Greystar's Bob Faith

As much as homeownership was pushed as vital to the “American Dream” over the past several years, it’s becoming clear that owning a home has turned out to be more of a nightmare for some. Experts from a variety of fields concur that more attention needs to be given to rental housing, a smaller yet critical component of the US housing market.One of those voices is Bob Faith, chairman and CEO of Greystar Real Estate Partners, a Charleston, SC-based company that specializes in multifamily management, development and investment, overseeing more than 150,000 units in over 75 markets across the US. Given the economic, social and demographic shifts occurring in the country, he maintains that rental housing is increasingly becoming a more fundamental part of the American Dream. “Now, more than any other time, we as an industry have the opportunity to redefine apartment living as the new American dream,” Faith said during a speech he gave last month. Recently, Faith spoke with GlobeSt.com about this point, what needs to be done to bring the rental market back into the spotlight and what’s in store for the industry.Globest.com: You’ve said that renting is as fundamental to the American Dream as homeownership. Can you elaborate on that a bit?

Faith: There are so many benefits of the rental lifestyle, particularly because our culture is changing. Today’s population of 18 to 34 year olds are likely to have many more jobs than the prior generation at that age, so there will be more people in that age group with career stability as the economy changes. People need a lot more flexibility than they had before.

The other thing is that when you have such a devastating economic crunch, it really does scar people’s psyche. There’s going to be a lot of folks that decide homeownership is perhaps not for them, recognizing the risks that come along with it.

Globest.com: There are still a lot of policies pushed by the government that promote homeownership, such as the new homeowner tax credit and loan modifications. What are your thoughts on that? Do you think it’s just extending our problem?

Faith: Obviously they’re trying to stimulate the economy. The main thing is that we as an industry need to make sure that people don’t get lost on the fact that multifamily housing is a critical part of our future as well. There are so many things going for it–it’s more environmentally friendly and sustainable than single family, doesn’t add to sprawl, etc. Single-family homeownership is always going to be a part of our culture, but I think there’s been too much focus on it and we just need more balance. We need to make sure we have policies that are equally supportive of multifamily.

Globest.com: How can those in the industry shift the attention to that point?

Faith: Part of it is just talking about it. We need to start the conversation about how renting can absolutely be a part of that American Dream.

Globest.com: Multifamily is doing relatively well compared with other property types, but it is definitely under pressure. What trends are you seeing?

Faith: Vacancies are definitely at an all-time high today. But the thing to recognize is that as an asset class, while vacancy may be at an all-time high, it’s still only 8% in multifamily versus office, where it’s 16% or 17%. And if you think about why that is, historical trends of multifamily absorption year-over-year show that when employment growth goes negative, very rarely does multifamily absorption go dramatically negative. Compare that to office and retail, where you see dramatic negative absorption when job growth goes negative. Multifamily demand is tightly correlated to job growth, so when you see the jobs come back, you typically see a spike in multifamily demand very quickly afterward.

It’s usually the first product type to start seeing strong absorption because the people who would live in the units are still around; they don’t go away like stores or office tenants do. So when they get a job, they move into their own apartments.

What has been particularly tough on multifamily this time is the job losses. We’ve lost about eight million jobs across the country in this recession, and well over four million of those jobs were held by those in the 18- to 34-year-old age bracket, which is the sweet spot of our renter profile. This recession has hit our renter population particularly hard.

Globest.com: It seems that for the most part, landlords are lowering effective and market rents to keep vacancies low. Are you seeing a lot of that?

Faith: Absolutely. Rents are going down in every single market we operate in and have gone down in the past 12 months. Obviously, the severity of the loss ranges from a few percentage points in markets like Washington, DC to 20% in a market like Vegas, which has been particularly hard hit.

Globest.com: With appreciation no longer skyrocketing, the focus has shifted toward asset and property management to increase income coming from properties. What strategies has Greystar been using?

Faith: In this part of the cycle, everyone is getting extremely focused on squeezing every last drop of cash flow out of the properties as they can. There’s a whole host of things you can focus on to maximize the cash flow, such as rebidding vendor contracts to take advantage of economies of scale, and other expense-side controls. On the revenue side of the business, we’ve rolled out a rent-maximizing program that we’ve used on a lot of our properties.

In the end, it’s all about cash flows. It gets back to the blocking and tackling of our business. It’s no more creating value through financial engineering. Now, we’ve got to earn it.