Top 5 Trends Multifamily Investors Need to Investigate Outside of Data

When investing in or developing multifamily real estate, it’s understandable to first turn to various data sets to analyze opportunities. But what about the types of intelligence that don’t easily fit into a data set? That’s where digging further into quantitative intelligence can reveal unique opportunities.

Here are five factors to investigate when reviewing multifamily investment opportunities:

In general, data-driven reports on the job market are a lagging indicator – telling us what has happened in the past.  If you’re looking for leading indicators – or what may happen in the future – then tracking announcements by employers on new operations, expansions, or even planned job cuts can be instructive.  Although common sources for these announcements can be local media (especially various Business Journals), most large cities and metropolitan regions also have their own Economic Development Agencies.

These agencies are not only tasked with tracking employment growth but are also charged with reaching out to potential employers with various programs and incentives to launch a new company or relocate an existing one.  Recent examples include semiconductor chip manufacturers such as Intel or TSMC in Phoenix or companies relocating from California and New York to Texas, Florida, and other states.  By using traditional jobs-to-housing demand formulas and looking at existing vacancy rates close to these employers, investors can gauge the potential for new development or increases in values of existing properties.

As fast-growing cities outgrow their current footprints, there are usually plans to accommodate future growth and transportation options to new neighborhoods.  For cities becoming denser, new transportation options can include subways, light rail systems, and bus-only lanes in existing neighborhoods.

What new or extensions of existing highways or public transit options such as light rail lines have been announced, and what is the timing of each new station? Have portions of streets been converted to bike lanes or closed off to cars entirely?

Also, what is the “Walk Score” for different areas?   When residents enjoy a “15-minute city” with services within an easy walk or bike ride, they’re often willing to pay more for that convenience, especially if they’re able to get rid of their own car or truck.  Walk Scores provide an easy way to gauge the convenience of a particular address.

In order to address a national housing shortfall estimated as high as 6.5 million homes, more cities are changing the zoning of traditional single-family neighborhoods to allow for higher-density development, especially near public transit stations. Others such as San Diego have eliminated the requirement for off-street parking near transit hubs in the hopes of attracting more public transit users who don’t need cars.

In 2021, the state of California amended its Health and Safety Code requiring cities and counties to develop plans to incentivize the creation of Accessory Dwelling Units (ADUs) as affordable rentals for very low- to moderate-income households. These incentives often include grants and loans to boost ADU supply as soon as possible. However, since ADUs are still built in single-family neighborhoods, they’re most likely a temporary measure to address longer-term housing shortages. Over time, as these neighborhoods become more acclimated to higher density, future zoning changes to allow for multifamily development could provide opportunities for developers to raze existing homes on adjoining lots to build higher-density apartment projects.

However, it’s not only in California where zoning changes have been happening. In 2019, Minneapolis completely eliminated single-family zoning and off-street parking minimums to encourage more mixed-use, affordable housing, and transit-oriented developments. The same year, the state of Oregon passed a law changing single-family zoning laws to require that triplexes, duplexes, and townhomes be allowed in any residential zone where only a single-family home has been traditionally allowed, and also lowered parking requirements for new development.

Costly damage impacts from more serious storms and wilder weather is already affecting the price of property insurance.  Not only are these events more common, they’re also more costly. Whether there are hurricanes, deluges and storm surges in Florida, tornadoes in the Midwest, wildfires in the western U.S., or a train of 31 atmospheric rivers into normally placid California, developers and investors may want to pay extra attention to future inflation in insurance premiums and be aware of any natural hazards and changes in weather patterns that could hike costs in the years ahead.

According to NOAA’s National Centers for Environmental Information, while the 1980–2022 annual average of natural disasters costing over one billion was 8.1 events (adjusted for inflation), the annual average for the most recent five years (2018–2022) was 18.0 events. So far in 2023, while calculations have yet to be finalized, there are already five natural disaster events likely to exceed one billion in damage costs, including winter storms in the northeast, storms in the east and south, floods in California, and tornadoes in central and southern states.

Fortunately for investors, NOAA has a disaster and risk mapping tool to warn against areas that may incur higher insurance premiums in the years ahead.  In general, the South, Central, and Southeast regions have experienced the highest frequency and highest cost from billion-dollar disaster events. These same U.S. regions are also projected to have the most negative future impacts across several socioeconomic metrics.

In the real estate development world, it’s not so much what you know, but rather what you don’t know which can help sink or swim an investment.  By tracking projects proposed for development, investors can also discover timing, unit counts, sizes and bed/bath count and even planned rental ranges.  Proposed developments may also include converting obsolete uses such as older office, retail, or industrial uses to new housing.

Although individual cities and counties have planning and community development departments that track the status of projects proposed for development (with many reports easily available online), there’s no standard format among agencies.

However, there are private data companies that gather and sell this data, and usually update their databases quarterly. Once armed with the basics of these proposed projects, additional information can be gathered by contacting individual applicants.

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