Investors have been shunning multi-family REITs lately, pointing to an improving housing market and worried that a wealth of new apartment supply is in the pipeline. Multi-family housing starts have jumped dramatically, with the number of units currently under construction in April up 11 percent from a year ago, according to the U.S. Census.
“Rising interest rates and increasing cost of new supply will help keep that supply down and will allow us to continue to increase rates on our existing residents,” says Neithercut.
A subset of multi-family, the lesser-watched student housing sector, could also benefit, specifically the largest, American Campus Communities (ACC). Since it has so little competition, it benefits from a cheaper cost of capital.
(Read More: Map: Tracking the US Real Estate Recovery)
“We actually have a very favorable comparison in terms of yields. The development transactions that we’re undertaking typically are 7 to 7.25 yield, a nice spread to multi-family, so we tend to have more cushion in that regard,” says Bill Bayless, CEO of American Campus.
For the overall REIT space, however, analysts are questioning whether this is a long term cyclical change tied to improving gross domestic product. If so, sectors with shorter-term leases, like multi-family, self-storage and health care may fare better than office or industrial, which have longer-term leases.
Article source: http://www.cnbc.com/id/100793087