Millennials are Changing the Multifamily Marketplace 1 of 5

Representing the largest generation in the United States, millennials are a driving force in the American housing market. While there are no universally agreed-upon dates that define this generation, most researchers use a range of birth years beginning in the early 1980s and ending in the early 2000s. These young adults prefer renting rather than owning, an inclination that is likely to continue because renting meets the demands of their lifestyle and financial resources. For property owners and managers, success in capturing the millennial rental market hinges largely on their ability to do two things: (1) engage renters in a way which matches how they interact with the world and (2) provide the services that match the way they want to live.

Millennials and the rising demand for multifamily housing

The Census Bureau projects that the millennial population in the U.S. totaled 83.1 million in 2015, surpassing baby boomers as the nation’s largest generation. Among millennial householders, two-thirds are renters—a growing group which already represents over half of rental housing residents nationwide. The implications for rental property owners and managers could not be clearer: the ability to attract a growing set of 20 – 34 year old renters will have a significant impact on the success of multifamily property owners and managers for years to come.

Young Residents Dominate the Market for Rental Housing

Age Distribution

Rental Housing Residents

Share of Rental Housing Residents

Residents in Owner- Occupied Housing

Share of Owner- Occupied Housing Residents

< 30 years 55,916,372 51% 66,868,632 33%

30 – 44 years 25,219,932 23% 35,872,732 18%

45 – 64 years 20,214,476 18% 61,975,072 31%

65+ years 8,421,411 8% 36,304,272 18%

Total 109,772,191 100% 201,020,708 100%

Source: U.S. Census Bureau, NMHC tabulations of 2014 Current Population Survey, Annual Social and Economic Supplement, Updated 11/2015.

Millennials Are Changing the Multifamily Marketplace

Innovative mobile technology offers property owners and managers an opportunity to engage renters and differentiate their properties

from competitors.

Key Takeaways

The combination of tight finances and specific lifestyle preferences indicates

that millennials are likely to remain in the rental market for years to come.

Accounting for 51% of renting residents, adults under 30 years of age dominate

the market for rental housing.

Bernie Avondet, SVP, Multifamily Payments

Brandon Nowac, SVP, Head of Real Estate Payments

Millennials are Changing the Multifamily Marketplace 2 of 5

Multifamily property owners and managers stand to benefit from rising occupancy rates and demand for additional properties, provided they understand the underlying drivers of growth and prepare for change. During the Great Recession, a large number of people decided not to move into a new house or apartment—also known as establishing a household—as a result of unemployment, low wages, lack of available credit and other factors. For many millennials, this meant living with family or friends. According to Freddie Mac’s Multifamily Mid-Year Outlook 2015, as many as 3.9 million households were not formed, with millennials accounting for the majority of those potential households. As the economy strengthens and young adults gain their financial footing, more and more millennials will move out and establish their own residences.

A large portion of newly formed residences will be rented or leased units within the multifamily market. Over the next decade, Freddie Mac has projected that an estimated 440,000 new multifamily units may be needed every year to meet this pent up demand.

Two powerful forces will contribute to the millennial preference for renting versus owning as they establish new households: finances and lifestyle.

Source: U.S. Commerce Department.

44%

43%

42%

41%

40%

39%

38%

37%

36%

35%

34%

33%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

40.841.2 41.3

42.2

43.1 43.0

42.6

41.7

41.0

39.7

39.1

37.7

36.7 36.8

35.8

35.0

Millennial finances: No room for a mortgage

Millennials in increasing numbers are looking to establish independent households, especially since their economic circumstances have improved since the depths of the Great Recession. However, while many young adults are now able to set out on their own, they face financial hurdles that prevent them from buying and maintaining a home.

Fannie Mae reports that 62% of renters between the ages of 25 – 34 believe that it would be difficult for them to obtain a mortgage today (National Housing Survey: Millennials Look to Income Improvements as Key to Unlocking Homeownership, August 2015). Income growth tops the list of financial concerns for millennial renters, who cite the need to see sustained growth in income before they become first-time homebuyers. The survey also reported that young adults recognized the need to improve their credit scores, increase savings and decrease debt before buying a home. As a result, renting remains a viable or perhaps only option for millennials to establish households.

Many young adults would not have the cash on hand to cover the expense of a 5% down payment plus closing

Peaking at 43.1% in 2004, homeownership among Americans under 35 fell to 35.0% in 2015—a 30-year low—indicating a growing demand by young adults for rentals

Homeownership Trend Among Americans Under 35

Average 1985-2015

Millennials are Changing the Multifamily Marketplace 3 of 5

Rental housing is a millennial lifestyle choice

In addition to the financial hurdles, lifestyle preferences of many millennials are contributing to rental demand. Young adults are choosing to live in different types of communities than their parents, and multifamily housing increasingly offers an ideal solution for their lifestyle preferences and needs.

Reflecting their demand for amenities, millennials seek housing with high-end conveniences such as pools, fitness centers, security, and in-unit washer/dryers and other appliances—luxuries typically not available to a first-time home buyer. This is particularly true within the urban centers that millennials often want to live in.

Today’s multifamily units are being built with the tastes of young adults in mind. For example, an apartment in Atlanta incorporates large pool decks, waterfalls, a bocce court, and a garden with outdoor kitchen/bar and grilling areas into common areas (sitesolutionsla.com). Other amenities being demanded by millennial renters include indoor bicycle storage, smart controls for HVAC systems, dog park/pet washing stations, yoga classes, electric car charging stations, valet trash services, recycling services, and online leasing/rent pay/maintenance requests (REscour.com).

