Jay Parsons — Multifamily economics beyond the rate cut

Episode transcript:

0:00 Jay Parsons — Multifamily economics beyond the rate cut

Jay Parsons: In multi-family commercial real estate we’re more tied to the 10 year treasury in terms of how most debt is priced than to the federal funds rate. And the 10 year treasury is noisy. 

I think there’s good reason to be optimistic. The demand is obviously there. I don’t think we’re gonna immediately change the story around home affordability, which makes apartments a little bit and single family rentals more sticky for at least the near term.

I tell people, if you’re in the rental housing business, you should be cheering for a stronger for sale housing market. Because when the people are buying houses, that’s a stronger economy and rental housing will do better in that environment as well.

One thing that policy makers, analysts, researchers, the industry and housing advocates all agree on, Hey, let’s just, we need more housing. Look is as a consumer, I don’t like paying nickel and dime fees.

0:51 Episode introduction

Alex Howe: Welcome back to season 4 of multifamily unpacked. 

Today, Funnel’s CEO Tyler is joined by the multifamily industry’s favorite economist Jay Parsons. They get right into the latest news: what last week’s fed rate cut actually means, and why rent growth, not interest rate headlines, is what really moves valuations.

They also tackle a few hot buttons: fee transparency and the shift to “all-in” pricing, the reality of city-by-city compliance that operators are living with, and the latest rent-control push in New York. And yes, they talk concessions: why they’re everywhere, and why you shouldn’t underwrite a magical burn-off next year.

Alright, here’s Tyler’s conversation with Jay.

1:38 Welcome Jay Parsons

Tyler Christiansen: Jay, welcome into Multifamily Unpacked. This is a thrill for us, an honor, and I’m super excited to dive into the conversation today.

Jay Parsons: Thanks for having me, Tyler. I’m excited to talk.

Tyler Christiansen: Perfect. All right. So you and I this week were in New York City. Got to see you there. It was super exciting. We were both attending the Pretium Symposium, which was fantastic. And so there’s two topics that we’re gonna start with, the top of our docket, that are top of headlines across the country.

So the big one, right when you arrived in New York and I was headed out, former secretary Janet Yellen came in and was speaking. But the headlines nationally, internationally were rate cuts. And so obviously that has been the thing that the industry, the world, but especially multifamily, has been paying attention to. It’s what a lot of folks have pointed to for the slowdown in activity, slowdown in housing starts, as we’re aware.

So I guess let’s just start there with: what did you hear? What are you hearing in the markets? Was the market already basically baking in this rate cut? Or what do we think this means for the industry at large?

2:42 What does the Fed rate cut mean for the multifamily industry?

Jay Parsons: Yeah, it definitely was a hot topic. People had their phones out at, I think it was 1:00 PM or 2:00 PM, whatever it was that the announcement came out, and everybody just started chatting. And then Willie Walker’s on stage, he’s trying to tell everybody what happened.

So there’s a lot of curiosity for good reason. I think you’re right, Tyler. I think a lot of people in our industry were assuming rate cuts would’ve already happened. And so I think a lot of that has been priced into some of the deals we’ve seen. So I don’t think under 25 bips really moves the needle.

I think maybe more impactful is the Fed signaling another 50 bips of cuts to come. That’s definitely—that would move the needle. I think the caution point though is that, you still won’t see the floodgates open yet, because the Fed has proven to be very bad at forecasting its own future decisions, unfortunately. And that’s no—I’m not trying to throw shade on them. It’s a hard job, I get it.

But I don’t think this really changes much. It’s a good signal. But a couple other things I’d remind people of:

Number one, in multifamily commercial real estate we’re more tied to the 10-year treasury in terms of how most debt is priced than to the federal funds rate. And the 10-year treasury is noisy. Like the stock market, it actually went up. Hopefully we see it come back down in correlation with the federal funds rate, but that didn’t happen on day one.

And then the second thing I would say is that, I think even barring some sort of drastic rate cut, the more impactful needle mover at this point is seeing a recovery in rent growth. 

Tyler, it’s been two-plus years of, at least nationally, very soft to flat rent growth—in some cases negative in some markets. And that makes our industry—valuations are based on NOI, and NOI is heavily dependent on rent. And so until we see some recovery there, a 25, 50 bips cut is probably not gonna move the needle very much.

4:26 What are the reasons to be optimistic about rent growth in multifamily?

Tyler Christiansen: Yeah, so that’s a really great takeaway from this. Jay, part of the reason we’re so excited to have you on the show—I like to joke with you that, for the asset managers of the world, like my dad, you’re a celebrity. And so I think you often are the voice of the asset manager, and for a long time have presented the data in our industry in a really insightful way.

