No slowing down for multifamily in 2020

No slowing down for multifamily in 2020
by Brad Cartier, posted in Newsletter

Multifamily investors will continue to see positive tailwinds heading into 2020, according to recent reports. Dan Rafter of RE Journals reported on a Capital One survey that found that multifamily professionals “are ready to add to their apartment portfolios in 2020.” According to the survey, 74% of investors said that they would be buyers in 2020, versus 19% saying they will be sellers.

Joseph Lubeck of Forbes notes that he believes that 2020 will be a strong year for multifamily, primarily in the workforce housing asset class. “While other CRE product types are also attractive, I believe multifamily rentals will be the industry’s leader in 2020. As a 30-year veteran of the multifamily sector who has successfully built and sold three workforce housing portfolios worth $7 billion, I believe there are five powerful drivers for the market: waves of renters, job portability, strong economy, sound fiscal policy and plenty of dry powder.”

Julia Falcon of Housing Wire reports on 2019 as a strong year for multifamily, and that we should expect 2020 to be “even stronger.” Falcon notes that occupancy rates are at a strong 96.3% nationwide and that the majority of new supply being added to the market in 2020 will be luxury rentals. This reinforces Lubeck’s above argument on the need and positive ROI of workforce housing assets.

John Egan of The National Real Estate Investor highlights the best markets for multifamily investors heading into 2020, noting that Las Vegas, Phoenix, and Sacramento as promising heading into the new year.

Opportunity Zone deadline

Opportunity Zones allow investors to defer paying capital gains tax for several years, and are indeed an attractive investment. But a key deadline is looming. December 31st is the last day investments in a qualified opportunity fund can be made to get the full benefits of the program.

According to Greg Lacurci of Investment News, “The sticking point is that the deferred tax comes due by Dec. 31, 2026 — which is seven years from the end of 2019. So, clients that invest in an opportunity fund in 2020 and beyond will not be able to get the maximum 15% tax reduction.”

Investors should take note that December 31st is the final date they can receive the full tax benefit of an Opportunity Zone investment, after which the 15% step-up after a 7-year hold goes away because it’s not possible to achieve a 7-year hold prior to the end of 2026.

Noah Buhayar of Bloomberg reported this week on Opportunity Zones, noting that corporate heavyweights have been piling into this investment vehicle, with over 1,800 corporate entities being formed in the last 2 years to take advantage of the tax incentive.

Opportunity Zone investments over the past 2 years

Source: Bloomberg

Investment opportunities in tech hub cities

Gregory Barber of WIRED broke a very interesting Brookings Institute report this week that shows that between 2005 and 2017, “five metro areas—San Jose, San Francisco, Seattle, San Diego, and Boston—not only added lots of STEM jobs, they were also becoming more dominant in those industries overall.”

Metros adding more innovation jobs - US

Source: WIRED

Rani Molla of Vox weighs in on the same report, noting that these five metro areas accounted for 90% of all US growth in innovation sector jobs. Meanwhile, 343 U.S. metros lost these type of STEM jobs, resulting in wealth and productivity being concentrated in fewer coastal cities.

Michael Grothaus of Fast Company picks up on the news, reporting that those 343 metros fought for the remaining 10% of technology jobs. “The results show that high-tech resources are undergoing agglomeration, an economic term that describes the concentration of a labor pool, which in turn allows for the rapid spread of new ideas.”

View the full Brookings Institute report here.