 million surplus in its coffers. Today, the council's budget is about $3 million annually, compared to $600,000 in 1987.

"We've had steady exponential growth," says Kempner. "We now have a broader base within the industry, and the product that we are producing for people is very much welcomed in the marketplace."

Kempner cites three key services the council provides to its members -- substantive representation, distribution of information and meetings four times a year.

"Networking is the No. 1 benefit we get from the NMHC," says Richard Michaux, NMHC's chairman and chairman and CEO of Avalon Properties, an equity REIT focusing on development and acquisition in the northeast and mid-Atlantic states, based in Alexandria, Va. "In reflecting on how the NMHC can help the industry, the owners look at that asset of people and brainpower that gets together four times a year as it relates to its leadership that's not full-time."

Three years ago, the NMHC joined with the National Apartment Association (NAA) in a joint legislative program to present important industry issues to the congressional leaders. "They (NAA) give the benefit of substantial grassroots support and we have the benefit of having generally the senior executives of the largest finns," says Kempner. "It's the perfect compliment and we work very well together."

With NAA, "Our relationship will only get closer," says Kempner.

Research is top priority

The major new thrust of the organization is in the research area. Like many organizations, throughout the years the NMHC has commissioned research projects, "and these have been excellent in monitoring existing information in the marketplace," says Kempner. "But now we're going to take a much more active role. We're going to take much more initiative in that regard and help set the agenda for our industry. That will be a catalyst to our industry generally, but to the council specifically, starting to look more at a future-oriented agenda," says Kempner.

That initiative is a just-released study called The Future of the Apartment Industry, commissioned by the NMHC and NAA from the research firm Coates Jarratt Inc., a Washington, D.C.-based research organization specializing in the study of the future.

The study has identified key demographic trends, including the importance of seniors housing and the aging of the population. The NMHC recognized the trend several years ago by forming the American Seniors Housing Association (ASHA). "That is capturing the fact that Americans on average are getting older," says Kempner.

Also, the study has highlighted the growing mobility of today's apartment dweller and the need for people to be able to work from home. "That has obvious direct implications for apartments, how they are laid out, how many rooms they have, the much greater need now for the in-apartment office, the cabling that has to be done, the minimum nook where people can set up their computer. Some people are telecommuting so they will literally spend their entire work day at home," says Kempner.

Another long-term research project is the creation of a demographics data base of both apartment residents and financing sources. In this area, the NMHC is working closely with the Multi Housing Institute.

Gary Kachadurian, NMHC secretary and principal with The RREEF Funds, Chicago, supports the effort. "It (research) helps us to know what developers are thinking about building so we know what to buy. The best thing about the apartment business is you have so many opinions about what works and what doesn't. Sometimes the markets change for no good reason," says Kachadurian.

The RREEF Funds is a core advisor to corporate and private pension funds on all real estate product types, including apartments. It manages 14,000 units, and right now, about 20% of RREEF's port, folio is in apartments.

Kempner says the notion of having accurate data bases and more sophisticated information "should give us tremendous substantive ammunition for our lobbying effort. With those vehicles we'll have more meat to present."

That meat is part and parcel of marketing the NMHC's legislative agenda. "From our lobbying effort and from our industry effort, we need to have as good information as possible about our consumers, the residents that use the premises, what their desires are, and also the financing level," says Clarine Nardi Riddle, NMHC's senior vice president for government affairs and general counsel.

The council also is beefing up its staff in the research area, including the hiring of a key research person. "Now that we have a comfortable reserve, we're going to be looking at spending some of our resources and furthering basic research in the industry," says Kempner.

Looking into the crystal ball

By now, it is obvious that telecommuting and in-home business services have important implications for future multifamily construction and amenities.

"That's what's fun about it. The next 10 years in this business with the convergence of the information highway and the way people are going to be living their lives a little differently because of that. Working at home more makes it really exciting to think about changing the way this rather stodgy industry has operated over the years and start recognizing the fact that our people are going to be living their lives much differently than they have in the last 25 years," says Michaux. While many observers concede that the vast majority of the future apartment homes in America will be providing basic shelter, "For that portion at the top (the high, end market), shelter is just going to be one service apartment owners are going to be providing their residents, and it may not be the primary service," says Michaux.

Randy Hawthorne, NMHC vice chairman and senior vice president of Boston Financial, a private owner/management firm with more than 61,000 units, agrees with that premise. "If I was going to build an upscale product that was going to try to set new market rents, I would incorporate as much of that technology as possible and certainly I'd wire behind the walls for it. That's a tenancy that can appreciate it and can afford to use it. "While a lot of the high-technology features are desirable, they come with a cost," says Hawthorne. "Everybody would like to have a security system hard, wired into their apartment, but the next step is that the tenant has to reach into their pocket every month and make a payment for that service, whether it's bundled in the rent or whether it's separate."

Taking it to the Hill

One of NMHC's major tasks is serving as the multifamily industry's voice before elected officials in the U.S. Congress. Together with the NAA, they have produced the 1995 Legislative & Regulatory Priorities joint legislative program. Change is the order of the new day.

"Our representation on legislative is, sues has been made even keener and more important because there's so much change swirling about we need to ensure that our interests are taken care of," says Kempner. "We have to be ever vigilant because the importance is in the details, the nuances. For example, capital gains taxes is being debated, and capital gains is something we very much support, but it can take many different colorings when it is enacted, and there are some nuances that could be detrimental to our industry. Now more than ever there is just so much going on."

"If they (Congressional leaders) don't hear from the industry in some sort of organized manner they are going to take the best information they have, which may or may not be accurate, and make a decision," says Michaux.