So if maybe the takeaway here, as you’re saying, is the rate cut was a little bit baked in. In and of itself it probably doesn’t change the outlook for the industry. You just talked about rent growth. And I certainly can agree that our customers—we get to work with some of the largest operators in the country—it just feels like it’s always a quarter or two quarters away, and we just haven’t gotten there.

As you mentioned, the reason Chairman Powell referenced, “Hey, we’re taking the steps to reduce rates, we’ve got more cuts coming,” was tied to the labor market. 

What are the factors that make operators today optimistic for rent growth coming back? I don’t think anybody’s forecasting in the short term that we’re gonna get back to the 20% rent growth we were seeing in 2021. But is it as simple as, look, because of the lack of starts over the last couple of years, inherently we just believe that? That’s the conventional wisdom I hear. But then I certainly worry, as somebody who’s a part of the industry, that there’s other things afoot, like the labor market softening.

5:39 Multifamily demand is good, but anything can happen

Jay Parsons: Yeah, that’s obviously the multi-trillion-dollar question. I think, in terms of optimism:

Number one, demand’s still been very good—at least on a macro level. The absorption numbers in 2025—I know a lot of people like to argue about different data sources and whatnot—but if you look at any of the big major data sources, 2025’s gonna likely end up, barring a drastic shift these last few months, it’ll end up as one of the top years on record for the last 20–25 years for net absorption.

Now of course, the challenge is—that’s, and we’ll get more into this later I’m sure—but all that demand is being spread out among more properties because there’s so much supply, as you alluded to. But starts have plummeted these last two years. We peaked on supply last year. We have a lot of supply completing this year. By the time you get into 2026, it’ll be below average supply. It’ll be back probably to the lowest level since the early years coming out of the Great Financial Crisis, 2013, 2014 timeframe. And that changes the story.

And so I think a couple things: number one, if the economy holds up—and obviously that’s a big “if”—I think there’s good reason to be optimistic. The demand is obviously there. I don’t think we’re gonna immediately change the story around home affordability, which makes apartments and single-family rentals more sticky for at least the near term. And then the demographic drivers are still in place, and wage growth has still been good despite some of the reported softness in the labor market of late. And it’s been disproportionately good among the younger adults who tend to be renting apartments.

And so I think there’s a lot of things to like. Now, obviously again, if this—there’s kind of two paths here. Number one is: what we’re seeing in the labor market, is it some normalization because unemployment has been so low for so long? Are we just getting back to some normal issues, normal range there? Is it being impacted by immigration policy, so therefore we are isolated? There’s maybe nervousness around tariffs that may or may not play out the way people fear.

I think some of that has to be—I hate to give the typical economist answer, “it depends”—but we just don’t know. I’m still, I think, relatively bullish. I think we’re gonna end up more toward kind of normalizing growth as opposed to a significant slowdown. But obviously, if the labor market really does struggle, that’s gonna significantly impact demand. And that’s gonna in turn prolong the rent growth recovery that everybody’s banking on.

7:50 How does the for-sale market impact the rental housing industry?

Tyler Christiansen: Yep. Well said. So I guess you’re right—and correct me if I’m wrong—but I think the data is roughly 1 million new multifamily units came on the market between 2024 and 2025. Is that roughly accurate? Then to your point, pretty clear—whatever data source you’re looking at—that’s gonna fall off a precipitous cliff in 2026 into 2027.

So, you know, you’re the economist, I’m not. But the supply and demand I understand is that in and of itself should lead to rent growth based on demand. One of the factors that often I’ve heard you speak on your podcast and in other channels is that there is this, perhaps misconception that I certainly sometimes fall into, around the direct correlation of the for-sale market with the rental.

And so when I see the rate cuts, the first thing I hear is all my friends here in the Tampa area and across the country who wanna sell their homes, and they’re cheering this saying, “Okay, great, I can afford something else.” What does the data tell us, as you look at the REITs, or in particular perhaps the SFR operators? If we do see—there’s been a lot written up that there’s this real dearth of supply or a backlog of fuel that want to get into the for-sale market, and we’ve just been waiting for rate cuts to come. And I don’t know if three cuts moves the needle, but what historically has the data or the correlation been—or not been—between an active for-sale market and the rental housing industry?

9:09 The kicker is the hero, but not the key driver of the game

Jay Parsons: Yeah, no, Tyler, I love this question. And just as quick background, one of the things that really got me when I first got into this industry—and I haven’t been around very long—but one of the things that really got me stuck on it is I love the myth-busting element. There are so many things about rentals that I think people just assume, that I assumed. And then when you dive into the data, you realize some of these things aren’t actually true.

