← The Rent Roll with Jay Parsons
Loading summary
Transcript91 lines
- [00:00]
A
Foreign welcome. It's episode number 6868 of the Rent Roll, your podcast on all things rental housing, apartments, single family rentals and build to rent. And after two weeks, talking SFR and policy issues a potential ban. Today we're digging into apartments back into apartments. It's our Q1 2026 multifamily update and outlook. The latest data and expectations for the US Apart market tonight. Timely topic, of course, as we gear up for the industry's biggest annual get together next week, the National Multifamily Housing Council's annual meeting. So hopefully we can maybe give you some talking points. Take with you to the parade of meetings that I'm sure you have. If you're going at least we're going to do our best to help you. Anyway, after we do all that, we've got one of the best joining us today, my good friend Carl Whitaker, Chief Economist at RealPage, the pride of East Texas and one of the best multifamily researchers in the business. Today we're gonna talk mostly about fundamentals, supply, demand, occupancy, rent. Next week we'll dive more into capital markets in multifamily capital markets in particular. Also debt and distress. Deep dive there. And we got a great guest next week as well. So stick with us for that to be a good way to end your NMHC week. And then in a couple weeks we'll circle back on NMHC's annual meeting. We'll share some takeaways from the week, the buzz, the vibes for all you who missed out and for those of you who just stuck in a conference room the entire time and want to recap. So we'll get you. We got you. Okay. All right, last thing before we jump in. By the time you're hearing this, you've probably already heard President Trump's housing plan that is supposed to be presented this week in Davos. We'll be reacting to that on LinkedIn on X, probably on our newsletter@jparsons.com so you find it there. Also on my website@jparson.com I just shared a piece and the 11 Myths About Single family institutional rentals. It builds on last week's podcast, which was 10. This one will be 11. So there you go. Bonus one. But more importantly includes detailed sourcing and relevant and links to relevant data and academic research. You can find that@jparsons.com and hopefully be better equipped to combat all those runaway narratives with some facts. All right, before we jump in, I want to give a big, big Shout out and thank you to our sponsors.
- [02:27]
B
Thank you.
- [02:27]
A
First and foremost, big thank you to JPI leading apartment developer. The stated purpose to transform building, enhance communities and improve lives. Check them out@jpi.com and also look for the JPI team in Vegas at NMHC. Also, big thank you to Madera Residential, a leading apartment owner and operator based in Texas expanding into the Southeast. Check them out. Maderaresidential.com okay, we kick it off as always with here's a chart. We got a bunch of charts for you watching video and if not, we will walk you through it. This segment is brought to you by Mason Joseph Multifamily Finance, the number one FHA construction lender in the Southwest for a reason. Since 2016, Mason Joseph has closed as many FHA construction loans in Texas and surrounding states as the second and third place lenders combined, according to my friends there. So check them out. Mason Joseph all right, here we go. So before we dive into the day, let me just quickly recap where I think we are. Okay. The latest data, I think it's going to show more of the same mixed bag of signals. If you want to look for green shoots, you can find some. If you want to find, find reasons to worry and fret, you could find some of that too. But I'm going to give you three things I think we could safely conclude here. Number one, you know, obviously we had a softer than normal summer and fall, but winter feels more normal. So far, some seasonal backtracking, but nothing dramatic. Nothing great. Nothing dramatic. But number two, I think there's a case to be made that the winter might mark the trough for apartment rents barring a recession. And, and I think there's some data to support that. And number three, just to take the obvious, we're going to a lot more in the spring. You know, I'm always nervous and apprehensive. Look too much in any winter numbers, obviously the slower leasing season. So you don't want to look too far into that. But we're going to a lot more when spring season, leasing season kicks into gear. And I think the spring season is going to mean a lot more this year than the past. Just because supply is coming down, there's vacancy to build it up. We got to get through all these lease ups. We we need a concession burn off for the market to get going again. So the spring will tell us a lot. But here where we are right now, I like what COSTAR wrote on their website in their news release, they put it this way, they said supply pressures remain elevated, tempering momentum. But December data indicates a possible gradual return to more typical rent growth patterns in 2026. And I think that's a fair take. And if to back that up, Both CoStar and RealPay did report improved rent momentum in December. Now, it doesn't mean growth, by the way. Momentum means that. It really just means the cuts aren't as bad. They're it's less negative for December. Actually this was positive. COSTAR reported a very slight positive 0.01% month over month increase. So early talk about ment. I'm not year over year was less negative for the real pace data, but month over month 0.1% increase for for December. And COSTAR said that is a reversal of the five previous I'm sorry, a reversal of the previous five consecutive month trend, a flat or negative monthly rent change. And then COSTAR also reported month over month rent gains in December for every region except for the West. RealPage showed modest momentum in the last two months of the year. And if that holds, it would suggest that October 2025 was the bottom for rent. So we'll see. I always get slightly different data by providers, but that general trend seems to be holding up. All right, so let's break down the some more data. We're going to run through the key KPI's real quick. Supply, demand, occupancy, rent. We'll start with supply. All right, so Q4, 2025, that looks to be our last big quarter for deliveries. Okay. We peaked in 24, still had a lot spilling in 25. So it was the first half of the year it dropped off. And I mentioned this before, I think we put a lot of emphasis on the drop off but didn't really emphasize enough that 2025 was still a lot of supply. We completed more than 2, 400,000 units in 2025. That still would would it would be the highest number for any year going back to the mid-1980s if we take out 25 and 23. And so by relatively speaking it looks lower. In reality it was still a big number, but now we're past that. Okay, we're past the peaks now we're in the 2026 starting and even here in Q1, fewer deliveries are going to hit for the year. We're going to be somewhere around 300,000 units completing. That should be the lowest level since 2014. According to both Costar and RealPage, they have different numbers. Completing Costars under 300 RealPages are slightly above. But either way that compares to the peak of 600,000 in 2024. And as I mentioned earlier, we had more than 400,000 last year. So lots those supply numbers are dropping off. But remember we had that big wave of supply that completed in 24 and 25. Still working through these prolonged lease ups has keeping concessions high. It's putting pressure on rents. So that remains a factor going into the spring. So fewer deliveries but still a lot of lease up competition for the time being. Now looking at where supply is dropping off, it's dropping off in some key spots. For those of you can see the screen, I've got a chart here that shows you supply in 2026 compared to pre Covid numbers in 27, 2019. And we're going to be not just getting lower, we're actually falling below pre Covid numbers in key places like Nashville, Dallas, San Antonio, Denver, Salt Lake, Austin, Raleigh, Orlando, Atlanta. The only place that we're really not gonna drop off meaningfully below pre Covid some of their places around flat but the key one's really Phoenix. That one's still about a 1 1/2 percentage percent above pre Covid norms. Most of that of course is concentrated in the West Valley. I think there'll be a big difference east side versus west side there. All right, absorption. Okay, I talked about this in the in the 2026 predictions I mentioned. We're gonna see absorption numbers kind of come down and a lot of that's just because supply is coming down. And supply did kind of gradually come down throughout 2025. And so we saw absorption come down a little bit as the year went on as well. So again, don't panic about those numbers. So long as absorption exceeds supply and absorption is falling off at a slower pace than supplies falling off, that means vacancy is still improving. That's fine. Okay, so I wouldn't make too much about the drop off. In Q4 real pages have a slightly negative number. Could costar had a positive number. But either way we are seeing a moderation there that just ties it there's less available to absorb. The spring though is gonna tell us a lot more about where absorptions are trending. So I'm not looking too much in these winter numbers. Again, some seasonality, unless the numbers are really bad or really good, you don't wanna look too much into that. But for as far as I see so far, it's playing out as expected. All right, where's the demand going? Pretty much the usual spots Top 15 places include top Dallas, Fort