So how have the Republicans changed the mindset on the Hill? "Clearly this Congress is more receptive to the concerns of the industry to provide viable opportunities for businesses to survive," says Riddle. "They're very concerned about the business climate. What we're finding on the Hill is that issues that had not been talked about in the past are now able to be aired. There's a lot more free discussion."

Overall, Congress appears to be focusing on efficiency, streamlining regulation and looking at its impact on entire industries. "There's a lot more sensitivity to that. Yet at the same time, I don't believe that the citizenry has said that we don't want clean water or clean air. They're still concerned about their environment, but there's a recognition that there's only infinite number of resources, both natural and financial," says Riddle.

Burdensome regulations are an important NMHC target. "The affordability factor of multifamily rentals is important," says Hawthorne. "We as an industry group have to keep that in people's minds. You've got to make it affordable. Simply by well-meaning regulation adding $2,000 or $5,000 per apartment unit, that's another $15 here or $25 a month there. That's where you have to balance what is prudent to provide good, decent, safe housing and keep it affordable."

NMHC has identified four key areas of legislative priority for the industry -- tax policy, the proposed Department of Housing and Urban Development (HUD) reinvention, seniors housing and environmental issues.

* Tax policy

"Clearly how tax policy evolves has an effect on investment in multifamily," says Riddle. Specific issues now on the table include capital gains (NMHC favors reducing the capital gains tax), like-kind exchanges (NMHC is against alterations), passive loss regulations (NMHC favors a broad interpretation of `material participation') and environmental cleanup (NMHC favors the expensing of environmental cleanup costs).

* HUD's reinvention

"Whether it will be done by the Republican Congress or by the Clinton administration, there are massive changes coming (at HUD) that have a direct impact on how we house people in the United States," says Kempner.

That's because HUD's "Reinvention Blueprint" announced last December proposed sweeping changes and reductions in most of its programs involving privately owned housing including project-based Section 8, the Preservation Program and FHA mortgage insurance.

"This is the first time Congress has taken a fresh look at our national housing policy since the 1930s and 1950s," says Riddle. "Cisneros had to come back with a radical new look at how the delivery of housing should be configured. Over the next three to five years we are going to be on a path of looking at the delivery of housing, and it's clearly going to be different from the way it has been in the past."

"If the administration's proposal is adopted and successfully executed, the resulting government corporation, the Federal Housing Corporation, would have tremendous value added for the multifamily industry," says C. Austin Fitts, NMHC treasurer and a principal in Washington, D.C.-based Hamilton Securities Group. She is also a former assistant secretary and federal housing commissioner of HUD during the Bush administration.

* Seniors housing

"If I were crystal-balling over the next three to five years, seniors housing is clearly a very high priority," says Riddle. The median age in 1990 was 33.8. In 2005 it will be 38.l. And by 2010,40 million Americans will be age 65 and over, and 19 million will be 75 and over. Developers, owners and managers of seniors housing have seen the numbers, and have begun to recognize the wide variety of housing options, services and amenities that are necessary for this group. "It's a very exciting time because as the population ages the recognition is that senior housing is going to be a larger share of the market and there is going to be more demand for a variety of different settings and services," says Riddle.

* Environmental issues

The industry recognizes it has to be on top of the various environmental issues that face the provision of housing. Lead paint is the biggest issue facing Congress in this regard. Nine federal regulations wete mandated by the lead-based paint requirements in Title X of the 1992 Housing and Community Development Act, and these will continue to be topics of concern for the multifamily industry.

Financing to the fore

With these many challenges to the industry in mind, the long, term viability of multifamily housing centers on some critical financing issues, including its sources and availability.

"Real estate and real estate-related organizations will continue to access the capital markets in greater amounts -- the asset-backed securities markets as well as the fixed income and stock markets," says Fitts. "Capital markets access will strengthen the availability of whole loan and first mortgage capital, not replace it. This will lead to a continued narrowing of spreads between the mortgage and fixed-income markets."

Wall Street certainly has placed high expectations on public companies in the REIT arena after the IPO market rapidly cooled down. "The Street and other investors are looking for stable growth," says Michaux. "In the end the companies that win are going to be those with the lowest cost of capital because they are going to be able to raise capital when others aren't. It all comes down to management in the end."

The growth of pension fund investing has been trumpeted for some time now, and optimistic signs abound. "We think that (pension funding) could be the major part of our business in the next five years," says Hawthorne. "Clearly the pension market continues to be the largest capital source for long-term investment in the country."

Kachadurian agrees that pension funds are now a major market player. "They are very interested in the preservation of their capital," says Kachadurian. "They are not in the business to take risks. The best news is that apartments are now very widely accepted as a part of the core investment strategy for a pension fund. I would not have said that in 1987."

New starts hit higgin gear

Now that funding is loosening up, new construction can't be far behind. A recent report from Balcor predicts that new apartment starts nationally will be 50% higher in 1995 than last year.

Are any alarm bells going off? "I'm not overly concerned about it, because I think there is still some market discipline," says Hawthorne. "I'm cautiously optimistic there will be a fairly strong number of starts in the next couple of years. Permanent debt rates are still pretty attractive on a historical perspective."

"There has been strong growth in the number of starts, but I do think it will not get to the same level of excess that it was just before the tax changes of '86. There are a lot of sources, but there is a little more market discipline. Developers can still get two or three good quality proposals on the right deal. What we can hope is that there won't be any rogue players out in the marketplace bidding up deals beyond their market feasibility," says Hawthorne.