And so I look at the amount of credit that everybody’s giving the stalled homebuyer market for what’s happening in demand for apartments and single-family rentals, and it’s—it’s, I’ll give you an analogy. I think of it as: imagine you’re at a football game where it’s 20 to 20 in the fourth quarter, there’s two seconds left, and a kicker kicks the game-winning field goal. The kicker’s the hero, they’re lifting him up, he’s the story. But you wouldn’t have gotten there if you didn’t have an offense that scored 20 points and a defense that only allowed 20 points.

And yes, like the stalled homebuyer market is a factor. And it’s the shiny object right now. But it is not the key driver. It is not the main driver of the market.

And so to answer your question: I think one of the great things—one of the reasons investors love multifamily and SFR—is that we have a relatively high floor. So you see a lot of volatility in the homebuyer market. In the rental market, when the economy is softer—even like right now, for instance—we’re still seeing very high retention rates, and that’s protecting occupancy. People can’t, aren’t buying a house, so that’s boosting the highest retention rates we’ve seen on record.

But that is not aligning with rent growth, as we just talked about. And historically, you look at the best years for rent growth in the market—and again, the high floor of the sector is what we see right now—but the high ceiling years were periods of high home sales activity.

Over the last 15 years since the GFC, the best years for rent growth were 2021 and 2022. Those were also the best years for home buying. And that’s not a coincidence. Historically we see that when people are going out and buying homes, we see better rent growth for both SFR and for apartments.

And I think what happens is—our data is important, but people latch onto one or two metrics. In reality, you’re just picking the metric that matters at a given time. And so where I’m going with that is that sometimes we think that higher retention means higher revenue growth. That’s not exactly what happens.

Now, it’s important. You want to protect your back door, you want to do well with your residents. Retention’s important, especially in a slower demand market. But historically, when you have a high home sale market, people are leaving to buy homes. You have more move-outs to purchase. And in that type of economy, people are likely going to Home Depot and Lowe’s, hiring contractors—that has an upward impact on consumer spending and on job formation and household formation.

And so in that type of environment, yes, you do lose more renters to home purchase. But that environment, you’re backfilling those units faster, and often at a higher rent. And so you could see better overall revenue growth.

And again, I think the good thing about our industry is you can do well in both of those environments. But the idea that we can do better in a weak home sale market has never been true. It wasn’t true in the early 2010s. It certainly hasn’t been true these last couple of years. We’ve seen very little rent growth despite people not buying houses.

And I tell investors all the time: if you’re in the rental housing business, you should be cheering for a stronger for-sale housing market. Because when people are buying houses, that’s a stronger economy, and rental housing will do better in that environment as well.

Tyler Christiansen: I love that. And the one—the pushback I’ll give is that your former guest, Jesse Stein, and I are both kickers. Deserve all the credit. That’s the only thing.

Jay Parsons: I didn’t know you were too. Yeah.

Tyler Christiansen: Yeah. I did not play in college like Jesse. I played soccer in college. But yeah, no, kickers deserve all the credit.

12:53 The myth about rent control

Tyler Christiansen: So on the theme of myth-busting—two things. First, an aside and then a question. One aside, another plug for Jay’s podcast. On your most recent episode, you talked about the “truthers” out there on vacancy. And I think you just alluded to it a little bit, that revenue management—there is a need to have some, you need people moving in and out of apartments to grow rents at the end of the day.

So, separate topic—check out Jay’s Rent Roll podcast to hear about the “truthers.” But a huge myth that we just—I want to make sure that all of Funnel’s Multifamily Unpacked listeners hear and understand, because I think anybody who’s spent any amount of time in the rental housing industry, regardless of your political affiliation, comes to understand this myth, which is that rent control doesn’t work.

And so you and I were just in New York City. A city that has long struggled with housing affordability. A beautiful city—I lived there for a short period of time, I love it, I hope someday to be able to live there again. But right now, speaking of headlines, there’s a leading mayoral candidate in New York City who’s gonna take rent control to a whole new level.

So maybe just at a macro level here, since we’re on the theme of myth-busting—maybe Jay, could you just lay out for our listeners what’s being proposed, how it goes beyond what already is a city that has a history of rent control, and what outcomes you think this might have on the New York City rental market?

14:07 Don’t double down on what hasn’t worked

Jay Parsons: Absolutely. And I agree, New York City is a wonderful city and a great place to live if you make a lot of money. And unfortunately not a great place to live if you don’t—in large part due to the policies they’ve had in place for a hundred years.

And just to give you some context: New York City has had various versions and various flavors of rent control going back a hundred years. And what is really ironic is that despite all of this time, New York City’s still the most expensive market in the country. It’s still a hot-button topic, obviously, in the mayoral race there.