Worth, Phoenix, Atlanta, New York, northern New Jersey, Charlotte, Austin, Orlando, Philadelphia, Chicago, Columbus, Boston, Tampa, San Antonio and Houston. So mostly the big Sun Belt, three big Sunbelt markets above 20,000, but also some good numbers in some of these key Northeast and Midwest markets. Not seeing the west coast on the top 15 right now. A little bit softer in some of those spots. The exception of Bay Area where of course there's just not as much available to absorb. All right, now let's talk about vacancy. Now this is one of the interesting topics because if you your perceptions of vacancy really depend on who you ask, we see some wildly different reporting on vacancy. I'll give you two extremes. Apartment list they had a I mentioned this previously. Their data was recently cited by CNBC showing record high vacancy. And of course their data only goes back to 2017 and apartment list said that CNBC kind of buried that deep into the story. But here's what apartmentless said. Our national vacancy Index, which measures the average vacancy rate of stabilized properties in our Marketplace, sits at 7.3 to close out 2025. This represents the highest level since at least 2017, which is when we started tracking occupancy. All right, on the flip side, Yardi Matrix says one notable mate, one notable bright spot is occupancy, which has remained firm as more renters stay in place and fewer transition into homeownership. This resilience also reflects owner strategy to prioritize retention through lower renewal increases and concessions. And we see this across other data providers as well. Costar shows vacancy up 70bps. Apartment list shows that vacancy up 50bps. Radix up about 30 RealPage up about 20 yardy is relatively flat. But they note that vacancy and the arty data has improved a little bit for upper tier stabilized product. It fell a little bit in the older tier product and that in my opinion is likely some filtering at play as renters move up market continuing the flight to quality that we've seen in the cycle. And COSTAR showed the same by the way, which is absorption has been disproportionately heavier upmarket versus in the lower tier product. So anyway, who's right, who's wrong? Well, they're probably all right. It just depends on methodologies. I think a lot of this divergence just traces a different methodologies. I mean it seems like occupancy should be a relatively simple thing to track, but it's not. And I don't want to get too far in the weeds here, but I will just tell you that occupancy can vary a lot depending on how different data Providers count lease ups versus stabilized, how stabilized vacancy is measured, what role lease ups play, if at all, and at what point they count as stabilized and added into the stats. There's no standard that can vary based on provider and also how or if vacancy is being derived from availability feeds. You know, that can also really. And you know, there's a lot of methodology work that goes into that as well. And so you know, I tend to look more at the changes than at the rate itself, but it's, you know, but I think bottom line, I don't want to get too far down the rabbit hole here. I think there are some real pockets of vacancy challenge, particularly for lease ops and for the lower, lower tier product in these high supplied markets due to the filtering effect I just talked about. But overall, you know, I think occupancy rates have been pretty remarkably steady when you consider the 50 year supply wave we just went through from 23, 24 and 25. And we do see that in the REIT data as well. I've shared that previously high occupancy rates, but coupled with weak rent trends to compete for that demand and keep occupancy elevated. So looking at rent change by market, it's still very correlated. Where supply is going in big numbers, rents are falling. Where there's no supply, rents are increasing. And so we see big rent increases still of course in San Francisco, which leads the nation around 8%. Also strong rent growth in places like San Jose, New York, Chicago and other places across the Northeast and the Midwest. And of course we've seen rent cuts still across the higher supplied markets. In the sun belt down 8% in Austin, down more than 8% in Southwest Florida also down more than 6% in, in Denver, down more than 4% in places like Phoenix, San Antonio and Tampa. So again, big variance. Let's look. You know, one other thing I'd point out is, is, is, is it's not just me about coastal versus Sunbelt anymore. We're seeing some variances even on that basis. You look at, you know, I mentioned the west coast, San Francisco Bay area, San Francisco, San Jose, we're seeing some real strength. Seattle's been a bit softer. Los Angeles still can't find its footing's actually backtracked a little bit, as has other parts of California. You look on the East Coast, New York is still strong. D.C. and Boston obviously backtrack in the second half last year. Now the good news is they've seem to be stabilizing, I think D.C. in particular as we get past the doge cuts and, and the federal government shutdown. Know I think that one is showing some upside again particularly in Northern Virginia area but it's not really picked up back up but it's not gotten worse. And then Boston, I think we'll have to see if that one plays out given its exposure to international students and research funding. Long term I think it's be fine. Just some timing. And in the Sun Belt I think we're going to see this year a real divergence between you know, some markets are showing signs of earlier recovery. We talked about previously in places like Atlanta, maybe Dallas, maybe suburban Nashville, maybe parts of Florida and other other markets that may take longer to to recover. So I think, I think we'll see a few markets surprise us this year. The Sunbelt jumping back up the leaderboard and then of course the Midwest remaining pretty steady. One more thing, couple more things on rents. This next chart will show you class C apartment rents in high supplied markets. So this is only looking at the high supplied markets. This isn't a big part of the story. I still see media coverage that gets this wrong. We're talking about hey, all this new supply is only benefiting upper income renters. That's not true in the high supplied market. Specifically this again I've talked about this so many times all the research around this but here's the latest data. The rents are falling most at the more affordable levels in class C. Class C rents in high supplied markets are down more than 6% year over year through through December. That compares to class A which was only slightly negative and class B which is around 3% negative. And so that flight equality renters moving up market. You know I've said this just a million times. Higher income renters moving up from a B to an A B B properties as lease ups come online, they're moving up. That's pulling people out of class C as class B cuts cuts their rents. Your relatively speaking higher income renders in class C now have more options in a maybe a better location, maybe a slightly newer vintage property. Their incomes have probably gone up more than rents based on national averages at least. And so that's creating challenges in class C which has to cut rents more to pull in people who previously didn't qualify. So we're seeing that play out but only in these high supplied markets where there's no supply or little supply. Class C rents are still increasing which again tells us it's all about supply. And then the other thing, I mentioned this in the 2026 prediction. So Mike spent As much time on this now and that is the difference between new leases and renewal leases. So just to remind you, we have three straight years where new lease rents have grown grown faster than renewal rents that continue through 2025. You can't sustain that. As we burn down the loss to lease, we now face potential gain to lease renewal. I'm sorry and potentially inverted rent rolls which basically means you're sending out renewal offers above what you're advertising for your new leases online and your renters see that. And that even if your renters can afford it means they're going to push back on any kind of renewal increase at all in some cases. So that's a nuanced topic. Had a lot more on that in in the first episode of of 2026 if you want to dive in more. Also talked about it on on LinkedIn. But inverted rent rolls and gain to lease are going to be a bigger theme if we don't see some new lease rent growth this year. That sorry, this spring. That's why spring is so important. If we don't get that new lease rent growth, some concession burn off this spring, that's going to make it really hard continue to continue to get renewal rent growth which has really been the keeping revenue growth steady in these higher supply markets. That's going to be a challenge in if we don't see that happen in the spring. So we'll see. And then on that note, lastly, concessions, the average concession value is at jumped to 7% in Q4 nationally. That's the highest. That's basically one month free. That's a national average and it's obviously more than that. Some of these high supplied markets, that is the highest since the early 2010s coming out of the pandemic. So if the spring leasing season shows some momentum as supply drops off, concessions start to burn off. They want to burn off all the way. But even modest concession burn off could lift up effective rent growth and that could be a big part of the story this year as it was in the early 2010s coming out of the pandemic. I'm sorry, the pandemic, the great financial crisis in the early 2010s. It was concession burn off that led