A future in which people spend more time working from home than they do commuting to the office. The lure of the open spaces and lower costs of the suburbs. And a growing appreciation of smaller but still bustling cities such as Indianapolis, Kansas City, Milwaukee and Omaha.
The world has changed since the COVID-19 pandemic turned life upside down in the United States back in March of 2020. And the multifamily market? It has changed with it.
But here’s the twist: Many of the changes that have surfaced because of the pandemic have actually strengthened an already sizzling multifamily sector. More people working from home? Apartment life becomes even more important. People ready to leave more expensive urban downtowns? Apartment owners in the suburbs are happy to welcome them.
Midwest Real Estate News recently spoke with Chris Bruzas, senior director in the Carmel, Indiana, office of Berkadia, about the enduring strength of the multifamily market.
Bruzas is a particularly good source for this story. He and his team – the members of which no longer work side-by-side but, like at many other companies, are scattered throughout their own home offices – are busier than ever. And the Indianapolis-area multifamily market remains a booming one.
Here’s some of what Bruzas had to say about Indianapolis’ apartment sector and what the future might hold for it.
The Indianapolis apartment market has been strong for a long time. How is it performing today?
Chris Bruzas: The market continues to stay crazy. It’s hot. At the end of last year, we started to see a decrease in the number of investors bidding on multifamily properties when compared to earlier in the year. A lot of investors were getting frustrated. They were spending a lot of time on deals they couldn’t land because the competition was so intense. But even as the number of bidders on these properties fell, the pricing went through the roof. At the end of the day, you only need one buyer to find a deal.
There is so much money out there chasing the market. What we are seeing today, is that to win a deal, you have to assume higher rent growth in the first five years. You have to assume a lower cap rate. You have to look past some issues with properties. If you get hung up on any of those, you’ll lose the deal. Someone else is available to make that deal.
Is there anything else unusual about the Indianapolis-area apartment market today?
Bruzas: Last year, more than 70% of my buyers were from New York City or had New York equity. Usually, that figure is below 50%. Do investors love markets like Indiana? Do they even know how to get here? I don’t know. But they do see markets like Indiana as safe vehicles. Indiana is very business friendly. We have slow-and-steady rent growth. The amount of New York money we saw last year is an anomaly. But there are reasons why Indianapolis is an attractive market for out-of-state investors.
Why is the multifamily market such a good bet for investors today?
Bruzas: At the end of the day, everyone needs a place to stay. In a market like Indianapolis, if you are in an apartment, your options are to renew your lease when it expires and agree to pay, say, 5% more than in the previous year in rent. Or, as option B, you can move into a starter home that costs about $300,000 to $400,000. If you go with option B, by the day houses hit the market, they have 10, 15 or 20 offers. There is extremely high demand out there for single-family homes. And there is low supply. Some people bid on houses and then get frustrated. If 20 people bid on a house, 19 don’t get it. Faced with that stress, it’s a pretty easy decision for many to stay where they are and to continue renting.
What makes Indianapolis in particular such a strong apartment market for investors?
Bruzas: Indianapolis has done a good job with job growth. It’s easy to get around here. Traffic is not crazy. A dollar still goes a long way here, especially when compared to a market like Chicago. A lot of people in Indianapolis have moved here from Chicago. We are seeing bigger companies coming to Indianapolis and growing here. Salesforce is a good example.
There has also been little new construction in the apartment market throughout the whole city. This has been particularly true the last year or two as lumber and other costs have gone up. Developers are waiting to start projects, hoping that costs go down. We have had very little new supply during the last two years. The demand for apartment space, then, continues to climb.
Are you seeing more people move to Indianapolis from other more expensive markets?
Bruzas: I was one of those people. When the pandemic hit, I moved from Chicago back to Indianapolis where I grew up. I have been back two years now. I am bullish on markets like Indianapolis. A dollar goes a long way here. If you are looking on a restaurant or social level, you can’t compare Chicago to Indianapolis. Chicago wins all day. But Chicago also has more issues. There is more crime. The state is in financial trouble. There is a lot more to deal with when walking in Chicago versus walking around Indianapolis. I think it makes less and less sense, depending on where you are in life, to continue long-term living in apartments in a market like Chicago. People are now going to the lower-cost suburbs or markets like Indianapolis. That, along with more work-from-home, has benefitted the apartment market in Indianapolis.
How has the increased number of people working from home impacted the apartment sector in markets like Indianapolis?
Bruzas: My analysts can be sitting in Anchorage, Alaska, as long as they have Internet. I don’t care where they are. I don’t need everyone sitting next to me in an office. I think this trend will continue. Companies will need less office space and will have less of a desire to spend big-ticket money on office space.
If you are working from home, why live in a high-rise for $4 or $5 a foot in Chicago? It makes more sense to rent in a market like Indianapolis. I believe that more people will move to lower-cost major cities in the future.
What’s the apartment situation like in Indianapolis’ suburbs? Has the suburban rental market gotten a boost?
Bruzas: Downtown Indianapolis has been back from COVID for almost a year now. If you are a young, 20-year-old, there’s still a lot to like about living in downtown Indianapolis. But not as many young people are renting in downtown Indianapolis for 10 years anymore. They are staying downtown for a shorter period of time. At the same time, there are these new downtown areas in Indianapolis’ nearby suburbs. Places like Carmel and Fishers have created these mini downtowns with an urban feel to them. But you are still in the suburbs. You’ll get cheaper apartment rents than you would in downtown Indianapolis, but you’ll still get a downtown feel. You might be able to walk to three or four restaurants from your apartment as opposed to 10 or 20 in downtown Indianapolis, but you get more bang for your buck when it comes to your apartment unit. And you’re only 15 to 20 minutes from downtown Indianapolis. These little suburban downtown areas are hot.
Can you talk a bit about how you’ve kept your business strong during the pandemic?
Bruzas: We are seeing an enormous amount of activity this quarter. My team, specifically, is operating leaner today. Everyone knows his or her role on our team. And with the exception of me – I am still meeting with clients on a more daily basis – the rest of my team just needs Internet access. We have this machine set so that if there is any clog in the line, we know where the clog is. We all hold each other accountable.
Everyone knows his or her role. We don’t need to be next to each other. That is a thing of the past. We are all younger than the average team that is doing this much business. We are more efficient and quicker. COVID has accelerated that. Our efficiency is a big reason for our success. It’s why we’ve won so many listings. Our clients want everything done yesterday, so they are looking for efficiency from their partners.
Do you think this way of working – leaner and more efficient, people not required to be in an office all day – will remain even after the pandemic fades?
Bruzas: Buyers still need to see the real estate before they make a decision. They need to see the property to remove much of the risk of their investment. That still needs to happen. That is always going to be there. But in terms of getting acquainted with a deal, the videography we offer, the photography, the quarterly reports, the monthly third-party reports. That takes away 90% of the guesswork for a lot of our clients. They can tell quickly if a property fits their business plan. This has created a more efficient atmosphere.
Commercial real estate is still old-school. The technology is better than it used to be, but this is a business that has been dominated historically by older men. A lot of that has to do with the weed-out rate. If you don’t make money for a year or two, you probably won’t stick with commercial real estate. But there are people who are embracing new technology. That’s why I like Berkadia. This company is more focused on your production. You are encouraged to create a more efficient atmosphere. And I think this mentality of boosting how efficient you can be is here to stay.