And so the natural reaction is not, “Hey, let’s go look at the research, let’s go trust the science”—like we say with arguments around vaccines, “let’s trust the science.” No, it’s, “Hey, let’s double down on what hasn’t worked for a hundred years. Let’s do more of that.”

And so what the leading mayoral candidate, Mamdani, has proposed is a rent freeze on specifically rent-stabilized apartments. About half of New York City’s 2 million apartments are in the rent-stabilization program. Now, that segment of the market is not one that’s gonna affect a large number of institutional investors. It’s very much a mom-and-pop market.

But—and I won’t get too much into the details of this—but it’s been significantly impacted since the 2019 law that enacted vacancy control. And what that is, is a more extreme version of rent control where it’s not just on your renewal, but also on the new lease.

And so we’ve seen values of these properties fall in some cases 40–50%. That change almost took down a major bank in New York City that was heavily exposed to the rent-stabilized part of the market. So it’s had a huge impact.

And what happens ultimately is these buildings become time capsules because there’s no money to invest, to properly maintain them. And so you have various reports of units that sit vacant because the owner can’t afford to renovate it to a degree to pass code to rent it out to somebody else. And that’s not good for anybody.

And so there are some real horror stories, unfortunately. And now what we see is a desire to double down on the same policy, despite the challenges already in that market. Turning affordable housing into time capsules is not in the best interest of renters.

And I’d also say too, if we really care about people in need—what is less compassionate than selling them something that’s proven not to work? I think that’s very uncompassionate. It’s not showing that you care, it’s not showing that you’re serious. Let’s focus on what’s actually proven to work. And that’s to build more housing and also put your money where your mouth is.

If you wanna be compassionate, you show you care by putting your resources in to solve the problem. Instead, what they’ve proposed is to have some small mom-and-pop landlords shoulder the problem. And it’s an unfortunate situation.

You’d like to see more focus on what’s proven to work, which is supply. It’s the one thing that policymakers, analysts, researchers, the industry, and housing advocates all agree on: hey, we need more housing. And people will say the same thing, they’ll say, “Oh yeah, we need to do that too.” But the issue is that when you put so much energy around other things that are proven not to work, it takes energy and urgency away from really solving the problem through supply.

And New York City is in a tough spot. While it doesn’t affect a lot of institutional investors, I do think there’s concern that eventually you’ll see more crackdown and more regulation even on the higher-end institutional, luxury class-A market as well.

17:27 Use what is working across the country: supply

Tyler Christiansen: Well said, Jay. I really appreciate that. And I think that again, those of us who do believe—that, you know, we’re stuck in this housing industry because it’s a wonderful industry and we’re serving homes to Americans—I think that we all are on the side of, let’s use what’s working.

I think one thing as an industry—and I love the nuance you bring to the conversation—is that more than ever in my professional, my adult life, we have evidence that supply works. Right? You just look at the markets, you look at the data that you’re consistently quoting on LinkedIn. Places like Tampa, Florida, where I live, Texas where you live, Salt Lake City where my dad invests in apartments.

Places that, for the years where there was a lot of development, we just suffered a million apartment units that came on the market. Rent growth has stalled. And I think as an industry, you look at that and certainly say, hey, we want to get back to rent growth.

And I think what’s great is that capitalist incentive is what drives people to want to put more capital to work and build more housing. So there’s nothing wrong with that. But I think sometimes we forget to really highlight how well it has worked in areas with massive demand.

I just referenced Utah, Texas, Florida. Hundreds of thousands, millions of Americans have moved to those states in the last four years, but rents aren’t growing. So demand is massive. But because supply was massive, we figured it out. 

18:45 Supply + demand: Not that complicated

Jay Parsons: And Tyler, one of my kind of pet peeves in this topic is that the haters on this topic, what they’ll say is, “There’s no demand.” They don’t understand the demand.

Let’s take Austin, Texas. Austin’s been the worst market for rents in the country among major markets. And what you’ll see are these stories saying, “Oh, everyone who moved to Austin is now moving back to California because they realize Austin’s too hot,” right? And that’s crazy. It’s, no, like the demand numbers—it’s not ’21 anymore—but these demand numbers are still really good in all the places you mentioned. In Texas, in Florida, in Utah, in Arizona, in Tennessee, and the Carolinas—like that’s where the people are going. That’s where we see the most demand.

And yet rents have fallen, are falling in most of these spots these last year and a half, two years, because of supply. And whenever I give a presentation, I have a chart that I show that’s one of my favorite charts. And it shows the relationship between rents and supply. And you could draw a line where it’s like: the more supply, the less rents.

