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IMG Hosts National Multifamily Investor Forum in Santa Monica
Woodland Hills, CA— June 9, 2023— Investors Management Group, Inc. (IMG) hosted a Private Investor Forum event in Santa Monica on June 8th, bringing clients together with leading industry experts who discussed challenges and opportunities in the current real estate market. Recognized real estate experts Phyllis Klein (Senior Vice President, Head of Agency Production, Capital One), Josh Bodin (Senior Vice President, Head of Securities Trading, Berkadia), and Neil Schimmel (Founder & CEO, IMG) spoke on the panel, with Karlin Conklin (Principal, Co-President & COO, IMG) moderating. Key takeaways from the wide-ranging discussion are summarized here.
RECESSION RESILIENCY: THEN vs. NOW
The Great Recession of 2008 shook the global economy, with the real estate sector taking a hit at the epicenter of the crisis. A decade and a half later, we find ourselves in the midst of a different economic landscape. Panelists spoke about the distinct differences in risk exposure and lending practices during the Great Recession compared to where we are now in the post-COVID cycle. Josh Bodin characterized the Great Recession by its excessive lending with poor standards leading to the credit failure, saying that “the inherent risks within the lending ecosystem of that time were similar to playing Russian roulette. The lack of due diligence and inadequate risk assessment led to a massive bubble in the real estate market.” He explained that as the crisis unfolded, it became evident that numerous individuals and institutions were far over-leveraged. Borrowers were unable to repay their loans, resulting in a cascade of foreclosures, plummeting home prices, and a banking system on the brink of collapse.
In contrast to the Great Recession era, today’s real estate economy reflects a more cautious and regulated landscape. “In the current the real estate market, an asset-liability mismatch has taken center stage,” Bodin added. “Today’s instances of bank failures appear to be the outliers rather than systemic failures.” Phyllis Klein agreed, noting that the financial sector has learned from the mistakes of the past and implemented measures to mitigate risks more effectively. These lessons learned have led to tighter regulations and increased transparency in the mortgage industry.
In May, the Federal Reserve issued its 10th consecutive rate hike since March 2022 in an effort to significantly reduce liquidity to the financial markets and tamp down high inflation. Panelists explored the impact the rapid increase in rates is having on the market and the potential severity of an upcoming recession. All agreed that market corrections weed out operators lacking the sophistication and capital to navigate a significant economic disruption such as today’s uncertainty around inflation, interest rates, and liquidity.
Neil Schimmel emphasized how the IMG portfolio is diversified across markets and backed by multiple capital sources, which mitigates risk. Building from a position of strength is one of the benchmarks he’s learned as a long-term investor who has operated through a number of cycles over the past quarter-century. Schimmel shared that experienced sponsors who learned from the past and adapted to the current evolving economic landscape can strive for stability and promote responsible growth in the years to come.
TENANT-FOCUSED BUSINESS PLANS
The panelists agreed on the importance of maintaining properties in good condition and managing expenses in order to grow net operating income.
From an owner/operator perspective, Schimmel stressed the significance of maintaining the physical condition of properties. Ensuring that apartment communities are well-maintained is crucial for attracting and retaining tenants, as they’re more likely to renew their leases and refer other quality tenants when they take pride in their living environment. Neglecting property maintenance can lead to higher turnover rates, increased vacancies, and ultimately, a negative impact on NOI. Real estate owners were tempted to tighten capital expenditures during COVID, and some are going through a similar thought process now.
“We still have a ‘boots on the ground’ asset management philosophy. We’re still prioritizing property maintenance, reducing expenses by finding efficiencies and executing our cap ex plans. We’re there to create an improved community for residents and a more sustainable and successful real estate investment,” said Schimmel.
From a lender perspective, Klein emphasized the agencies’ focus on property condition and expense management, pointing out that these two factors “play a crucial role in determining the attractiveness and value of a property.” She added that multifamily assets—particularly with moderate income tenant-focused business plans— “get the best pricing that’s out there.”
A DIFFERENT DANCE FLOOR
Recent market uncertainty has paused activity between buyers and sellers. This hesitancy led to a 70% decrease in multifamily transaction volume YOY (Apr 2023)*. Bodin likened the current dormancy in multifamily transactions to a middle school dance, with buyers and sellers standing against different walls and reluctant to engage in the middle.
“On the buyer’s side, there may be concerns about fluctuating economic conditions, rising interest rates. On the other hand, sellers may have high expectations around property valuations. Both sides are taking a cautious approach, waiting for clearer signals of stability before committing to significant transactions.”
Panelists discussed the potential influx of predatory money into distressed real estate, which is expected to manifest itself in the next 12 months.
ON THE MOVE
Developers and active sponsors like IMG are still moving strategically by targeting markets experiencing positive in-migration. Schimmel reminded attendees of the company’s focus to own real estate in locations with diversified job bases and an affordability component when analyzing potential investment properties. “We’re still finding pockets of population and job growth, trends that are most likely to continue due to the market’s attractive lifestyle amenities, economy and housing options,” said Schimmel.
According to Klein, sophisticated lenders also follow this philosophy. “We’re also looking at where the jobs are, where people are moving, what markets offer real value in the rental market. Homeownership is out of reach for so many Americans. They simply cannot afford a mortgage. That’s good news for multifamily investors. People need a place to live.”
One million apartment units are under construction in the U.S. and almost 900,000 units will come online by the end of 2024**. “The impact of this construction boom on the property leasing market won’t be evenly distributed across the country. Deliveries will be heaviest in about 10 of the fastest-growing cities,” said Bodin. He stressed the importance of looking at deliveries in context to what’s happened in the past. “As an example, Nashville is expected to deliver 10,000 units in 2023. Under-delivered markets are simply playing catch up from pent-up demand that has accumulated over the last decade.”
As the real estate landscape continues evolving, forum events like this allow an exchange of knowledge and collaboration among industry experts and investors. For more information on IMG’s forum events and site socials for accredited investors, contact investor.relations@imgre.com.
Event photography by Eden Shohat
*source: CBRE
**source: Yardi Matrix