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By Farrin Ripp ’21 and Daniel Vasserman ’22
The 2020 Real Estate Symposium, in its 13th year, was held for the first time ever in a fully virtual format. As a result, Columbia Business School alumni spanning 42 graduating classes from 12 countries across 5 continents “zoomed” in for a stellar lineup of guest speakers and interactive discussions. The Symposium kicked off with an opening keynote conversation featuring Ivy Zelman, CEO of Zelman & Associates and Chris Mayer, Paul Milstein Professor of Real Estate and Co-Director of the Paul Milstein Center for Real Estate, where they engaged in an insightful discussion on the current and future state of the U.S. housing market.
While most of the real estate industry is still prognosticating as to what the ultimate impact of the pandemic will be on the various asset types that make up the real estate space, a clear beneficiary has emerged, at least for the short-term. The single-family housing market is surging stronger than it was even leading up to the Great Recession of 2007–2009. The demand for single-family housing can be seen across all price points, primary and secondary residences, and for both sales and rentals. Of course, most of this is due to the changes that the pandemic has had on all facets of people’s lives; where they live, work, and play. As Ivy aptly stated, “the home became center stage” for almost everyone, and with remote work optionality seemingly here to stay for large portions of the workforce, people en masse started looking for places to live that gave them more quality space, in better climates, and with outdoor areas.
Even prior to COVID-19, the multifamily market had been decelerating in the urban core as millennials age and change their lifestyle preferences. This trend will continue over the next decade seeing year-over-year declines from this cohort. Following the Great Recession, there was a “wall of capital” chasing the multifamily urban/high-rise development asset class because of increased demand for improved amenities and services from millennials. But there is concern now because the market is experiencing a backlog of multifamily construction/multidecade high in supply, especially in Urban Class A, but facing increased headwind on demand from young adults. This is magnified in the current market as we see tremendous pressure on multifamily lease rates, with new renewals to experience more downward pressure in 2021 and 2022 (more so than move in rates). There has been an uptick in general leasing activity in the last month as people start to take advantage of the low prices and hopefully see as a sign of continued activity as people look to come back to the cities.
Currently, 15 million people in the United States rent homes. When COVID-19 first hit, the single-family rental market initially pulled back on pricing and held renewals flat, but as the market picked up rentals received some of the same benefits as the for-sale market. With tight inventory and occupancy rate at 98%, single-family rentals experienced pricing power of 5-7% with the lowest turnover rate on record. The market is seeing that “wall of capital” in multifamily shifting to “build to rent,” where homes are built specifically for rent. This is concentrated in the same states where production builders are building affordable housing in the “exurbs.” The exurbs are where applicants “drive to qualify,” because they could not qualify for homes and typically have to venture further out.
The discussion then opened for questions from the audience, where Ivy was asked to speak more on the potential risks for the housing market. Ivy noted that refinancing is prevalent with over 50% of today’s homeowners with a rate of 4% or lower on their mortgages and 66% with a rate of 4.5% rate or lower. While favorable now, when rates rise in the future, fewer people will be willing to leave their current houses because of low rates which will further put constrain on the market. Ivy closed by noting the risk of inflation given the tremendous demand for affordable product and builders are continuing to push on with increasing input and land costs.
Daniel Vasserman ’22 is a first-year MBA student focused on the real estate and hospitality industries. Prior to CBS, Daniel worked for 6 years in JPMorgan Chase's Commercial Real Estate group in Boston and New York City. There he was responsible for overseeing a $1.4B loan portfolio, managing the relationship of over 200 real estate clients, and originating new business for the group. Daniel graduated from NYU with a degree in Economics in 2014.
Farrin Ripp ’21 is a second-year Executive MBA student focused on real estate development. Farrin has worked in the legal industry for nearly a decade, initially as a corporate lawyer specializing in Mergers & Acquisitions before moving into legal business development and strategy. Farrin graduated from University of Western Australia with a double degree in Law and Commerce in 2010.