the initial recovery in effective rents because again, effective rents include that concession. All right, so then one more just quick note here. Not going to spend a whole lot of time talking about capital markets. We're going to do more of that next week. But just just really quick touching on this apartment sales. The latest data, this will be through November. We are on trailing to a month basis. Total sales dollars is tracking back to the lowest levels. I'm sorry, the levels dating that look more like 2017, 2018. So we're coming back a little bit from the trough of 2420. Highs picked up a little bit but still down from where we were in years prior. And then, but even the, the, the total number of transactions, that number is even lower. It's come back a little bit since 2024. But if you take out last year, we're at the lowest level since 2014. So that recovery is starting to pick up a little bit, but it is very gradual. Meanwhile, cap rates continue to hold steady on average in the low to mid fives, depending on what you have and where it's located. But again, much more on capital markets next week. We're going to focus on fundamentals today. A lot more coming, particularly talking about debt and distress next week. So stay with us for that. But next up, it's rental housing trivia. All right, today's trivia is presented by landing a full service furnished housing partner, helping operators drive incremental noi. Simply landing turns vacant units into revenue. Learn more@hello, landing.com partner. Goodbye vacancy. Hello, landing. So check them out. Hello landing.com partner and do get that partner in there. All right, so today's question of all US harbor construction starts in 2025, what percentage were affordable housing? Was it A, 9%, B, 14%, C, 19% or D 2024%? Again, what percent of all apartment starts were affordable housing in 2025 according to Yardi Matrix. So give that some thought. We'll come back to that in a bit. But first in the news, All right, in the news this week is sponsored by Authentic. If you've got a property that's underperforming and you can't quite figure out why, check out their multifamily leasing and marketing audit. They'll dig into your pipeline leasing funnel and comps and tell you exactly where things are breaking down. Plus strategies on how to fix it. Listeners of the pod get 50% off. So head to authenticff.com and click on the banner to learn more and claim the offer. All right, so we got two headlines for you this week. The first one, it's a press release from the Business Wire. It says, invitation Homes acquires resibuilt to enhance development capabilities and deliver more housing solutions for American families. Okay, so some big news. Invitation Homes, the big SFR company, big SFR reit. It's jumping into the development business with the acquisition of Resibuilt. Now of course, Invitation has been active in new construction for years now, but through pre purchase agreements with builders and other methods. So this gets Invitation more directly in the development gate game. It may also be a good diversification hedge against any potential regulatory restrictions that come with maybe preventing home builders from selling homes directly to SFR companies like Invitation. Obviously that was something that FHFA Commissioner Director Bill Pulte mentioned as a possibility on cnbc. We'll see if that plays out. But it's worth noting that Invitation did say in their press release that they've been looking into this strategy for a while now and even signaled back at their Investor Day November a goal of expanding into development. So this probably is not simply a reaction to Trump's announcement and more of a strategic play that gets them into development. Just like their fellow SFR REIT AMH. So Resi Built was founded in 2018 Ted Court in Atlanta. They've built 4200 homes in Georgia, Florida and the Carolinas. So we'll see. But presumably Invitation could expand them to the invitations other markets as well. Second headline. This is from Graystar. It's Graystar's 2025 design survey showing fitness, wellness and social spaces, lead shifts and renter priorities. Okay, so every year Grace Star surveys their apartment residence. In this case our rental housing residents I assume includes BTR as well. It's from a survey of 137,000 Graystar residents. Top five amenities according to Graystar renters. Drumroll plays it's walk in closets, large windows with abundant natural light, fresh air ventilation. Number four is covered parking or garages. Number five fitness centers. Okay, so that may seem a bit dated, but fitness centers have actually not been on GrayStar's list of the top five since they started the survey. And they said 83% of renters now consider fitness centers important or essential, pushing them into the top five for the first time. 68% of renters report using them regularly with the highest demand for free weights 24, 7 access and for water stations. So very interesting. Also of note, Grace are said residents are decreasingly willing to pay for sustainability features. They said renters willingness to pay extra for sustainability declined by an average of 24% year over year. So there you go. You know, I'll tell you what real quickly here. I think the worst thing for the sustainability movement and then in building and construction has been low flow, low showers. Okay, that one thing is a buzz killer for sustainability particularly we have to use that shower every day. Living in an apartment and spending more time in the shower trying to get going to get washed off. And who knows, you've been saving water after all that time. So I have an idea that I've been wanting to implement. I need somebody to kind of figure out how to do this. It'd be called lead certified minus low flow showers. I think it should be its own category and I think it'd really sell. But you know, I digress. All right, let's get back to today's rental housing trivia question. The question was, of all US apartment construction starts in 2025, what percentage were affordable housing? Was it a 9%, b 14%, c 19%, d 24% and the correct answer is c. 19% of apartment starts were affordable housing in 2025. According to Yardi Matrix. That is not surprisingly the highest share on record since Yari started tracking it. In 2014, it was hovering around 13 to 14%. In 2020 to 2023 it jumped in 2024 to just under 18%. Just under 19%. I should say it's even higher in 25 now. It's not a big surprise given all the headwinds facing construction right now. But it's worth noting that actually Yard is showing us that affordable housing starts are down two. It's just that affordable housing is down a little bit less than market rate starts. And so affordable housing represents a larger share of the starts right now. But it's worth noting that affordable housing developers do face real challenges too. Particularly that rents have not kept up with AMIs. As you know, with LIHTC Low Income Housing tax credit, your rents are set based on the area median income. Wages are growing faster than rents. But the rents have not been able to keep up because of all the downward pressure from rents of all this new market rate supply. So all of a sudden you have market rate properties that don't require all paperwork of a litech to lease, that have comparable rents to, to to to a litech deal. And that creates a real challenge for these, for these litech operators and developers. Now from a societal perspective that's a good challenge in the short term. I think for the long term it's a bad challenge because over time that that gap's going to widen back out market recovers, the market rate rents properties can be eager to push rents back up again after 3 years plus of of flat to negative numbers. LIHTC rents are locked in at a certain percentage of AMI. So we need to keep it going. But it does get challenging in an environment like right now. So bottom line, affordable housing still challenging to get starts done, but starts going, I should say, but it's not quite down as much as market rate. Next up, it's time for today's interview sponsored by funnel, the AI and CRM software software trusted by four of the six major REITs and many more leading operators like BH and Cortland. To learn how Funnel can help your properties centralize operations and automate everyday tasks, visit funnelle leasing.com all right, my guest today is a longtime friend of mine. He is the pride of East Texas and one of the nicest guys you'll ever meet in the multifamily world. He's also a great analyst and researcher too. Carl Whitaker, chief economist at RealPage. So Carl was kind enough to join me in studio. Here's my conversation with Carl Foreign. All right, welcome to the interview portion of today's podcast and I am absolutely honored to welcome in my friend of many years and the chief economist at RealPage, Carl Whitaker. So Carl, thanks so much for being here in person, in studio. Yeah, for sure.
- [27:11]
B
You know, whenever the people call into sports radio talk and they're like first time listener along or first time follow a longtime listener, it's kind of what I feel like right now.
- [27:18]
A
Well, we, you and I did many of these together in Richardson at the, at the Real Page HQ over the years, so a little bit smaller setup here, but it's great to do this again with you. So Carl, for those who don't know every I'm a lot of people know you, but maybe not know all of your story. So back what, let's see, what year was this you applied for a job at a little research firm called Axiometrics? Uh, when was that and what, what, what led you to apply for a job at an apartment market research battle of all things.