And the places where rents are still growing, there’s no supply. And so it’s just not that complicated. And I think everyone, on the cynic side, they want to find every reason except for the actual reason to explain why the market’s doing what it’s doing.

19:46 How is supply/demand impacting multifamily business?

Tyler Christiansen: One more topic that I’m gonna correlate with supply is that recently in the news we have seen a couple of, essentially developer subsidiaries, exit the multifamily business in different ways.

So the first one that I don’t have in my notes, but I’m adding to the list, is Quarterra. Right? Quarterra is a subsidiary of Lennar. And Lennar, as most people know, is a leading home builder in the country. I started my career in homebuilding—Lennar’s the big name, one of the big names in homebuilding.

And they used to have LMC. LMC got rebranded to Quarterra. Recently in the news, Quarterra was acquired by Alfred, which is a proptech vertically integrated company, client of Funnel. They just had Jess on the podcast—they’re great—but they gave over the management to Alfred. Right? And they’re merging that with RKW, more traditional asset manager, third-party manager relationship.

More recently in the news, we heard Toll Brothers is effectively exiting multifamily development. So does this go back to maybe what you and I were discussing? These are two organizations that do development, they both also have for-sale development. It seems to me maybe this is more evidence of what you were discussing earlier—that when home sales are down, rentals are down, and therefore those companies are retrenching into their kind of core business. Is that what we think is happening here?

21:02 Homebuilding ≠ apartment building

Jay Parsons: Absolutely. I think that—I don’t wanna put words in anybody’s mouth—but I think if you put a truth serum in some of these groups, they would tell you that there are fewer synergies between homebuilding and apartment building than they probably thought when they started doing this.

They’re very different businesses. You’re building very different types of product. You’re probably using different subcontractors and trades. Different materials. It’s just—there’s not a lot of overlap other than the fact that you’re building housing. Which we need all of it, by the way.

And the other thing too that Toll Brothers talked about in their press release—and I think it’s a really good point—is that for homebuilders, they’re typically building homes that are four or five hundred thousand dollars, and they can sell them fairly quickly. Not as fast as they sometimes want, but it’s fairly quick.

An apartment building—these are 100-plus million dollar projects with a comparably finite number of potential buyers and a lot of variables on the exit strategy. And in effect, what that means is they could have 100-plus million dollars of value locked in, with an uncertain exit period. And that’s a lot for them to carry on their balance sheets. That impacts their earnings calls.

And being publicly traded, they’ve got to explain, “We didn’t—this property didn’t sell until now. It’s gonna be Q4 instead of Q3.” I think it’s just a lot of that kind of stuff. One apartment property is—what is that? 200 homes or something. And so it moves the needle a lot more and there’s a lot more variables for them.

And I think all of those things factor into it and again allow them to focus on their core business better. We still have some homebuilders still in the market, but again, it is just different.

22:38 Homebuilders: Scarcity is your biggest enemy and your biggest asset

Tyler Christiansen: Radically different. As I mentioned, I first came into the housing industry coming out of college, I worked for a builder in Salt Lake City, Utah called Ivory Homes. And one of the things I always tell my people here was just how different that is. And to the mechanics, as you just articulated, are wildly different.

In that, as a homebuilder, scarcity is both your biggest enemy and your biggest asset. That there’s only so many new builds you can do. In the rental industry, it’s cyclical to your point. And then both the community itself, the rents themselves. So I can imagine as a large public organization that those are just really different motions one from the other.

And I guess, frankly, to your point, that vertically integrated operating model—very different motion from just asset manager to property manager. Which I think what we’re seeing with Quarterra, for instance, is they’re still doing the asset management side of those multifamily, but the property management they’ve handed over.

23:35 Fee transparency in multifamily

Tyler Christiansen: All right, different topic. There’s another that a lot has been written about—the topic of fee transparency. Another plug for your podcast—you had Joanna Zabriskie of BH on the podcast talking about this topic.

We were just talking about single-family versus multifamily. The BH organization was acquired by Pretium. BH not only manages multifamily, but perhaps what folks aren’t aware of is that the BTR—these built-similarly but managed-like-multifamily communities—fall under BH.

One of the things Joanna brought up about fee transparency, as it’s going to affect states like Massachusetts now, is that it’s really messy. It’s really messy because the rules of engagement have not been set. They’re being kind of litigated market by market.

When you look at, perhaps from a data perspective, the impact this may or may not have—I think there’s a perception that the big corporate landlords are making a ton of money on these fees, and we’re gonna cut out all those fees.

I think the perception I hear from our customers is that we think the vast majority, if not all, of these fees are value-add. We’re keeping them, and now we just have to figure out how to be more transparent, or in some cases, cover our butts legally to make sure they’re on the docket.

