Arbor CEO Ivan Kaufman Leads Thought-Provoking Fireside Chat at eCore22
Arbor Chairman and CEO Ivan Kaufman kicked off the first full day of eCore22 in Miami this November with an informative and intimate panel discussion, featuring Charles Ostroff, SVP Multifamily Chief Credit Officer at Fannie Mae, Robert Verrone, Principal at Iron Hound Management Company, and Aaron Kurlansky, Principal at Sheridan Capital, that covered the most pressing economic issues of the moment.
‘The Greatest Run in My Lifetime’
“We’ve had such a phenomenal run the last couple of years, we really forgot where we were 10, 12 years ago and what we went through,” said Kaufman.
From 2010 to 2019, rent growth climbed for 10 consecutive years, vacancy rates reached historically low levels, and cap rates fell well below 5.0%. Driven by historically high investment levels, the multifamily sector saw massive growth in originations while unemployment, interest rates, and inflation stayed low.
A Correction Around the Corner?
“I think actually in 2019, pre-COVID, you started to see the beginning of a correction,” said Kaufman.
After unemployment jumped to nearly 15% at the start of the pandemic, $5 trillion in stimulus funds was pumped into the economy, creating very high levels of household savings. “The effects of all of this: we had a flight to the suburbs and increase of remote work, historically high rent growth, and unprecedented home price appreciation,” said Kaufman.
Inflation peaked at 9.0% in June 2022. By October, the average 30-year mortgage rate crossed 7.0% for the first time in 20 years, sparking concerns of an impending recession.
“Before every single recession you have the lowest unemployment rate and every time you have a recession, you have a spike in unemployment,” Kaufman told eCore22 attendees. “This recession won’t correct until CPI gets under control and employment gets under control.”
Multifamily Sector Steady Amid Economic Headwinds
Even as economists grapple with the recession question, the multifamily sector remains on solid footing.
“The asset class as a whole is not on the way out,” said Kurlansky. “There are times when you have got to pony up and ride out the wave. And with this type of thing, with the rates moving up so quickly, eventually they will come down. Is that a year, three years, five years? Who knows?”
If History is Any Judge
Kaufman found lessons to be learned from previous downturns.
“If history repeats itself, you’re going to see unemployment change, and you’re going to see a rise in the unemployment rate, which should lead to a softness in rents,” said Kaufman. “And then, there’ll be a correction, and I think it’ll happen quicker than people think.”
Recalibrating for the Next Run
During this wide-ranging, 45-minute discussion, Kaufman, Ostroff, Verrone, and Kurlansky leveled with conference attendees about the state of multifamily in 2022 and beyond.
“We’ve lived through the greatest opportunity of multifamily,” said Kaufman. “We lived through it twice. I believe this correction is a great period of time for all of us to get recalibrated and get readjusted.”
Watch the full video of eCore22’s November 7, 2022, Fireside Chat.
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