In Wake of Financial Crisis, is Multi-Family a Safe Haven?
In the space of only a couple of months, thousands of jobs have been lost, billions of dollars of wealth have evaporated, and the public’s view on the U.S. financial economy has been completely transformed. It is difficult to estimate the total number of professional, commercial real estate jobs lost over the past year, although a quick count of high-profile real estate layoffs such as the 320+ at Lehman Brothers, 270+ at Bear Stearns, and 300+ at General Growth Properties alone, indicate that the overall loss is staggering. As the recently laid-off begin to look for the next opportunity, multi-family may provide an area of opportunity amidst the chaos.
For those searching for professional real estate jobs, there are opportunities that exist in the industry, but far fewer than one would like to see. In fact, since June 2008, when professional real estate job postings reached their peak of 1,085, they have decreased by 40% to October’s low of 653 (see Chart 1). Clearly, for those searching for a real estate position, realizing that there are thousands of other applicants who are also looking, it would be wise to know where to focus one’s efforts.
Chart 1: Professional Real Estate Job Postings in 2008
Source: New postings of commercial real estate positions on key job boards over the months of February, April, May, June, July, August, September, and October 2008; base = 6,471 postings.
The Multi-Family sector may provide the greatest opportunity for those recently laid-off professionals, who have an interest in entering—or remaining—in the real estate industry. The Apartment industry offered 166 job openings during the month of October compared to 189 job postings by all other sectors combined (see Chart 2). With roughly half (47%) of all professional real estate jobs posted during October falling within the Multi-Family sector, this might be a great place to start looking for that next job.
Chart 2: Professional Real Estate Job Postings in October by Sector
Source: New postings of commercial real estate positions on key job boards during the month of October 2008 (298 “Unspecified” sector jobs removed); base = 355 postings.
With such a huge percentage of the total jobs posted in October coming from the Multi-Family sector, the question arises: With the rest of the real estate economy cutting jobs—or simply freezing any hiring plans, why is the Multi-Family industry looking to hire so many new employees? The answer lies in basic market economics, which have been proven true again and again: when the single family residential market is doing well, multi-family growth tends to be stagnant or, in some instances, decline; when the single family residential market does poorly, as is the case today, multi-family, in general, sees an increase in occupancy and experiences stable to increased rental rates.
It is not too hard to connect the dots to explain why the Multi-Family industry is currently scrambling to fill positions. Just last month, RealtyTrac released a report containing the S&P/Case-Shiller Home Price Index as well as their data on foreclosure filings throughout the country (see Chart 3). It shows that home prices in 20 of the nation’s major metro areas have been decreasing since June 2006 and foreclosure filings are at an all time high. Now compare this with Multi-Family 2008 job postings and the correlation is clear. With only one exception (during the month of August), Multi-Family job postings have increased each month since February (see Chart 4). With home prices trending southward and foreclosures ever increasing, many homeowners are being forced into apartment living, thus driving the demand for Multi-Family employees.
Chart 3: Single Family Home Prices and Foreclosures (2005-2008)
Source: “As Home Prices Plummet, When Will You Buy?” RealtyTrac, DarrenB, 9-30-08.
Chart 4: Multi-Family Job Postings in 2008
Source: New Multi-Family postings of commercial real estate positions on key job boards over the months of February, April, May, June, July, August, September, and October 2008; base = 1,284 postings.
The greatest need within the Multi-Family industry is for employees trained in the areas of Property Management, Leasing, Accounting, Administrations, and Asset/Portfolio Management (see Chart 5). Property Management and Leasing account for 66% of the total job postings in October. These positions are vital to a Multi-Family company’s ability to successfully “lease-up” an apartment complex and then retain those tenants to ensure a healthy rental income stream.
Chart 5: Top 5 Job Functions Within the Multi-Family Sector
Source: New postings of commercial real estate positions on key job boards during the month of October 2008; base = 166 postings.
The decline of home prices and the rise of foreclosures surely will not last forever, but we are far from the bottom. “There are signs of a slowdown in the rate of decline across the metro areas, but no evidence of a bottom,” reports David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. How long Multi-Family will remain the strongest sector within the real estate industry is difficult to forecast. What should be apparent is that, at least for the short-term, Multi-Family offers eager job seekers an open, receptive audience to field their employment inquiries. And with the national unemployment rate hovering around 6%, any industry that is actively looking to hire an employee looks like a shining knight to those left with nothing after the recent Wall Street financial crisis.
Author: Joshua K. Ladle, Cornell Program in Real Estate Student