But any thoughts in terms of the transition that we’re going through as an industry—ancillary revenue being baked in, to now being really marketed, that ancillary revenue—what are you hearing from operators and asset managers in that transition?

24:52 The rules for fee transparency are a moving target

Jay Parsons: I think, Tyler, you hit a key point. I think first and foremost is there needs to be clarity around the rules. And that, I think, is really frustrating and ultimately very anti-business and anti-innovation when the rules are a moving target.

And when it’s like, hey, we’re talking about things like fees that have been in place for 20, 30-plus years, and it’s all of a sudden, “Whoa, wait a minute, this shouldn’t be happening. Now there’s a lawsuit being filed.” That’s not—at the end of the day this is not good for anybody. It’s not good for our economy, it’s not good for job creation, innovation.

There needs to be clarity around, hey, just tell us what the rules are. Nobody’s—the tone around this has gotten so destructive. You and I know a lot of the same people. No one’s trying to break rules. There’s confusion on what the rules are. And so I think that part is very disheartening.

And it’s happening, by the way, both in red and blue places. It’s not like it’s one side. It’s very unfortunate.

And then the other part of your question is where we’re going. I do think that—look, as a consumer, I don’t like paying nickel-and-dime fees. None of us like that. And so I think this could be a positive shift to all-in pricing.

The problem I think you run into—and Joanna talked about this on my podcast—is that when properties are listed on an internet listing site, if your rent with all-in pricing is higher than somebody else’s who’s not including their fees, even if your property is otherwise directly comparable, you look more expensive.

So a renter has to actually go in and realize, “Oh, okay, wait a minute—BH is including those fees, the other one’s not.” And so maybe I’d rather do that. It’s all-in, it’s probably a similar price. But that is a big thing that has to change.

I think people want to see more wide adoption so everybody gets more comfortable that it could be done without turning away demand that’s pushed out by the price.

And the last thing I’ll say, Tyler, I think is where we’re going. I think ancillary revenue has to probably go in a direction where it’s true add-on services that a resident is willing to pay for additionally, as opposed to mandatory things.

Whether it’s a covered parking space or booking workspace in the leasing office—all that type of stuff. And then less of these kind of vague—particularly, not everybody does this—but we did have some cases where we’ve had like generic “amenity fees.” Things like that. That’s the stuff that is not gonna be popular with your residents or with your local municipalities.

27:13 Navigating the rules of the road in a multi-state business.

Tyler Christiansen: Let me take this a little bit off script because I think—I agree with the thesis. I know the executives at these organizations. Joanna came on your podcast. Funnel gets to work with the largest third-party managers, the largest REITs. These are good people who care about providing quality housing and are not trying to nickel-and-dime.

I agree though that as an industry—and this is no different than what Airbnb’s gone through, what just about every vertical goes through—the airline industry—consumers, we as consumers, have a breaking point where you just feel like you’re not getting enough value back.

And certainly, as somebody who lives in Florida, if you come to a hotel in Florida, you feel it. Because Florida does this. We don’t have income tax, so we have a very high tax on hotels. And so you go to check out of your hotel room and you know that $300 a night hotel is $450. And so we all hate getting those extra costs.

So I think directionally I agree that we need to have better transparency and make sure consumers know what they’re paying for. I think that will end up being a healthier ecosystem.

But you said something, and I heard something similar this week at the Pretium Symposium. We were talking about AI and AI rules with Palantir and Elise AI and Funnel. Revenue management, obviously, has been a hot topic in the industry.

I think every business operator—be it technologist thinking about AI, multifamily operators thinking about revenue management or fee transparency—they just want to know the rules of the road.

However, I do think, as somebody who enjoys studying American history, states have a right to make their own laws.

And I wonder—we’ve moved towards, the data shows, and you and I have talked a lot with different operators who recognize that the future is larger operators. Dom Beveridge in particular has talked about this. The NMHC Top 50 is becoming more consolidated.

The managers are getting bigger. The REITs are about the same size they were. Most operators of the conventional multifamily side that you and I interact with are multi-state.

Is there a world in which—does NMHC need to be more out front coming up with the fee transparency rule? We’ve tried that with NAA. How do we get away from the patchwork of fee transparency rules and revenue management rules? Or is it just the cost of doing business in a multi-state approach?

29:21 Compliance important for all asset types, not just affordable

Jay Parsons: Yeah, I mean—and you’re right—it’s not even multi-state, it’s multi-municipality. The rules can be very different based on an invisible line between cities that you don’t even know you’re crossing over into sometimes. And that makes it very difficult.