- [27:49]
B
Yeah, it is kind of an interesting little niche to fall into. So I guess it would have been 2015 is when I started my search. It would have been late in 2015 and 2016 started getting applications out. But I was working for so this was right out of grad school. I was working for while I was finishing my degree, a economic development consultant down in Dallas, small boutique firm called Catalyst Commercial. And really what the the company's job was was to help cities kind of find best and highest use for undeveloped parcels of land or you know, hey, We've got a 30 year comp plan we're working on as a city. Tell us what we need to do with this quadrant of Town, do we build apartments, do we build office, we build industrial, so on and so forth. So we did a lot of that market research and we were subscribers to Axiometrics at the time to get some.
- [28:38]
A
Of that apartment data.
- [28:39]
B
And I was just poking around one day looking at jobs and saw that Axiometrics had posted something for. I think it was titled Market Research Analyst if I remember right or. No, it was Real Estate Analyst. That's what it was. It was Real Estate Analyst. And at the time I hadn't even put together the axiometrics was just apartment market data because we were also using COSTAR at the time too. So interviewed with the Axio team and as you're aware of really good, really good group of people and I guess the rest is history as they call it.
- [29:08]
A
Yep. Shout out to our friend Jay Denton now at at Radix. I tell bills all the time when people ask for my story is that one of the things I love about this space rental housing is that I think it's so misunderstood. And I felt this myself. I experienced this like I lived in an apartment like a lot of people did at some stage of their life. And you just think, you know I, I've, I understand that. I, it's, it's, it's tangible, I've experienced it. But because of that I think it leads to maybe some overconfidence on what the sector really is. Well, who renters are based on your little experience versus the broad spectrum of who lives in you know, 25, 28 million apartments across the country plus the you know, 15, 20 million single family rental homes across the country. And it's just a lot more nuanced I think most people think. And so I always like tell people, you know, the story I always share is, you know, what really the first of many, many things that I experienced kind of like a big, like a perception versus a reality was I was with you know, MPF Research, you know, early competitor of Axio came by a real page as well and seeing like these occupancy rankings, seeing Pittsburgh was the most occupied market. No one's going to Pittsburgh like what's going on? And of course obviously it's all about supply and demand, very little supply. So I'm curious for you, I was like asking this question how is your perspective of rental housing and or renters? How has it evolved and in what ways would that have surprised the pre Axio? Carl Whitaker? Sure.
- [30:28]
B
Yeah, no, it's a great question. I think the biggest thing is Once you. And I'm sure this is true for just about any industry, but when you start getting really involved in the research, you start to kind of question some of the headlines that you read, or if not question, you start to scrutinize it a little bit more. And, you know, not to say that headlines are just inherently nefarious. I think it's just a lot of, like you said, misunderstood and misrepresentation. I think the biggest thing if, to me, one of the biggest things that stands out is how often anecdote precedes everything else. You know, the data might not support the anecdote, but the anecdote makes for an interesting story. Yeah. And I think that that was.
- [31:03]
A
You get two anecdotes, you got a trend.
- [31:05]
B
Yeah, exactly. Like we interviewed two people, therefore we could now call this a trend. Yeah. So for me, I think the biggest thing was, you know, and again, I'm not saying that it was like dispelling myths that were in the headlines. It was just kind of this interesting little shift to say, like, oh, there's an entire industry behind this. And you start to understand some of the, the inner workings, if you will, and understand a little bit more about the business and almost kind of liken it to, you know, like everybody purchases a car at some point, whether it's a news new new car or a used car. But you don't really have a lot of experience with buying a new car because it's something you only do once every 5ish, maybe even longer years. And rental housing is kind of that same way where, you know, you're really not going through the process of leasing all that often. I don't think so. You know, it's just, it's after seeing some of the data and seeing how things work and understanding a little bit more, I think that's probably been one of the biggest perception shifts, I would say. I think the other thing too, and we're seeing this more and more, we're even seeing this in political headlines now is how much of a need rental housing. Yes. And like, why, why it's so important. And you do a good job of this, of course, of like touting that and why it's important. But, um, I think that's been another perception shift. Now granted, this was 15 years ago that I was renting and living in an apartment or at least starting that process.
- [32:28]
A
So, yeah, I think it's funny for homeowners sometimes think, well, everybody should be a homeowner. Well, that's easier said than done. So you know, we need more, we more for sale homes as well. But obviously rental housing plays an important role like you said, Carl. All right, so let's jump into the market. You know, one of the blessings and curses of our jobs that we're always asked to make predictions and crystal ball things, those kind of, that kind of stuff. So I want to just go back to a year ago. If you and I were sitting here a year ago, the mantra was survive till 25. And a lot of us, and myself included, I, I thought we would see a gradual recovery in rents in particular, you know, 2% or so. That obviously didn't happen closer to zero. But we did see really big demand numbers. And of course when we talk about demand, we're really talking about absorption. And so Carl, as you kind of go back and think about what you were saying a year ago and what others were saying, kind of consensus thinking, what did we all get wrong? And were there any kind of clues that in hindsight maybe we should have paid more attention to?
- [33:25]
B
Yeah, it would always be nice to have the, the benefit of hindsight. And real quick too, I actually will echo something you said there about building momentum in 25, the first three or four months of the year. The data was actually showing that 2025 was building some positive rent growth momentum. And it wasn't, you know, in line with where it was pre pandemic. But if you look at just simple month over month rent change, the first four, maybe five months of 25 were stronger than 24. So that momentum was building. It was the summer that really summer crushed it kind of put a commosh on it, which maybe we can talk about that in a little bit of whether that's the new norm of seasonality being shifted a little bit or if it was just a 2025 kind of economic noise thing. But yeah, so for me, I think the biggest thing that, that, that surprised me was how prevalent retention remained. Yeah, I thought we would have saw more turnover. That's the one thing I wish I would have had more hindsight because, you know, we went into the year saying, you know, not, not to say that retention would totally plummet, but it was at 53, 54 ish percent going into the year and then on to 53, 5, 56 ish. I mean it's a non insignificant shift in the number of residents electing to renew their lease, which I'm sure some of that's operational strategy and operationally driven, but.
- [34:42]
A
Oh yeah, heads on beds, that's everybody was, that was the theme for 2025 for sure. Totally.
- [34:47]
B
Yeah. And I think that's kind of how that manifested was, you know, let's, let's keep the ship stable here, focus on heads on beds that showed up in the occupancy numbers, which roundabout way of getting to it leads to the demand numbers. And I think one of the reasons why we say saw such strong demand, but having said that, it wasn't that just the retention numbers were strong. We actually were seeing that there is true genuine absorption of apartments from a new lease side of the perspective. So it's just, I think that that dynamic just shifted. A little bit of retention was kind of the, the preferred way of going about occupancy capture last year, but there was still some, some front door absorption happening too. Now I think the other thing that I wish I would have had more benefit of knowing, excuse me, this time last year too, was what would happen with the economy. You know, there was a lot of economic noise going into 2025, a lot of unknowns. There's kind of been this unwetting of what's happening with the labor market and some softness there with the general theme of overall economic growth is actually still in pretty good shape. Yeah, GDP and we're talking mega macro here, but GDP numbers look pretty good. Consumer delinquency or debt delinquency really isn't skyrocketing the way that people thought that it would. So I think there's actually some economic strengths and maybe more than a lot of people are willing to focus on because people are so keen and sometimes justifiably so, to look at just the job growth number in a vacuum.
