The 2023 State of Multifamily Operating Performance Chartbook, released by Thirty Capital Performance Group, offers valuable insights into the performance of the U.S. multifamily market over the past five years. In a recent interview with Rob Finlay, CEO and founder of Thirty Capital, and Webster Hughes, Ph.D., managing director of analytics and economics for Thirty Capital Performance Group, key findings from the report were discussed to provide owners, operators and investors with a better understanding of current trends in multifamily operating.
Q: What factors contributed to historically high growth in multifamily revenue,
expenses,and net operating income (NOI) in 2022?
A: The significant growth seen in multifamily revenue,
expenses,and NOI can be attributed to various factors including inflationary pressures on costs related to operations such as labor expenses and energy costs. These macroeconomic measures have not been seen at this level since the early 1980s.
In comparison to a five-year average growth rate for revenue (4.38%), expenses (5.09%),and NOI(3.82%),the rates for 2022 stood at an impressive9 .26%,9 .20%,and9 .30% respectively.These trends varied across subtypes
and geographic regions,making it crucial for investors
to closely analyze expense contributions as well as regional disparities.
Q: Can you discuss differences among various typesofmultifamilysubtypes,suchasgarden,midrise,andhigh-rise apartments,in terms o fperformance?
A: Garden properties make up approximately80 %of themultifamiliy inventorywith institutional-sized garden properties outperforming national averagesin terms o frevenue ,expenses ,andNOIin2022.Conversely,the small-balance properties lagged behind national averagesin all three categories.
High-rise apartments saw significant NOIgrowthat13 .51%comparedto senior housing which only experienceda mere0 .18%growth,despite healthy revenue and expense growth.This data highlights the impact of shifting trends and external factors on multifamily subtype performance.
Q: How did revenue and expense growth differ across regions?
A: In 2022, there were notable variations in revenue
and expense growth across different regions. Phoenix,Tampa,Dallas,and Miami all saw substantial double-digit growth in both categories with Phoenix and Tampa leading the pack at 15.82%and15 .67 % NOIgrowth,respectively.These numbers surpassed the average NOIgrowth forthe entire U.S.multifamily market (9.30%).Onthe other hand,the Minneapolis region experienced a -5.29%NOI decline primarily due to its high expenses(12 .20%)comparedto lower revenues(2 .86%).
One significant contributor to elevated expenses was a24 .42 % spikein utility costs.This regional divergence emphasizes the importance of analyzingexpense contributions as well as regional disparities when making multifamily investments,in lightof recent inflationary pressures.
Q: Why is it increasingly crucial for multifamily owners,
operators ,and investors to take a data-driven approach?
A:A thorough understanding of historical data allows owners, operators,and investors tobenchmark their portfolio assets’ performance.It provides critical insights that help set budgets
and inform buy-sell decisions.For instance,a consistent trend showing revenues between3.5%-4.
5%,allows an investor tousea benchmarking assumptionof4%.Examining year-to-year,variations among subtypes,and differences among CMSAs can provide contextforinvestorswhen considering potential future pressures or upsides especially during times like these with high inflation rates anda Federal Reserve attemptingto slow down theeconomy through higher interest rates.
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