And I don’t think people realize—I posted on this on X recently, and I got kind of a predictable reaction. I was saying, hey, like, when you pass these little laws—Berkeley, California, there’s a law there that because of the “vacancy truthers” you hinted at—apartment owners have to file a vacancy report showing any unit that’s been vacant more than six months, there’s a vacancy tax on it.

And so these bozos out there are saying, “Oh, we’re gonna generate tax revenue, because these people are holding their units vacant.” And they don’t realize that a vacant unit—like, they think there’s some sort of magical tax benefit for a vacant unit. There’s not. A vacant unit is lost revenue. You make no money off a vacant unit.

So anyway, lo and behold, what happens after two years? They’ve generated zero of tax revenue from this fee.

So anyway, back to your point, I wrote up a little tweet and I just said, look, people don’t realize that what seems like a little thing is a major compliance issue for an apartment operator. Because now all these things that differ across different cities and different states—that builds up compliance.

All your big clients, Tyler, they all have compliance departments. And these things, it’s not like your leasing agent’s gonna fill out this vacancy report and submit it and just be done. No. There’s a lot of teeth in those reports. They’re very detailed. And if you screw it up, you’re gonna get sued.

And so that’s all these things add up. And I think it does again favor larger firms that have the resources to have compliance teams that can handle all this stuff. It used to be something you only dealt with in affordable housing. Now it’s all across the board.

31:04 How can we lengthen the customer lifetime value in multifamily?

Tyler Christiansen: That is well said. And I think what you just articulated reminds me of the conversations around, why is it so expensive to build in America? And it is the patchwork of legislation, the compliance, the bureaucracy, the red tape, that just makes a lot of deals not pencil. Especially right now.

And unfortunately then you need crazy rent growth just to justify the development work. I think similarly, unfortunately we’re moving right now towards a world where there are just too many layers. And I think you’re right. I think we’ll continue to see more of the large operators.

One of the questions I wanted to follow up with on kind of the last two questions you alluded to in different ways—A, nobody wants a vacant unit for long. That’s a perishable asset. We’re losing money on it. You talked about previously that retention has continued to tick up.

So you’ve alluded to this on your podcast and in different posts. What are some of the factors that you think—you already said that one of them is certainly that buying homes is harder than ever, so that absolutely contributes to retention. But you’ve alluded to other factors, and maybe just the improvement, the maturation of the experience of professionally managed apartments.

So maybe unpack that a little bit of why we are seeing, and in particular you mentioned with fee transparency—not only is it good for an operator to not have to turn a unit and keep somebody in, but usually there may be a rent increase. And then often many of those residents who stay longer—our data shows—they’re the ones who are more likely to buy the ancillary revenue fees. They want the extra parking spot, or they want the gym pass, or whatever things may be available to them.

So what are some of the other factors that may be contributing to this lengthening of the customer lifetime value in multifamily?

32:34 Apartment living is more attractive than it was

Jay Parsons: No, I love this topic because, again, going back to our myth-buster stuff—we started off talking about home sales. And I posted a while back this chart that John Burns’ team put together, and it shows the seven major REITs and their turnover stats over the last 10 years.

And so if you just think about the public narrative, you would’ve expected to see, okay, pretty flat, move around a little bit, COVID, and then all of a sudden mortgage rates go up and then turnover goes way down. But that wasn’t the case at all. It’s actually been a very clean trend line down for the last 10 years.

And so I think we have to be a little more intellectually curious than trying to give the homebuyer market, again, all the credit. And by the way, just going back to that for a second—I think because most of us, even in the industry, because as a function of getting older, we’re all— a lot of us are homeowners, with kids—we sometimes are still guilty of just seeing our own industry through the lens of a homeowner.

In reality, there’s a lot of other factors at play that could be impacting a 10-year trend line, not just since COVID, not just since home prices went up. And I think there are a lot of things that go into it.

I’ll say number one: when I got out of college in the early 2000s, 2004 I graduated—even in that era, it was just starting to change—but you lived in an apartment because you had to, for a period of time, until you got out. Like, the first day I moved into my apartment, I was ready to move out. It was fine, but it wasn’t a highly amenitized, great place to be. It was next to an Ikea parking lot. You couldn’t walk anywhere. The gym was just one of those NordicTrack things. There was just nothing to it.

Now you look at what’s been built over these last 15–20 years, they’re really nice buildings in great locations. And I think that matters. They’re more attractive places.

There was a good—you may have seen this, Tyler—there was a good article in the Wall Street Journal a few months back. It was about Gen Z renters and what they’re looking for. And they’re talking about things like, “The aura of my building is so great.” We never thought about aura. I don’t know about you, but I certainly never thought about the aura, the energy, of the building. But they’re being built really well.

