Keeping Apartments in Check

Keeping the supply-demand balance "in check" constitutes one of the biggest concerns in the multifamily commercial real estate sector at present, according to Jim Butz, president and CEO of the Jefferson Apartment Group.

In a video interview with REIT.com at the Akerman U.S. Real Estate Summit this month in Miami, Butz discussed the overall multifamily market dynamics. Given the growing demand for apartment rentals, Butz said the sector needs to make sure it doesn't go overboard with building new properties. He noted that some markets, such as the premier East Coast market, aren't conducive to building right now, which should ease concerns about overbuilding there. Other markets aren't as well defended, he said.

"You've got to be very concerned when you look at markets that are easy to build in and have low barriers to entry," Butz said. "A lot of people can get back into the markets today and put new supply out in a very short period of time."

Butz also echoed the common sentiment among commercial real estate executives that the sector is relying on continued job growth to prolong its run of strong performance.

Despite those concerns, Butz said the general market dynamics continue to favor apartment investors and owners.

"The demographics, the growth in the economy, the lack of supply for the last two years—all of those items overcome the concerns we have," he said.

In the coming year, Jefferson intends to focus on the development side of its business, according to Butz. He estimated that the company will devote 75 percent of its efforts to new development projects in East Coast markets. The other 25 percent will go towards the acquisition of existing apartment facilities that are between 10 and 15 years old.