Motley Fool Hidden Gems Investing - Is Multifamily Overbuilt?

Episode Date: June 8, 2024

Last year, 440,000 new apartments went on the market – a 36-year high. This year, even more new builds are coming. That’s good news for renters, but perhaps less good for developers. What about REIT investors? Matt Argersinger and Ricky Mulvey discuss the state of the multifamily market and why REITs (of any stripe!) aren’t out for the count quite yet. Host: Ricky Mulvey Guest: Matt Argersinger Producer: Mary Long Engineer: Dan Boyd Epic Bundle discount link: www.fool.com/epic Companies discussed: MAA, PLD, DLR, SPG Learn more about your ad choices. Visit megaphone.fm/adchoices

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Whatever lies ahead, don't change your morning. Let your morning change you. Discover Coffee Plus on Nespresso.com. So, there was just a lot of things that were underwritten just a couple years ago, and a lot of those developers are just getting smacked right now because, as you said, it's just they can't refinance. The rents and occupancy that they thought was going to be there, it's not there, and they're facing a liquidity crunch, like a lot of small businesses in the country.

I'm Mary Long, and that's Matt Argersinger, our go-to real estate guru at The Motley Fool. My colleague, Ricky Mulvey, caught up with Matt to check in on the state of the multifamily market. During the pandemic, flexible work sent a lot of people packing. Newly able to work anywhere, folks flocked to cities like Nashville, Austin, Denver. Builders saw those trends and began to do what builders do best. They built. Now, though, there seem to be a lot of empty new apartments in those places. In today's show, Ricky and Matt put some numbers behind those trends.

They discuss what a mismatch in supply and demand means for renters, developers, and, of course, investors. So Matt, one of the biggest real estate trends over the past few years has been the growth of the Sunbelt. Story goes like this. People want more flexibility in how they work. Remote work has allowed them that. So why not go somewhere warm to a fun city like Nashville? But now I'm starting to worry a little bit. And part of this is because I'm a mid-America apartment REIT holder that maybe the Sunbelt's overbuilt. Has multifamily become overbuilt

in these cities that had a lot of those population trends? I think it's a very fair question. And it's a question I'm probably going to say yes to. I think there has been a lot of overbuilding. And you could almost see it, Ricky. You mentioned And people wanting or having more flexibility with work and wanting to move to warmer places. Totally. I mean, we could see it in the U-Haul data, which is kind of interesting to track. You could see U-Haul data, which shows you kind of where people are picking up stuff and dropping stuff off of. And immediately, even before the pandemic, but certainly after the pandemic, saw this huge migration of people from coastal cities, northern cities, into the Sun Belt.

and for all the reasons you you've mentioned i mean it's uh better weather people had more work flexibility than ever before and by the way it's a lot cheaper that's probably the number one reason it's just a lot cheaper to live in a lot of uh southern southwestern cities than it was in coastal cities or northeastern markets and that's for a lot of reasons land is cheaper it was cheaper for a lot of uh apartments to get built and we're certainly seeing that and for a while, you saw these double-digit rent increases, which I myself am a renter, so I'm not a fan of them. Then it's starting to dip. One-bedroom rents in Nashville are down 4% from last year. Denver has also seen some rent stabilization, although there's another story here with

a ruling on building affordable units into multifamily buildings, which is for another time. But for the purpose of this discussion means that you had a lot of developers rushing to start projects before that rule came into effect. And I think the thing that I'm worried about is an investor now. So to put that hat back on is, is this a stabilization or is it the beginning of a sort of boom and bust cycle? I think it's the latter, actually. I mean, just to put some numbers around it. If you look at data from real page market analytics,