And then secondly, I think, Tyler, to your credit and to the credit of the industry at large—there are so many—it’s a mixture of technology and people. The people are getting better. Twenty years ago, remember, all the property managers were generalists. They all had a thousand jobs to do—from bookkeeping and invoicing to leasing units and taking care of residents.

Now they’re getting more specialized. So the people who are dealing with residents are generally better at that than they were 10, 20 years ago. And they also have better tools. The technology around automation, centralization, AI—being able to do certain tasks off-site to let the people on-site really focus on what they do well, being the people people, and let the back office be the back office people.

All of those things, it’s just logically—I think sometimes we’re too dismissive. It’s like, “Yeah, but…” No. Just think about it: if you really make a sincere effort to do something better—which in this case is to better manage your properties—and there’s better data, real-time information, technology, all these things.

Like, report a maintenance ticket on your phone. I used to dread having to go walk into a leasing office to deal with anything. I don’t have to do that anymore. All of these things, I think, create a better living experience. And if you’re happy, you’re more likely to renew.

And I’ll say one last thing and then I’ll stop, ’cause I’ve been ranting for a little bit here. I tell people all the time, look, just because someone can’t buy a house does not mean they’re gonna renew with you. They have options. If they want to remain a renter, they have plenty of options to rent at all price points in most markets.

And so if they’re renewing with you, it’s probably because you’re doing something right. And if you’re not doing something right, they’re gonna move out. And so the fact that turnover is what it is—it reflects a lot more than just home purchases.

36:07 Technology + people have made multifamily better

Tyler Christiansen: I love that. You couldn’t be more right. I think the industry in general, through a combination of technology and people, has gotten better at it. And I’ve had, in my renting experience, I’ve seen that.

I also just want to say, everything you advocated for—I think one of the reasons I also love this industry and I’m so pro-multifamily, pro the capitalism that makes it run—is if you go to another country and you look at what renting is in another country, it’s miserable.

It is not the quality that you see in the way multifamily works. The supply that’s been built into multifamily, and the quality of phenomenal business operators. The ambition to earn the right to have that renewal is a wonderful thing. It’s a wonderful incentive and mechanism.

36:51 What is going on with rental concessions in multifamily?

Tyler Christiansen: I was gonna end on that because you hit so many good points, but I was too tempted. I’ve got one more question for you. You just talked about the reasons to move out, and one of the things I’ve picked up on—I know the data supports this, but man, anecdotally I see it.

We—I spend a lot of time secret shopping. I drive past a community, and I get to a red light, and I immediately type in the name of the community and say, “Oh, who’s managing this? What technology are they using?” And man, Jay, everybody’s got a little splash page that pops up on their websites now that says: “Six months free.” Or some ludicrous amount of concessions.

And it just—I can’t believe it, because I thought—I worked at LRO back in the day—I thought we had disavowed this notion that concessions were a good pricing strategy. So what’s going on with concessions and why are they in vogue and everywhere?

37:30 Be cautious when burning concessions

Jay Parsons: No, the concessions we’re seeing—so you have lease-ups that are offering two, three months concessions. And then that normalizes an expectation that, okay, if I’m a class A operator now, I’ve gotta offer concessions. People seem to see a number saying, “Oh, something’s free,” and that goes on down market as well.

And I think you’re right, Tyler. This has also come up a lot in the public policy stuff of late. And ironically, I think it was in New York—you hear these, again, you can’t win—you have one side that says, hey, if you’re not offering concessions, then you’re just trying to rip people off.

It’s like, no. Just say, hey, cut the rents to what the number actually should be. Because at the end of the day, you know that means the rent’s gonna balloon at the end of the term.

And it also gives the apartment owner unrealistic expectations of what their value really is. Because are you really gonna burn off a two, three-month concession in 12 months? Probably not. You’re not gonna raise someone’s rent 24% effectively in a one-year period of time. For the most part, that’s just not gonna happen.

But there was a case—I think it was in New York City or somewhere—where there’s actually a lawsuit because someone called concessions “deceptive pricing.” And so again, you just can’t win with this stuff.

So at the end of the day, I think renters are smart, and we should give them credit. They just want a good deal. It doesn’t matter how you get it to them, get them a good deal. And I think it’s ultimately in everyone’s best interest to have bottom-line pricing.

But yeah, concessions are more abundantly available. My biggest thing I would tell you is: do not bake your assumptions off thinking that you’re just gonna burn that concession off next year. Because it’s probably not gonna happen.

Tyler Christiansen: Jay, this has been phenomenally fascinating. We could do this for a couple more hours. But thank you for your time today. Look forward to continuing to have the conversations with you, and thank you so much.

Jay Parsons: Yeah. Thanks, Tyler. Looking forward to next time.