- [36:14]
A
Yeah, and I agree, I think whenever things are softer than expected, like in the rents in this case, the tendency is to want to think it's got to be a demand side issue and it really wasn't. And we've seen this across data. Regardless of which data provider you use, and if you looked at household formation numbers or renter household information, say from the census, like all those numbers are actually good and so, and even the occupancy numbers, I believe that your data is going to show occupancy down what, 10 or 20 bips for the year. And we've seen similar themes from the REITs, obviously, but it came at this expense of new lease pricing. And you know, my sense of it is a lot of it. I don't know that, you know, nationally we're at, you know, less than 1% rent cuts. I don't think that stimulates a Lot of that demand. But what it really was about is individual properties competing with each other to capture demand that was going to be there even if you didn't cut that rent. But you're just trying to capture your share of that demand in an environment. There's a lot of supply. And so Carl, one thing, you know, as I look back on it that I think I probably didn't talk about enough was that I met with a lot of groups last year saying, oh look, supply is going way down in 25. And it was, it's, you know, down, I don't know, 20% or whatever. But I think what we didn't emphasize enough is that 2025, if you take out 24 and 23, still would have been the highest supplied year since the mid-80s. It was still a lot of supply. And I. And plus you're still leasing up a lot of stuff from 24 and some of that went through that year two hangover. You're trying to fill up while you're still trying to, while you're also the same time trying to retain your first leases. So I don't think I personally emphasize that enough, which is that yeah, supply is down, but it's still a hyper high supply sit. And so if I could go back in time, that's one thing I would have said differently.
- [37:51]
B
Yeah, I think that makes sense. And I think the timing of supply delivering versus how long it takes to like adequately absorb all that, I think that's something that us research minded folks would have probably positioned a little bit better last year. Myself totally included there.
- [38:05]
A
Absolutely. All right, well, lesson learned. So here we are in 2026. You know, one thing, you know, I tell people all the time, I say this probably almost every week in this podcast. I mean like, forecasting is hard. Easiest thing to forecast is supply. Supply just starts being pushed forward, especially look at the next 12 months. So we know with pretty good certainty, with very good certainty, that there's gonna be a lot less supply in 2026. Maybe off by, you know, a relatively insignificant number, but supply is coming down significantly. So the real question obviously is demand. And again, I want to be really clear on this because I know you and I both felt this. A lot of people like there's. When we talk about demand, we're talking about absorption, which is renter household formation, the net change, number of occupied units. And so. So Carl, let's dig into this a little bit. This is I think again the big question for 26 that's gonna indicate that's Gonna drive what happens with rents as well. How are you thinking about absorption and demand drivers for 26?
- [38:58]
B
Yeah, it's, it's, it's, it's a fun thought exercise because again, I think so many people are so deeply wedded to that idea that demand has to come from job growth. And I think you even, don't get me wrong, don't quote me on the year here, but I want to say in like 2017, you had put out some research that it was like, look, job growth matters, but it's not the end all be all for predicting rent growth and demand. And I think that that still holds true. Even more so true now for a number of reasons that we won't get into the way.
- [39:26]
A
I mean, a shout out to Shane Squires who worked with me back in the day. It's now a wizard real estate data science guy. He helped me with that research. But go ahead.
- [39:34]
B
Yeah, no, and it's good research. So yeah, she said, Shane. Yeah, Shane, that's prior to your day.
- [39:40]
A
But yes, Shane, if you ever watch this shout out.
- [39:44]
B
But I think a lot of people look at that, you know, job growth story is like, well, if, if job growth isn't happening, where is the demand going to come from? Now, having said that, that is a totally fair question. And I think this is where you start getting into things like migration being a key driver. Now migration is in this little bit of a, kind of a readjustment period. I would, I would say, you know, I don't think that anybody thought that the 2021-23 Sunbelt migration, that was a sustainable level of migration. But when you look at the data, there's a number of markets in the Sunbelt in particular that are still getting positive domestic migration. And I think it's important to, to delineate domestic versus international because a lot of times the migration numbers just capture the overall. If we are seeing slowing anywhere, understandably it's on the international migration side of the equation. So I think you still have some demographic, I'm sorry, some migration components informing demand. I think another thing that gets discounted often and I can understand why it's discounted because it is such a big nebulous topic. It's something that's hard to put numbers on often. But demographic tailwinds still remain in place for housing at large. I mean, not just the rental housing industry, but demographic tailwinds are still in place. You know, you still have a huge chunk of folks that are living at home with mom and dad that haven't necessarily launched into the market. That's some untapped demand potential, even those that are currently in the market. You know, that's, that's some, some demand that can happen outside of the job growth number itself. And I think the other thing too, and this is maybe a little bit more of a. We're still not 100% sure what this looks like long term, but there's a lot of data that shows that productivity gains are increasing significantly. And the numbers I looked at this morning were showing that 2020's decade productivity gains are about twice as much as what we saw in the 2010s. In other words, the output of the economy is stronger than what the job growth number would say on its own. And I think what that translates to secondarily is wage growth. And that's been one of the, I think discount one of the under accounted for. And I think you've done a good job of accounting for this. But one of the under accounted for strengths in the industry is that wage growth remains strong. I think it will continue to remain strong. Anything softening labor market fundamentals in some ways could benefit wage growth. And what I mean by that is just you're going to have a lot of competition for certain skilled employment sectors and also for some sectors that we've seen for a long time, just don't have a lot of depth of, of, of labor out there. So I think that going into 26, wage growth will continue to be a really strong demand tailwind for the industry.
- [42:34]
A
Yeah.
- [42:34]
B
And you still have the issue of.
- [42:35]
A
Boomers, number of boomers retiring versus people coming in the workforce. You mentioned demographics as a tailwind. I think a lot of people miss this. It's like it's, it's, it's. Yeah. Like it's not like the 2010s where you have, or that you have this huge, the millennial population where there's just, just raw growth, number of young adults and yeah, that the number of people in their entering their twenties is much lower than it was back then. But these are still good numbers. They're still high. They're just not what they were. And I think that remains a tail for the next 10 years for apartments and longer for SFR, BTR. And, and so that, that's there, there's still some things there. And obviously you mentioned job growth. You know, I want to caveat a little bit. You're right. We did do some research on this. There's not a great relationship between everybody's looking for like, hey, what's the Jobs and demand ratio. There's no such thing as one. There's no constant. So we do overstate it. However, you know, jobs still do matter. And specifically Carl, you. One thing we get asked about a lot right now, I'm sure you do as well, is these young adults coming out of school. And I look at it like, yeah, yes, there's. The unemployment rate among new college graduates is lower than it's been, I'm sorry, higher than it's been in the past. But I think a couple thoughts there. Number one, that number is still in the single digits. So that means still 90 plus percent of, of college graduates are finding jobs, which is good. Right. And then the un. The number that are not, that represents some, some pent up demand potentially as those people hopefully get employed. And so that's. But I think some people kind of forget it's like, yeah, that number's higher than normal. We're talking about like I forget the exact number, 7 or 8%. There's still a lot of people getting jobs. Some are probably living mom and dad while they wait things out a little bit. So. So Carl, like putting all that together, obviously a lot of mixed signals and whatever happens in the economy, you know, that's going to indicate drive a lot of what happens in the, in the housing market as well, you know. What are your thoughts on how absorption really shapes up for 26?
- [44:18]
B
I think we'll see if we're looking at just the number itself, I think we'll see the number be a little bit front loaded partially because the supply numbers are going to be a little bit front loaded. So I guess where I'm heading with that is if you look at the fourth quarter 26 numbers and I'm making up a number here, if they're negative, 50,000, don't focus on that as a. Oh my gosh, the number is negative. That's terrible. It's really just more so a reflection of the fact that supply has cooled off that much too in seasonality and seasonality. So you know, I think the beginning six months of this year and really that like we were talking earlier that March, April, May period is going to be particularly telling. But I think absorption is going to be in good shape. And you know, I don't see anything that says that absorption is going to be totally derailed. There are certainly headwinds. You know, for all the, for all the bashing I just did on job growth, I think that is rightfully a headwind going into 26 is that the labor market does need to gain, gain some steam. If we're going to see absorption, at least if we're going to see absorption accelerate, I think absorption kind of hover around where it's at with labor market fundamentals also holding about where they are.
