units Magazine recently had the pleasure to speak with David Nelson, President and Chief Investment Officer of Hamilton Zanze, about the company’s strategy moving forward as well as the economic sentiment in the rental housing industry.

 

Describe Hamilton Zanze’s portfolio. What types of apartment communities do you own, and where are your properties located?

Nelson: We completed our first acquisition in 2001, and since then, our portfolio has grown to 20,815 units across 117 properties in 15 states.

We primarily seek properties with the following attributes: Class B or better, 1990s vintage or newer, with value-add to core-plus returns. We target institutional-quality assets with opportunities for operational and economic improvements in markets with sustainable, long-term employment and population growth trends. We prefer long-term, fixed-rate financing, with leverage up to 75% loan-to-value.

 

In terms of community acquisitions and dispositions, what are Hamilton Zanze’s goals and strategy for the remainder of 2024?

Nelson:  Our goal is to continuously improve and expand our portfolio. With our existing assets, we evaluate where we are in our business plan, enabling us to determine when it’s right to sell or continue to hold a property. On the acquisition side for this year, we’re aiming to underwrite/evaluate as much as we can to find opportunities where sellers are willing to meet the market. Secondarily, we’re targeting deals that have favorable debt that we can assume. 

We’re also always exploring whether we can assist operators who have distressed assets. While they might not be selling a particular distressed asset, they might have other needs within their portfolio and selling these other assets helps them obtain the liquidity they may require. 

In 2024, we remain highly active, exploring new markets for investment opportunities while continuing to be engaged in the markets where we have existing holdings.

 

With the recent surge in new construction deliveries, many owners and operators have intensified their focus on retaining current residents. Is that the case with Hamilton Zanze, and if so, how are you working to maximize resident retention?

Nelson:  From an acquisitions perspective, we’re not generally concerned about the current construction pipeline, because that pipeline goes to near zero in 24 months. It might have an impact on occupancy, rents and concessions over that span, but we’re looking at the positive long-term outlook for the apartment industry, and it is bright. In terms of retaining current residents, the strategy depends on a number of things, which could include a property’s business plan, the state of the market or the timing of leasing season, among others. We don’t take a one-size-fits-all strategy, but rather leverage our experience and the facts on the ground to make appropriate decisions. We’re always working with our property management firm to offer the best possible customer experience that will impact retention.

 

Looking more broadly, what is your take on how the apartment market has performed so far in 2024 in terms of operating fundamentals? And what do you think may be in store for the next year or two?

Nelson:  Operating fundamentals have been strong this year. Much of the 25-to-30-aged population that typically rents is currently living at home, but at some point, they are going to venture into the apartment world and that will have a positive impact on absorption. Additionally, it is difficult for current apartment dwellers to leave and purchase a home due to high interest rates and hefty down-payment requirements. Couple that with homeowners with fixed rates who are reluctant to sell—which further dwindles the amount of available single-family homes—and there is a lot of pressure for renters to stay where they are. That has, at least in part, led fundamentals to be stronger than anticipated. 

Apartment operations will be choppy in the short-term, but our optimism for the future is strong. Everyone is aware of the vast construction pipeline, but those units are being absorbed faster than anyone thought. We’re in for a really positive trend in apartment fundamentals in 2025, 2026 and beyond. 

 

Last year was a slow one for the industry when it came to investment sales. How do you see the pace of sales unfolding over the next couple of years?

Nelson:  The big thing on apartment dispositions is that they are tied to how equity is moving. The large-scale trend is that many of the large institutional equity groups have just not been acquiring at their previous pace, so the flywheel really hasn’t been turning. However, large portfolios are starting to transact, and this leading indicator is very positive for increased transaction volume. 

My belief is that, even though we’ve had slow transaction volumes in 2023 and early in ’24, we’re at that inflection point where we’re going to start seeing a lot more. I also think people might have some concern that they missed the boat on cap rates, and we’re going to start seeing some cap rate compression. When that fear occurs, people start reacting quickly. We might see a little bit of a floodgate situation, which I feel is healthy for the industry.