The current distressed economic environment in the US is characterized by individuals struggling in the midst of approximately $1.4 trillion in commercial real estate loans coming due from 2011 to 2014, according to a Congressional Oversight Panel report. CEP believes that this distressed economic environment is the result of a variety of factors, including loose financial institution underwriting standards, excessive debt service requirements and end of term loan balloon payments exceeding underlying asset values.
With favorable capital market conditions and the upward trajectory in rental demand, the multifamily sector is poised to continue strong market growth. Historically, the sector has proven to be the most resilient during economic downturns, while delivering superior risk-adjusted returns during economic rebounds. A major contributor to multifamily growth has been a fundamental shift in consumer behavior towards a stronger preference for renting after witnessing the recent mortgage crisis and deflation in home values.
The deterioration in economic conditions presents unique investment opportunities for certain entities, such as Crowne Equity Partners, LLC. We have identified a market segment “Sweet Spot” to exploit that has been left due to oversight of larger private equity and investment firms, but out of reach for smaller investors. CEP’s select private partner group is well positioned to take advantage of such opportunity via our passive alternative asset model (PAAM™).
Supply and Demand
With current values below replacement cost, it is advantageous to acquire existing inventory in addition to development projects. The availability of debt markets offered solely for the purchase of apartment properties has shifted the need from development funding.
There is a huge opportunity in the value-add niche, due to the large number of vintage units across the country. Considering the population growth and the obsolescence of aging properties, an estimated 400,000 units per year are required to meet national housing demand.
Echo Boomers
By 2015, the echo-boomer population aged 18-34 is projected to reach 66 million (nearly as large as the peak of the baby boom) and won’t peak until 2020.
Overall, rental demand is expected to grow rapidly over the next five years, supported by favorable trends among predominantly renter cohorts. Growth in population aged 18 to 34 – the group with the highest propensity to rent, or “prime renters” – is resuming after two decades of decline.
Baby Boomers
By the year 2013, the baby boomers will reach the age of 65 years or older. This will drive a huge demand for apartment housing as a percentage will move from homeowner to renter. This group has greatly impacted the economy as they moved through various life stages.
It is projected that this group of Americans age 65 or older will reach almost 90 million by the year 2050. With the cost of healthcare rising, most will be forced to secure less expensive housing options that will help offset their overall living expenses.
The group will have a huge impact on apartment housing; therefore, making multifamily investing a great option for investors. Studies indicate baby boomers who seek apartment housing will demand safe, affordable housing with accessibility to local services.