- [45:22]
A
So let me give you a hot take on that, Carl. So what do you think about this? I think absorption is going to come down in 26. Door was 25. I think people will panic over that. But as long as absorption comes down at a slower rate than supply, then that's fine. If a vacancy is improving, you're going to see upward pressure on rents. And so I look at absorption can be less than 26 than it was in 25, could be meaningfully less. If it looks even if it comes down to like pre Covid averages, that would still be a lot less than we had in 24 and 25. But that's not necessarily a bad thing in a lower supplied year. And that could still be enough to drive some momentum in the market.
- [45:55]
B
Right?
- [45:55]
A
Yeah.
- [45:56]
B
And I think the other thing too is it's important to note that absorption has an inherently fixed number and there's also kind of the soft fixed number that when apartments are affected effectively full, which our data shows that we're approaching that 95% number at the end of the year, which tells you that the summer peak season probably did surpass 95% for stabilized. For stabilized, you're probably going to have some inherent, you're going to have some, at some point absorption will inherently have to slow down. But like you said, that's not necessarily a bad thing. And I think we're actually going to see a period sooner rather than later where absorption is going down. But rent growth is accelerating and a lot of people aren't going to necessarily know how to reconcile that story. But there's as you mentioned, a lot more behind it than just the simple absorption relative to growth number.
- [46:44]
A
Yeah, I guess specifically, just not to get too in the weeds here. We're talking about absorption capacity is limited by what's available. So if you, this is, you know, if you have, you know, if the number of vacancies in the market and making out numbers, it goes from, you know, drops from 10,000 to 5,000, there's less available to absorb. And so you're going to have absorption numbers going to come down as a function of less supply. And by the way, Carl, I think also you mentioned, let's just kind of talk about the most Recent numbers in Q4, Q4, 20, 24. We had a lot of Absorption. But that was also I think the peak quarter for supply. And so you had a lot of the lease up absorption that showed up in Q4, 24, Q4 and 25. I think we're seeing negative absorption, but that's actually, you know, that's, that's, that's more typical normal seasonality.
- [47:27]
B
Right? Yeah. And when we say negative, it's kind of barely negative. So it kind of more so reflects what you would think at this time of year if just people aren't really shopping, people aren't like actually actively out in the market. It's, you know, it's the holidays, it's you know, just not the peak leasing season. So I think that's another good point too is that when you look at that fourth quarter quarterly supply figure, that was, you know, effectively the peak. So they're 24, 24, and then today that number's come down. I'd have to look at the number again. 25% versus where it was last year. So understandably the absorption number has gone down.
- [48:01]
A
Yeah. All right, so just not to be accused too much of rose colored glasses here, I want to just briefly make the point here that, that even going into any Q4, it's like Q4 doesn't make or break a calendar year. Right. And so I think even going to this quarter, you know, my point, I'm sure Carl, you're probably saying something similar is that, you know, that we Q4 doesn't really give you a good pulse, a good, a good sense of the pulse of the market. I think, Carl, what's going to be really important, and I'm just, I think really stay in the obvious here is what we see in the early spring leasing months like this is, this is the period that you mentioned. Last year was a year that was a little bit abnormal in this, it started west strong and tapered off. But this is usually when you know the, the spring is what sets the tone for the rest of the year. And so if we have a soft spring, especially you know, March, April time frame, maybe even earlier, that what I think more materially concern me about the rest of the year.
- [48:52]
B
Yep, agreed. And, and I think January will be too early to tell. I think February, you start to see a little bit by March. I think that's when you really start to start to get the, the real details. And because of March, I guess because of the timing, all that, you know, the 1/4 numbers maybe aren't quite as telling as a lot of people want them to be. But I think that By March and April, that's going to be the real telltale sign. And again, like I said, maybe even February, you start to see some, some early signals.
- [49:19]
A
So you think we're getting back to more kind of normal seasonality as supply drops off? We will see that more.
- [49:23]
B
It's a good question. I think that's something that, you know, I don't, candidly speaking, I don't know that I've had a really good strong answer for the question of is season, is seasonality permanently disrupted? I don't know if, if you have some thoughts you'd like to share. I think that there's a little bit of both where seasonality is permanently disrupted relative to where it was, say in 2018, 2019. But seasonality is more on track today than it was in 2020, 21 and 22. So I think it's like we're getting back to a normalcy. But the new normal isn't going to be where it was pre pandemic either.
- [49:55]
A
Yeah, I think the same, their retention rates.
- [49:57]
B
Right.
- [49:57]
A
Like they're, they have to normalize at some point, but the new normals can be higher than it was.
- [50:03]
B
Yeah, New normal is maybe 53, whereas 2018, it was, you know, normal was 50.
- [50:08]
A
Right. Yeah. All right, so let's, so that's absorption. Let's talk about rents. What's your current rent outlook for 26 nationally?
- [50:15]
B
So I think 26 is going to be modest rent growth, but I think we'll see some improvement. I think some of that too is just going to be by simple nature of some of the markets that are the most deeply negative today are going to be less negative in 26, and that will pull up the overall average. You know, I think you're going to see. Well, maybe it's, maybe it's a more useful exercise to break it out regionally because I think, sure, it'll kind of tell you where, excuse me. Where some, some rent growth stories will unfold. Midwest, I think it's just more of the same. Call it 2 to 3% rent growth in most of the markets across the Midwest, the northeast, very similar. 2 to 3% rent growth in most of those markets, maybe even a little bit stronger in some of those markets that are kind of getting that boosted. You know, I don't know if it's, if it's all returned to office driven, but some of the, some of the Northeast markets have like a true cbd. Yeah. New York City, Philadelphia, I think Boston will see some improvement, but I think it'll continue to lag a little bit. D.C. we'll talk about that later because I think that's kind of on its own now. It's on its own little cyclical journey. The west region, I think you'll see a little bit of a split where you have the Phoenixes, the Denver's of the world. Still negative rent growth in 26, but perhaps strong or at least not as negative versus the West Coast. You know, I think you kind of have the, the north, the northern west coast markets. I think that's where you'll see continued rank growth. SoCal maybe a little bit of a different story kind of watered down Los Angeles in particular, but the Sunbelt I think is where the story is going to ultimately unfold because the past couple of years you've had the entirety of the Sun Belt minus maybe Virginia beach, which we could debate whether that's even truly Sunbelt.
- [51:56]
A
Still sunny there.
- [51:57]
B
It's still sunny. But I think you're going to see some of those markets that had been kind of lagging partially because supply pressure was true in most of these markets too. You know, outside of Memphis and Virginia beach, pretty much every south region market was going through a pretty significant supply wave. So I think by nature of some of those markets starting to show some improvement, you'll see the overall national number, I think I gave an estimate the other day on a call with you where we said about a, what was it, one 1.8 to 2% rent growth, I think is a national number that we feel pretty good with.
- [52:31]
A
Yeah. All right, so, and I think, yeah, that makes sense. And as you alluded to, I think on a national level, I think the consensus view which I generally subscribe to is it's still these lower supplied coastal markets, especially Northeast, certain West coast markets like the Bay Area, Midwest will likely see, you know, see the dominate the rent growth leaderboard for the most part. But I think we could see some surprises and from the Sunbelt reemerge and I'm not going to say they take over. I think they may still are laggards as a group, but I think we're going to see some, that, some surprises that jump back up on the leaderboard as concessions burn off and a certain markets recover faster than others. And so I understand it's probably not your base case forecast, Carl, but in your upside scenario, which of these higher supplied markets do you think have potential to maybe have some surprise and maybe show up above the national average this year?
