B (27:10)

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.

A (27:17)

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.

B (27:48)

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.

A (28:37)

Of that apartment data.

B (28:39)

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.

A (29:07)

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.

B (30:28)

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.

A (31:03)

You get two anecdotes, you got a trend.

B (31:05)

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.

A (32:28)

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?

B (33:25)

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.

A (34:42)

Oh yeah, heads on beds, that's everybody was, that was the theme for 2025 for sure. Totally.

B (34:47)

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.

A (36:14)

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.

B (37:50)

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.

A (38:04)

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?

B (38:58)

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.

A (39:25)

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.

B (39:34)

Yeah, no, and it's good research. So yeah, she said, Shane. Yeah, Shane, that's prior to your day.

A (39:39)

But yes, Shane, if you ever watch this shout out.

B (39:43)

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.

A (42:33)

Yeah.

B (42:33)

And you still have the issue of.

A (42:34)

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?

B (44:18)

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.

A (45:21)

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.

B (45:55)

Right?

A (45:55)

Yeah.

B (45:55)

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.

A (46:43)

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.

B (47:26)

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.

A (48:00)

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.

B (48:52)

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.

A (49:19)

So you think we're getting back to more kind of normal seasonality as supply drops off? We will see that more.

B (49:23)

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.

A (49:55)

Yeah, I think the same, their retention rates.

B (49:57)

Right.

A (49:57)

Like they're, they have to normalize at some point, but the new normals can be higher than it was.

B (50:02)

Yeah, New normal is maybe 53, whereas 2018, it was, you know, normal was 50.

A (50:07)

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?

B (50:14)

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.

A (51:56)

Still sunny there.

B (51:56)

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.

A (52:31)

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?

B (53:23)

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.

A (53:58)

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.

B (54:12)

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.

A (54:45)

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.

B (55:14)

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.

A (55:24)

Back to the question on Sunbelt outperformers, which ones? If you had to pick some, that might surprise us.

B (55:29)

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.

A (57:26)

County area, Fulton county area.

B (57:27)

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.

A (57:40)

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.

B (58:17)

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.

A (58:50)

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?

B (59:35)

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.

A (60:48)

Because what about Youngstown?

B (60:49)

But yeah, Youngstown and you know, I use that as kind of a tongue.

A (60:52)

In cheek example, but we love you, Youngstown. I don't know about liquidity there.

B (60:55)

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.

A (61:52)

Yeah, it's a tier one market.

B (61:53)

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.

A (62:38)

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.

B (62:56)

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.

A (63:23)

Right.

B (63:23)

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.

A (63:30)

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.

B (63:43)

Right, Totally.

A (63:44)

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.

B (63:52)

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.

A (63:59)

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.

B (64:30)

In.

A (64:30)

Politically stable cities with less regulatory headwinds. You could make a real strong case for urban investment in some of those spots.

B (64:40)

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?

A (65:05)

Where do they usually want to live?

B (65:07)

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.

A (65:41)

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.

B (66:18)

Yeah, yeah, it's hard because we talk about winter starts starting again. But yeah, yeah, a lot of start.

A (66:22)

Start.

B (66:23)

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.

A (67:24)

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.

B (67:46)

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.

A (68:36)

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.

B (68:54)

It's a very good point.

A (68:55)

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.

B (69:01)

Thanks.

A (69:09)

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.