Multifamily NW’s Fall Apartment Report Luncheon

I attended Multifamily NW’s Apartment Report Luncheon last week and thought I’d highlight my takeaways from the speakers. Please note I have no affiliation with MFNW or any of the sponsors of this event, and anything I say should not be held against anyone...especially the part about Love Island.

The speakers at the event included:

1. Amy Ruiz of Swift Public Affairs
2. Sam Adams: current candidate for District 2 Multnomah County Commission
3. Chris Page of Fulwiler Insurance
4. Jessica Greenlee of Affinity Property Management
5. Robert Black of Newmark

Based on the eclectic panel of speakers, I had no idea what to expect. They all represented super specific fields within our industry including public affairs, politics, insurance, operations, and brokerage and?in true Portland fashion, they started with politics:?

Amy is a self-proclaimed election nerd. I loved her enthusiasm around voting and the process in which government is conducted. She mostly focused on the City of Portland in which most of the folks in the room do business but I would guess that probably only half (at best) of the attendees are actually residents of the actual City and will vote in the upcoming mayoral race but it was interesting to get her take on what’s going on in Portland with regards to the substantial changes within the City of Portland with its new governance roles of city officials, expanded City Council races and the debut of rank choice voting. She showed what the ballots will look like and how rank choice voting works so that voters know what to expect.

Amy’s presentation: https://assets.noviams.com/novi-file-uploads/mfnw/__2024_ApartmentReport/1-Amy_Ruiz.pdf

PLEASE REMEMBER TO VOTE!!

Sam Adams followed Amy with his vision for Multnomah County and his priorities:

• ?Homelessness: he wants to appoint a homelessness “czar” to coordinate between city and county. Feels the best path to action is via emergency decrees.
• More resources for the District Attorney
• Affordable Housing: he wants to appoint a housing production “czar”.

- We currently have about 500 permits for housing in the pipeline.

-?We need approximately 6,800 to meet the housing needs in Multnomah County.

? - You do the math.

You can learn more about Sam Adams here: https://www.multcoforsam.com/ ?

MFNW has endorsed Sam Adams for Multnomah County Commission District 2. Candidate endorsements have been qualified from MFNW research and interviews and finalized by their Political Action Committee. You can read more about their process and the MFNW 2024 voters’ guide here: https://www.multifamilynw.org/news/2024-voters-guide ?

THIS IS THE INSURANCE PIECE (and words I NEVER thought I would say) AND WHERE IT GETS GOOD:

Up next was Chris Page with Fulwiler Insurance. As we all know, insurance has been one of the biggest variables in underwriting deals. Premium increases on average are 26% higher YoY. Chris even stated that this number is probably LOW and just when we thought perhaps insurance was going to stabilize, Florida was hit with two hurricanes which set the entire industry back. There was a lot of discussion around the lack of carriers and impacts on insurance costs, etc. For me, the most interesting or actionable points Chris made were around some of the more impactful aspects of a building (as it pertains to insurance), including:

• ?Age of the Building: this matters especially depending on what systems are in place, what improvements have been made, what inspections have occurred, etc.
• Types of Breaker Panels: this has become increasingly important to insurers.
• Type and age of Plumbing: plastic is brittle, galvanized leaks, etc.?

He also touched on how there is much less tolerance for claims and claims now often result in non-renewal. Chris’s advice is if you do have to make a claim, document it like your life depends on it. Show exactly what happened, show your team’s investigative workflow and process, document said investigation and workflow, be as detailed as possible, time stamps, receipts, negotiations, etc.

I think this is an area that property management companies can start to (or start to better) differentiate themselves too. Solidify and communicate your process. When a claim must be made, how does your team handle it – what resources are available – show that you understand how impactful a single claim can be and that you have established proven strategies to manage and mitigate risk.

So, what else can we do??

• Increase deductibles: this shows that you’re not planning to use insurance for general maintenance, etc.
• Replace the pipes
• New roofs
• Annual inspections
• Preventative maintenance

I’ve spent some time thinking about how we on the owner/operator side can use this less than stellar situation and information to better our position as owners/operators. With that, here are some of my thoughts:

• If we’re going to make these improvements or if our buildings are going to have to implement or be built to these standards, USE THEM/MARKET THEM/SELL THEM. When selling a building, highlight those electrical panels baby. Sell those pipes! I want to know ALL ABOUT THOSE SPRINKLERS!!! New roof? I want to know everything….who put it on, what kind of waterproof tape they used, I want to know every last detail.
• Annual Inspections – these are a must. Inspect your buildings annually. Send the report to your insurance carrier with updates on completed and pending improvements, preventative maintenance, and plans for the year. Do it before budget season so you can show proactive, preventative maintenance. Investors would also love this kind of thing. If this isn’t already part of your offering, make it so.
• Shopping for insurance is now like Love Island. Over the duration of your initial coverage, the carrier may choose to "re-couple" at the end of your term where they can choose to remain in the relationship or swap partners. If you don’t want to be dumped from the island, you better show why you’re a good partner and what you bring to the table. What are your strengths? I would document all improvements throughout the year that occurred as part of your general maintenance, upkeep, and preventative maintenance. Take care of your building and document everything. If it’s a new build, consider the impacts to your coverage in every decision you make with regards to systems, fixtures, etc. It’s the insurance companies’ world, and we’re all just living in it.

Insurance is literally killing deals left and right and right when we thought we would see some reprieve, two hurricanes put everyone back in fighting formation. This “problem” isn’t going away anytime soon so we must find a way to evolve and adapt. I think it’s worth meeting with your insurance folks to talk about strategies and opportunities. Prioritize these conversations and efforts with your property management companies. Allocate time and resources to these conversations.

At this point, you could have heard a pen drop. I think we’ve all been waiting for someone to be as forthcoming and transparent about the state of insurance but not sure we were ready emotionally. I really appreciate Chris saying all the things no one wanted to say to a room full of people who didn't want to but REALLY needed to hear it. All joking aside, I think it was incredibly insightful and timely for everyone.

Chris’ presentation: https://assets.noviams.com/novi-file-uploads/mfnw/__2024_ApartmentReport/3-Chris_Page.pdf

Up next was JESSICA GREENLEE from AFFINITY PROPERTY MANAGEMENT reporting on all things OpEx:

CAN YOU IMAGINE HAVING TO FOLLOW THAT INSURANCE PRESENTATION?!?! We were beaten and broken and next up on the agenda….operating expenses.

Jessica (and her team) surveyed approximately 50k units to analyze opex across 5 regional markets including the Portland metro, Eugene, Bend, Salem, and Vancouver. This information was PURE gold and while we all technically “know” it to be true, seeing it quantified and on the big screen was staggering.

Across all five markets surveyed, we have seen a 59% INCREASE in operating expenses between 2021 and 2024. Some of the bigger ticket items include maintenance and contracted services with a 54% increase, advertising with a 98% increase (I would be curious to see what would happen if we stopped spending 98% more on what I can assume is mostly attributed to ILS’ and instead focused more on SEO and smart content), and GET THIS PEOPLE….unit turn costs with a whopping 188% increase with paint being one of the biggest contributors. So, what are we supposed to do with this information? One of my biggest takeaways is that we should be assessing what can be taken “in house” and whether that would create any cost savings or other efficiencies. I cannot speak to this as I haven’t evaluated the cost or benefits of this but I think it is a worthwhile exercise. How can we better manage contracted services? How can we streamline unit turns? Honestly, this should be its own little business model within a business model. Should we be incentivizing our maintenance teams to reduce costs associated with turns? You want to add value? Solve for these issues.

Jessica’s presentation: https://assets.noviams.com/novi-file-uploads/mfnw/__2024_ApartmentReport/4-Jessica_Greenlee.pdf

Last but certainly not least was ROBERT BLACK with NEWMARK.

At this point, we were hoping for some emotional reprieve. Maybe a little levity. Was Robert going to lift us back up? He touched on transaction activity….its down. Average price per unit….its down. Gross rent….its down. Net effective rent….its down. Total residential income….its down. Development pipeline….its down. NOI….its down 63%.…but have no fear….Robert ended his portion with some good news:

-??????????? Pipeline finally coming to an end.

-??????????? Operating costs have likely peaked.

-??????????? Portland metro is finally showing positive population growth.

-??????????? Elections are around the corner. Vote! Vote! Vote!

Robert’s presentation: https://assets.noviams.com/novi-file-uploads/mfnw/__2024_ApartmentReport/5-Robert_Black.pdf

Actually, one of the slides I took a picture of (and not only because I didn't bring my glasses and couldn't read anything on the screen so I was zooming in on my phone) was this one on the costs of renting vs owning:

The markets with the biggest delta between renting and owning are still the markets we should want to be investing in and delivering housing in. Portland is still that market. The West Coast is still that market.

....and finally, I know you have been waiting for this, the food was in fact delicious, and the convention center was the perfect venue.