- [53:24]
B
Yeah, the, the concession burn off point is an interesting one too because that's something that's hard to outright model and a forecast. But in real world application, if, and I'm talking very round numbers here, if supply on a market goes down 20% and your occupancy has improved a little bit while that supply gone went down 20%, well in theory you now have 20% of leases that are going to be burning off a concession into an environment where there's less supply, lower vacancy. Therefore there's going to have to be some, some degree of that concession burn off actually showing up in the market numbers.
- [53:58]
A
Yeah, just everybody knows we measure rent growth. It doesn't matter which data provider. Well, all the major data providers, they're measuring the change in effective rents which is with the concession. So even if you're asking rent stays the same but you remove the concession that is rent growth.
- [54:13]
B
Yeah, I'll kind of detour real quick from your question on the individual markets. That might surprise, but that's another good point when we talk about rent growth because renewal rents continue to grow past couple years and they're not growing quite the degree that they were a couple of years ago, but still you're seeing 3,4% trade out on renewal leases. So if half of your rent roll is staying put in some markets, more like 60ish percent, then you've actually got some growth happening on rent rolls that isn't just what the market is bearing out on those new leases. So that's just kind of another little.
- [54:46]
A
All right, sorry. One more rabbit hole I got to mention then though is that if we do not see a spring, a strong spring lacing season, and there's no reemergence of rent growth and concession burn off, it's going to be really hard to push renewals anymore because at that point you run into these gain to lease inverted rent roll scenarios where if you're pushing renewal rents any further, even if they can afford it, your renters are going to look on your website and see it's cheaper just to move out and move back in. So I think again, I don't know that that's the base scenario, but I do think that's a downside risk.
- [55:14]
B
Yeah, totally. And I mean that's exactly what we've seen happen in Denver and Austin and Phoenix, some of these markets that have had prolonged periods of new lease rent contraction. But anyway, I digress.
- [55:25]
A
Back to the question on Sunbelt outperformers, which ones? If you had to pick some, that might surprise us.
- [55:30]
B
So I think Tampa is one that comes up couple times and you know I went into last year saying that Tampa could be the first Sunbelt market to kind of surprise on the upside. And again, the first three, four months of the year, Tampa was actually rocking and rolling. It was, it was performing actually not that far out of line with its pre pandemic numbers. But the summer really saw Tampa fundamentals come undone. So I think the fact that you have supply cooling there pretty quickly and you've kind of got this period of re equilibrization, for lack of a better term, of migration trends and job growth, I think that the Tampa market could surprise to the upside. Now again, when we say surprise to the upside, we're not saying that it's the number to five market in the country. It's just that I think that could be one that sneaks ahead of the national average. Another one that gets thrown out there too may have a hard time getting to the national average because it is just a little bit lower currently. But Raleigh, Durham, I think you look at the timing of supply there, you look at the type of job growth that's still happening there. And again, you still had those demographic tailwinds of people moving to Raleigh that weren't necessarily just moving there because of either the pandemic or because it was a nice little work from home destination. I think those smaller Zoomtown vacation style markets are the ones where that story bears out more in terms of just, you know, maybe having a harder time recapturing some of that bounce back. So I would say Tampa, Raleigh, and then you covered this recently, but Atlanta is one that is already starting to show a little bit of rebound and momentum. And Atlanta's been a little bit tricky too because it hasn't necessarily been any of the headline numbers that have made the market seemingly weak on the demand side of the thing. The of the equation, it's been things like hard to detect fraud. It's been, you know, there has been some slowing migration to Atlanta as well. But you know, Atlanta's been one of those that's been particularly in the urban.
- [57:26]
A
County area, Fulton county area.
- [57:27]
B
At Fulton County. And that's a good point too, whenever you start looking at some of the urban core versus the, the suburban storyline. So I think, I think those would be my three Atlanta, Tampa and Raleigh could be surprise performers. Yeah. And it does see, even looking at.
- [57:41]
A
Some of the Q4 data that some of these southeast markets you mentioned, a few of them are maybe holding up or turning a little. I don't want to get, I mean again, we're kind of, we're getting the green shoes conversation, we're not talking about full recovery. Talking about like early signs of it. You mentioned a few of them. But I think also, you know, we're still got some data for Jacksonville, Orlando, you know, Charlotte's obviously been hit, but still I think comparatively held up a lot better than, than Austin and others. You know, it seems like there's some that whole region may surprise us and I don't want to, I don't say, hey, time to ratchet up the forecast, but it seems like those demand drivers in the Southeast remain pretty strong.
- [58:17]
B
Sure, yeah, no, totally agree. I'm actually going to steal something from that you said earlier that'll make me sound smart, so I'll take credit for it. And that was really you. But we were looking at the Jacksonville numbers and I was a little surprised. I was like, man, that Jacksonville number, the occupancy is a little bit low for some of that rent growth that maybe is starting to finally start to brew. And again, not a lot of rent growth, but a little bit of movement. And you brought up the good point that this is a momentum business and the fact that momentum is building, I think the fact that there is some momentum building in some of those markets is also going to be a factor to consider.
- [58:50]
A
Yeah, I know, I appreciate that, Carl, but I think, I do think you're going to see some of these markets where I really do think we'll see a few of these markets really surprise us and think, hey, well there's still recovery to work through. But I think that there's been after three years of no rent growth and these, you know, you have good businesses that need to reach pro forma, need to see something once they get momentum, I think they're going to be pretty quick to start trying to ratchet it up again. And then obviously if the market doesn't accept it, they'll pull back. But if the momentum is there, I don't think there'll be a lot of hesitancy to try to push, but we'll see how that plays out. So now obviously we're talking about 26. But Carl, for most people in the industry, they're making decisions thinking about longer term the next five to 10 years. And so I'm sure you get asked this all the time, but for investors and developers thinking the next five plus years, what markets do you like?
- [59:36]
B
Yeah, this is always a fun question to go down the rabbit hole on. And I will say too, before I get into some markets that I really like, one thing I think is important to note is I genuinely do think you can make money and make sound investment decisions in nearly every market in the country. I think even with the right investment scope, the right strategy, the right set of expectations, a Youngstown, Ohio could make sense. I'm not saying that that is the market that I would go look at, but I do think that there's the again, fundamentally the business, the rental housing business that is in good enough shape that you could in theory find an opportunity everywhere. Now, going forward in the next five to 10 years, I think that there's some Midwest markets that maybe are going to start not necessarily popping up on radars because I think they already are, but maybe staying on radars. And I think that with that you're going to see kind of this interesting feedback loop with the Midwest where one of the knocks on it the last cycle, and rightfully so, was that there was a lack of liquidity. Well, now that liquidity is actually starting to come into nomenclature in your Indianapolis of the world, your Columbus is of the world. That maybe makes that market a little bit more attractive outside of just even the fundamentals.
- [60:49]
A
Because what about Youngstown?
- [60:50]
B
But yeah, Youngstown and you know, I use that as kind of a tongue.
- [60:53]
A
In cheek example, but we love you, Youngstown. I don't know about liquidity there.
- [60:56]
B
Yeah, not a highly liquid market, but I think you start to see some of those markets again, Indianapolis, Columbus, where fundamentally they've been pretty good for a long time. Now that the liquidity or the lack of I guess the illiquidity discussion starts to fade away. I think those markets offer some opportunity. I still think that the Sunbelt has a number of good opportunities. I think you still maybe are looking at if you acquire today, maybe your first year isn't necessarily what you would want to see on an initial kind of acquisition strategy. But that isn't to say that you can't get that later on, especially with how fast supply is burning off in a number of the Sunbelt markets. So if I had to pick some there, and I swear I'm not just trying to sound like a homer here, but Dallas kind of has moved into that, you know, really kind of that, that name brand market.
