A huge drop is not coming: the multi-family market is expected to remain hot until 2023

Renters and investors are still looking for multi-family space. And demand for apartment living shows no signs of slowing, according to Kia Krums, regional vice president of the Midwest region for King of Prussia, Pennsylvania-based Morgan Properties.
We spoke with Cromes about the continued strength of the multifamily market and why Morgan Properties is eager to expand its apartment holdings in the Midwest. Here's what she had to say.
Why has demand remained so strong for multifamily properties for so long? What are the factors fueling this asset class' long hot streak?
Kia Kroms: The economy definitely helped. There has been excellent job growth in the United States. Wages for individuals continue to rise. People have access to cash. At the same time, supply chain problems persist. This makes it difficult to build as many new homes as people want. Renting, then, is a great option for people today.
Apartment prices are also high. It inspires more people to rent. We see an excellent retention ratio when it comes to lease renewals. People are even selling their homes, cashing out and downsizing to condos and townhomes. They want the lifestyle and lack of maintenance that comes with renting instead of owning.
What about an interest rate increase? What effect does this have on the number of people who want to rent instead of buy?
Krums: When interest rates are higher, people are more likely to rent. But our investors are still enthusiastic about multi-family properties as well. Our investors continue to be enthusiastic about different markets, especially when it comes to the Midwest. There are many markets in the Midwest that are always strong.
Morgan Properties has made several multifamily acquisitions recently. We entered the Indianapolis market with an asset of more than 2,100 units. Recently we also entered the Chicago suburbs with acquisitions in Elgin, Palatine and Schaumburg. We continue to find ways to build our portfolio.
Why make the move to Indianapolis? What drew you to this market?
Croms: As an organization, we are oversaturated with assets in the East Coast and Sunbelt regions. Indianapolis was an untapped market for us. We like the growth potential in the Indianapolis area. There are some good meat and potatoes properties out there when it comes to B properties. There is a secondary market there that is not used and in our wheelhouse. We do this part of the market well. We love buying these properties and adding value to them.
What are tenants looking for today in multi-family properties?
Krums: Coming out of a pandemic, people are now looking to be outside. They are looking for more space. They are looking for everything from outdoor kitchens and grilling spaces to fire pits that they can use in the evenings. They want to really live and gather with family and friends. That's why we love the second garden style apartment communities. There are so many value-added opportunities. We can add a lot to the outdoor spaces in these communities.
The way people live today, things like dog parks have become more essential to people. They want that off-leash exercise for their furry friends. They want outdoor open kitchens or splash parks along with swimming pools. Anything that involves spending time with family and friends is important today.
However, there is no one-size-fits-all list of services. What works in Michigan may not work in New Jersey.
Speaking of the pandemic, the multifamily sector seems to have held up really well even during the worst days of COVID and the sector has gotten even stronger today.

Krums: There were some industries that were hit hard by the pandemic, such as hospitality and retail. We saw some softness when it came to collecting rent, but our team members were good at being experts when it came to helping people find those funds. The government and other agencies offered financial assistance that we could connect people to. There were no days off for our staff during the pandemic. We were there to serve the residents.
Today, many tenants are staying put and renewing their leases. Many do this because they are nervous about making the transition to buying a single-family home as interest rates rise. Maybe they don't have money for a down payment. All this makes multifamily a strong option for people.
Are you planning to purchase additional properties in the Midwest?
Krums: We do. We are always looking for growth opportunities. Even if we wanted to rest, our investors and employees would not allow it. It is so affordable there now in the multi-family space. We are interested in those value-added opportunities where we can find more meat on the bone by upgrading apartments and townhouses and the services in these spaces. It's in our wheelhouse. This is where we win and where we are always looking to expand and grow.
Are you upgrading Class-B properties enough to turn them into Class-A space?
Krums: Sometimes it happens. It depends on the spend and the demographics we are trying to serve. It's about what the market dictates for the property. We want to make the changes that people want to see, to bring what was missing in development. This is the recipe. We've done this time and time again, but every property is different. The same services do not work everywhere. We do our due diligence when it comes to the market. We learn what people want to see.
The multifamily market has been strong for so long. Do you see the demand for apartments, from both landlords and investors, continuing to hold or increase throughout the rest of this year and into next?
Krums: We will continue to see strong numbers. Some markets may soften a little, but I don't see any huge decline happening. The supply chain problems have not yet been fixed when it comes to building new detached houses. We still don't have enough housing to put everyone's heads in beds. Adult children who returned with their parents will leave again to find their own places to live. People are branching out and getting their own apartments and townhouses. One household now becomes two. Do I see occupancy in the multi-family sector softening a bit? Sure. But I don't see a big drop. Our occupancy numbers and demand for apartments will both remain high.