A few weeks ago, we shared CBRE’s third quarter national multifamily report to our investors and followers. The picture was very rosy, overall. With so many reports and market indication studies available, we wanted to compare our own underwriting to more general information available about market data. We researched information for the Albuquerque market and interviewed Josh Rogers, Director of Multifamily to learn more about the academic process the Titan team uses to endorse market health.
We looked specifically at year-over-year rent growth reports from CBRE, Berkadia, Axiometrics, and Yardi to see variations in each report and then applied that information to the underwriting Titan has completed for various Albuquerque-area multifamily projects to see if the information was corroborated.
The bottom line: Titan uses far more specific research tactics than market reporters. Detailed tracking of comparable properties using analytics research technology combined with ‘boots-on-ground’ secret shopping and phone calls for confirmation leads to valid information that is paramount to achieving accurate underwriting.
National Findings Inaccurate and Widely Varied
Our investigation showed major disparities and variations within the national-level reports. National companies have a considerable challenge tracking every property in every market—to say this is a difficult task is an understatement!
Variable rent growth numbers from 0.73% to 3.3% indicate large variations in the respective data sets. After investigating the metrics used, Titan found that the information gathered was inconsistent, often self-reported, and rarely checked for accuracy at the properties themselves. Titan underwriters have consistently found that the best* information, while still imperfect, comes from Axiometrics and uses its data and information to corroborate numbers in person. In general, we are seeing greater growth and returns on par with the macro reports delivered for Q3.
The table shows some of the key metrics we studied:
Accurate Underwriting Through On-The-Ground Data Gathering
Our team will not accept generalities or inaccuracies in place of actual numbers when it comes to data analysis for underwriting. With national numbers differing by a full percentage point and market-specific numbers differing by more than two percent as reflected in the table above, it is critical to confirm assumptions. This is where ‘boots-on-ground’ research comes in. Visiting a multifamily property to see what real concessions are being delivered and what rent is quoted means the in-house data is better than any report. With only approximately five percent of Albuquerque units fitting the Class A description, it is even more important to understand the microcosm in which we invest.
Trending Rents Deteriorates Accuracy
Another key part of Titan underwriting is never trending rents. While the team looks to validate market reports and gather real information for underwriting today, it never assumes growth of any kind—if the deal doesn’t work today, it won’t work tomorrow even with rosy news on the horizon. The team updates underwriting as baselines change resulting in an inflationary mitigant, however it does not trend rents or assume rent growth during the course of the project.
Accurate underwriting is chief to reducing risk and Titan is committed to finding and using conservative, accurate numbers in its analysis of each and every deal.
*Best for the purpose of underwriting specific Titan multifamily projects, i.e. closest comparable metrics.