- [61:52]
A
Yeah, it's a tier one market.
- [61:53]
B
It's a tier one market and I think even more so than in Atlanta or a Houston, which are often kind of compared to similarly sized markets. A couple other markets that, excuse me, that I also really like too, you know, I think that there's some opportunity on both of the coasts for that matter. You know, I think when you start to look at some of the demographic drivers and say, like a Seattle, for example, and maybe it makes sense there, but the challenge of course, is going to be what happens on the legislative side of the equation. And it's easy for me to say that it looks good on paper, but I think from an investor perspective there are a number of, you know, hard to account for kind of external, external factors that maybe diminish the outlook there.
- [62:38]
A
Well, especially I think we could separate the city of Seattle where there's some, you know, let's just say some, some real reason to be uncertain about wanting to place capital to build anything or buy anything. But the eastern suburbs, where they have a little more, I think, political stability, to say it gently, is probably a different story.
- [62:56]
B
Yeah, that brings up a good point too. I think that if there's another kind of investment theme that comes up over the next, call it decade, is that the macro story isn't going to matter as much as the macro story. I think that when you start looking at individual, you pointed it out with both Atlanta and Seattle that when we talk about these markets, we're talking about the market on aggregate, but really that Fulton county story maybe isn't the same as what we're talking about in Cobb County.
- [63:23]
A
Right.
- [63:23]
B
You know, so I think that it's really going to be more of a, a localized kind of micro ties, if you will, investment story.
- [63:31]
A
Yeah, we've seen the same thing even in Dallas. Like you look at like potential distress numbers in Dallas are pretty big. But a lot of that was the kind of short term buyers, you know, the, the, you know, kind of the short term flip strategies, value add strategies in the wrong submarkets markets. Yep.
- [63:43]
B
Right, Totally.
- [63:44]
A
So it is a submarket game. So you mentioned, you know, Seattle. I mean, the same thing. And you know, there's some great attractive, politically stable suburbs in the Bay Area.
- [63:52]
B
D.C. we talk about D.C. all the time. Are you talking about the District? Are you talking about Montgomery County? Are you talking about Northern Virginia? Those are three very different stories.
- [63:59]
A
Northern Virginia is still in favor. Montgomery county, not so much. The District, not so much. You know, same thing as in the suburbs of New York and whatnot as well. So yeah, I think probably on the same page there. No, and I think also too, I don't want to knock the downtowns too. I do think you're going to have one thing that's interesting you look at the next. I want to talk more about supply in a second here. But Carl, the drop off and start seems to be most impactful in some of these downtowns urban areas where the higher cost to construction, I think you could still make a bull case.
- [64:30]
B
In.
- [64:31]
A
Politically stable cities with less regulatory headwinds. You could make a real strong case for urban investment in some of those spots.
- [64:41]
B
Yeah, absolutely. I think the urban investment thesis obviously was spooked in 2020 because we just didn't know what was going to happen with downtowns. Well now we see that hey, downtowns still matter. Like downtowns are still attractive places to be by and large. And I think the biggest thing there, going back to the demographic tailwinds is where do 20 somethings who have just got out of college or 20 somethings that you know, want to live close to their, their place of employment?
- [65:06]
A
Where do they usually want to live?
- [65:07]
B
Well, they want to live downtown. So there's still like these, these trends that favor that downtown story. And I think that if anything you see some kind of new up and coming downtowns if you will, like Newark, that's able to tie into Manhattan where even if you're remote or I'm sorry not remote, even if you're hybrid where you're remote two or three times a week, that makes it viable to live in Jersey City and commute to the west side of Manhattan. Whereas five years ago that was maybe not going to be necessarily the, the, the, the math just wasn't going to work as well because you were going to be commuting.
- [65:41]
A
Yeah, certainly Jersey City more than Newark itself. But yeah, yeah, that's, that's, that's been a good story. Now I should note that it's also interesting downtown, some of the surrounding areas, like there's an article shop you'll saw about downtown Dallas. Despite all the growth in Dallas, downtown is, you know, probably still stuck in the 1980s. But you know, you have a lot. All these cities, they all have urban neighborhoods outside surrounding downtown that I think could be well positioned. All right, so let's, Carl, let's wrap this up. Asking about supply. Obviously it's been the big theme of this cycle. The question we're getting a lot is how long does it take before supply starts. Starts start to ramp up again. So let me start with that. Like when do you think we start to see a real pickup and starts.
- [66:19]
B
Yeah, yeah, it's hard because we talk about winter starts starting again. But yeah, yeah, a lot of start.
- [66:22]
A
Start.
- [66:23]
B
I think the, and this is something too that a lot of people. This is, this is a fun debate topic if you will, like how much the national starts Number matters. I think the national number won't actually see a lot of movement in the next 12, 18 months. I think by the time you get to, I guess that would be the start of 2028. Maybe you start to see you, maybe you begin to see starts pick back up a little bit. But there are actually some individual markets where starts are starting. Starts are beginning to pick back up again. I look at like a Miami, for example, where starts today. I don't have the exact number, but there were more starts in the past 12 months than there were in the preceding 12 months. So you're starting to see some individual markets show some movement there. I think the national numbers maybe would get watered down because in Oakland maybe isn't going to see any starts the way that it was in the early 2000s. And maybe that makes the Oakland and Miami number a net wash or a net zero. So, but I, I, I think by 2028 we could start to see a little bit of more of that movement happening again.
- [67:25]
A
Yeah, I think that's probably a good number because you, I think a lot of the industry, they have to see some recovery and some stability in rents where they can start to build again. And that does get you to 27 or 28 before that can really happen. And then, you know, Carl, lastly, I think that even as they ramp back up, it's really, really hard, slash impossible to see a scenario where they get anywhere near the numbers we saw for starts in 22 and 23.
- [67:46]
B
Yeah, totally. I think the other thing to mention real quick too, and I know we have a timeline here, but the other thing to mention real quick on starts is that the distress that we've seen in the market hasn't been in the new builds. In fact, new builds have actually been performing pretty well relative to say, you know, the Class C sector, which I think that's where a lot of the distress remains. So it's not that there isn't an appetite for building, it's just kind of a wait and see. And it's not like it's, you know, 0708 again, where there was ubiquitous distress at all price points. The fundamentals for that class A property type remain pretty solid. So I think we'll see starts, we'll, we'll inevitably see starts pick back up at some point. But I think like you said, we'll need at least a year of kind of improvement, recovery and then it takes a little bit longer to get everything worked through the, the, you know, legal pipeline and the permitting pipeline.
- [68:37]
A
But yeah, certainly demand has been great. I think the challenge for these newer projects and if there is distress where it might be concentrated is the fact that, you know, the, the lease up rents today are what, the same as they were in 2022 and so they're just not getting the rents that they need to justify the cost of construction. So that's got to get some recovery before we see a pickup and starts again.
- [68:55]
B
It's a very good point.
- [68:56]
A
Well Carl, this has been a lot of fun. Thanks for making the trip up here and of course And I hope 2026 is a great year for you.
- [69:02]
B
Thanks.
- [69:09]
A
Foreign. And that's wrapping up so number 68 of the rent roll. Big thank you to Carl for being our guest today and also thank you to our sponsors to jpi, Madera, Funnel, Mason, Joseph Landing and Authentic. And thank you to all of you for spending part of your week with us. For those of you being in Vegas for mhc, hope to see you there. For everybody else, we'll see you next week.