NAPLES, Fla. — Every January, about 1,000 apartment executives gather at some sunny, ritzy locale for the annual meeting of the National Multi Housing Council (NMHC). In many ways, this year’s convention is identical to those in years past: The cocktail parties are still havens of intense networking and hotel courtyards are still full of executives with their ears pressed firmly into cell phones.
Yet, this year’s convention, held here at The Ritz-Carlton, feels unmistakably different from those of the recent past. Gone are the cheery, often unrelentingly optimistic opinions of the nation’s apartment market. In their place are more sober projections about where the multifamily sector is headed in the immediate future. The ongoing recession and the aftermath of Sept. 11 are topics one encounters at seemingly every turn.
Speaking in a Thursday morning panel discussion, Ken Rosen, president of Berkeley, Calif.-based Rosen Consulting Group, said it’s likely that the United States will experience five more months of recession, followed by a slow recovery. "The year 2002 will not feel like a recovery year," he said. Sam Zell, chairman of Chicago-based Equity Group Investments LLC, said that the nation may not experience a recovery until the latter part of 2002, and noted that it typically takes the apartment sector five to six months to feel the effects of a recovery. Zell’s comments came during a Thursday morning interview conducted by Preston Butcher, chairman and CEO of Foster City, Calif.-based Legacy Partners.
Those less-than-rosy outlooks were echoed in an afternoon session entitled, "National and Local Apartment Market Conditions." "It’s a different time for real estate in general and apartments in particular," said Hessam Nadji, managing director of market research for Encino, Calif.-based Marcus & Millichap. "Vacancies are up, and rents have softened extensively. 2002 is going to be a difficult time." He added that the current apartment market is different from the one of the early 1990s recession in that it is more localized, noting that markets such as the San Francisco Bay area, Atlanta and Charlotte, N.C., have been particularly hard hit by increasing vacancy rates and are somewhat skewing national statistics. However, Nadji quickly noted that most apartment markets have experienced increased vacancies to some extent.
During fourth-quarter 2001, apartment vacancy rates increased in 45 of the nation’s top 50 metropolitan areas, and 36 of the top 50 metropolitan areas experienced negative absorption of apartment units during the same time, according to Lloyd Lynford, president of Reis Inc., speaking at the same session as Nadji.
There are several reasons why apartment demand has fallen, some linked to the rise in unemployment, Rosen said. First, household growth has slowed, and many people who lost their jobs recently are moving in with their parents or a roommate. Also, the divorce rate has decreased in recent years, claimed Rosen. When a couple gets divorced, one of them usually moves into an apartment, he said. "So, encourage your friends to get divorced," he joked, as the room filled with laughter. The country also is experiencing record levels of homeownership, he said.
Despite the rough times, several of the speakers emphasized that the multifamily industry’s fundamentals remain solid. "The basic underlying equilibrium of supply and demand is in reasonable condition," Zell said.
On Friday, the events of Sept. 11 and international terrorism promise to be very prominent topics at the conference. The convention’s final day begins with a session entitled "Anti-Terrorism and the Current State of International Affairs," and concludes with an appearance by former President George H.W. Bush, who will be interviewed by Marlin Fitzwater, his former press secretary.