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Multifamily Development: Can You Always Lease It Up?

Mark Fitzgerald, Chenchao Zang and Will McIntosh
The Journal of Portfolio Management Real Estate Special Issue 2019, jpm.2019.1.097; DOI: https://doi.org/10.3905/jpm.2019.1.097
Mark Fitzgerald
is senior director of research at USAA Real Estate Company in San Antonio, TX
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Chenchao Zang
is a data science associate in research at USAA Real Estate Company in San Antonio, TX
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Will McIntosh
is global head of research at USAA Real Estate Company in San Antonio, TX
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Abstract

Large institutional investors continue to view multifamily real estate favorably and raise their allocations to this sector. It is commonly perceived among institutional investors that multifamily—and multifamily development in particular—is a safer investment relative to other property sectors, a common refrain being “you can always lease it up.” In this article, the authors attempt to validate this statement by examining the distribution of lease-up terms from initial lease-up to stabilization for multifamily developments delivered in the United States between 2008 and 2018. In addition, they investigate the impact of the length of the lease-up period on effective rents. Unfortunately, they do not have underwritten projections for each development to compare with subsequent performance as a mechanism to determine an investment’s success. Despite this gap in the available data, the authors generally find support for the conventional wisdom; most developments are able to lease-up in a relatively expedient fashion, no matter the position in the economic/business cycle. However, effective rent change over the lease-up period varies significantly by point of cycle and lease-up term and is an important factor in the investment performance of multifamily developments.

TOPIC: Real estate

Key Findings

  • • Multifamily development is considered lower-risk by many investors, relative to other property sectors, as you “can always lease it up”.

  • • Our research confirms this – relatively expedient lease-up is achieved across markets, vintage, property size, etc.

  • • Effective rent growth, on the other hand, is more sensitive to these factors, and varies significantly by lease-up term.

  • © 2019 Pageant Media Ltd
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Multifamily Development: Can You Always Lease It Up?
Mark Fitzgerald, Chenchao Zang, Will McIntosh
The Journal of Portfolio Management Aug 2019, jpm.2019.1.097; DOI: 10.3905/jpm.2019.1.097

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Multifamily Development: Can You Always Lease It Up?
Mark Fitzgerald, Chenchao Zang, Will McIntosh
The Journal of Portfolio Management Aug 2019, jpm.2019.1.097; DOI: 10.3905/jpm.2019.1.097
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  • Article
    • Abstract
    • LEASE-UP TIMING FOR NEW MULTIFAMILY CONSTRUCTION
    • IMPACT OF LEASE-UP TIMING ON EFFECTIVE RENTS
    • PREDICTING LEASE-UP TIMING
    • CONCLUSION
    • ADDITIONAL READING
    • APPENDIX
    • ENDNOTES
    • REFERENCES
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