Moving markets: is the multi-family sector on the cusp of a downturn?

• Author: Madison, Rachel
• Position: FOCUS

Becoming a homeowner used to be a major facet of achieving the American dream--but in recent years, it seems that American dream has shifted. From millennials to baby boomers, people are moving past the ideal of buying a home with a large yard in the suburbs to instead renting a more modern, amenity-filled apartment in a bustling area of the state.

Multi-family apartment buildings are being constructed alarmingly fast all along the Wasatch Front. Mark Jensen, senior vice president of investment sales at Newmark Grubb ACRES (NGA), says multi-family housing in Utah is extremely robust right now due to factors such as interest from out-of-state investors, the state's capital preservation market and booming population growth.

Although these trends seem to show a need for more multifamily housing developments, is there a chance that developers are building too much, too fast? Or are there enough people demanding this new lifestyle that it just makes sense to strike while the iron is hot?

A multi-family bubble?

Dan Lofgren, president and CEO of Salt Lake City-based multifamily housing developer Cowboy Partners, says while some may believe the Wasatch Front is in the middle of a multi-family housing bubble, he's not inclined to employ that term.

"The term bubble means the market is growing fast only to burst," he says. "Instead, I say that we are just always somewhere on the [market] cycle. Are we closer to a downturn today than we were a year ago? Absolutely, because that's how cycles work. Does that mean we're immediately in peril? No."

The cycle Utah is in now is unusually strong and robust, Lofgren says, which can be attributed to the state's extraordinary job growth. But the fact that it's prolonged doesn't mean the market is on the edge of a cliff.

"I'm quick to caution anyone in the industry to be respectful of the cycle and bear it in mind, because the market will eventually move in a different direction," he says. "But we're still looking at selective new development in the market here. Our cautiousness about the cycle hasn't caused us to withdraw, but we are aware of the cycle and we're watching to see what happens. We're much more selective today than we might have been four or five years ago."

Construction pipeline

During the last five years, Salt Lake County has averaged approximately 1,600 new units added to multi-housing inventory. Greg Ratliff, vice president of the apartment properties group at NGA, says all Salt Lake County...