The bottom line: Property owners and managers must work to deliver affordable amenities that millennials require to attract and retain tenants in this important demographic.

Source: Nielsen, Millennials – Breaking the Myths, 2014.

prefer mixed-use communitiesin urban centers

two-thirdsAlmost

Source: Nielsen, Millennials – Breaking the Myths, 2014.

The “American Dream” is transitioning from the white picket fence to the historic brownstone stoop

Millennials believe renting is the only way to get the metropolitan location they want

FORRENT

43%of those who plan to move over the next two years are millennials

$1.2trillionstudent loan debt

negative savings rate

-1.8%

Millennials and mobile technology

Devotion to technology is one of the defining characteristics of millennials, and no other generation is as committed to staying connected 24/7. Among Americans aged 18 – 29, according to Pew Research (2015):

• 85% are smartphone owners.

• 15% are heavily dependent on a smartphone for online access.

• 20% have a smartphone but not traditional broadband service.

• 25% have a smartphone but have relatively limited options for going online.

costs on a typical first home. In fact, according to a survey by Moody’s Analytics in 2014, adults under age 35 currently have a savings rate of negative 1.8%. This could mean that millennials are paying off the debt they have, but another interpretation is that millennials are accruing debt. Either way, liquidity is a real obstacle to a home purchase for this segment.

Debt is an important factor contributing to the millennial preference for renting. Total outstanding student loan debt reached $1.3 trillion in 2015, making it the second largest category of household debt in the U.S. In a report by the Federal Reserve Bank of New York (Debt, Jobs, or Housing: What’s Keeping Millennials at Home?, April 2015), student loan balances for borrowers at age 25 nearly doubled from 2003 to 2013.

With income concerns, the increasing weight of student debt and other financial worries, renting often remains the most viable option for millennials.

Millennials are Changing the Multifamily Marketplace 4 of 5

Millennial rental demand + technology = mobile property management solutions

There is no doubt that the millennial generation will be a steady and strong force driving multifamily demand and occupancy for years to come. Technology will continue to expand the ways that multifamily property owners and managers connect with this important market. Specifically designed for mobile access, innovative solutions provide property managers with the ability to engage their residents by:

While most properties and their property managers have an online presence to help attract new residents, many are just now beginning to appreciate how important and powerful online and mobile capabilities are becoming. Sites like Yelp, Craigslist, Rent.com, Apartments.com, and others deliver information about a property to a generation of potential renters—renters who leverage these sites as well as social media to research and collect feedback on properties they are considering. To be successful going forward,

property managers are seeking for ways to connect with potential renters in the way those renters wish to communicate with them.

Smart property managers are also leveraging technology to improve overall resident experience after acquisition. Whether it’s for payments, maintenance requests, messages, or surveys, property managers must remain connected with residents or risk losing them to competitors.

Managing payments

• Provide residents with easy and convenient access to make rent payments

• Accept growing payment types such as debit card, credit card, and ACH

• Deliver automatic payment reminders via text or email

• Reduce or eliminate use of costly money orders

Communicating with residents

• Send automated and customized messages by text or email for important events such as lease renewals and payment reminders

• Deliver targeted emergency notifications to residents with a simple click of a button

Improving maintenance requests

• Allow residents to submit fast and simple maintenance requests through mobile devices— even attaching a picture with the request

• Enable residents to track their maintenance history online or through a mobile device.

Surveying residents and gaining insights

• Leverage event-driven surveys to quickly and easily gauge resident satisfaction

• Use data to improve online reputation, reduce turnover, and improve occupancy

Trends in payments: Millennials want to pay electronically

Millennials have grown up in an online world and utilize technology to make their lives simpler. The adoption of electronic payments continues to rise and underscores the importance for businesses to offer these capabilities to them. According to a FICO report, millennials are twice as likely to already be using mobile payments versus the 35+ demographic, emphasizing the need to offer mobile payment services to stay competitive and earn their loyalty.

Already Using or Very Likely to Use Mobile Payment Providers in the Next 12 months

32%Ages 18 – 34

8%Ages 50+

Source: Fair Isaac Corporation, Millennial Banking Insights and Opportunities, 2014.

Millennials are Changing the Multifamily Marketplace 5 of 5

Bernie Avondet, Senior Vice President and Sales Manager for the Multifamily Real Estate Payments Team at KeyBank, has more than 15 years of banking experience with the majority of time being spent in the Multifamily and Commercial Real Estate payments space. In his current role, Bernie focuses specifically on providing innovative and strategic solutions tailored to meet the needs of the multifamily housing industry.

To learn more about KeyBank’s solutions for multifamily housing, please contact:

Bernie Avondet at 216-689-4234 or bernie_m_avondet@keybank.com

Brandon Nowac at 216-689-0376 or brandon_f_nowac@keybank.com

This document is designed to provide general information only and is not comprehensive nor is it legal advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought. KeyBank does not make any warranties regarding the results obtained from the use of this information.Credit applications are subject to credit approval. Key.com is a federally registered service mark of KeyCorp. ©2016 KeyCorp. KeyBank is Member FDIC. 160122-33247

Bringing solutions for multifamily housing to your business

Advances in mobile technology provide commercial property owners, developers, and managers across the country the ability to utilize valuable products and services. Capitalize on the mobile environment by working with a seasoned bank partner who can help property managers simplify rent payments, deliver mission-critical resident services and provide insights that have a direct impact on occupancy and ROI.

Mobile technology is rapidly taking center stage in multifamily housing as residents seek to remit payments and interact with

property managers electronically. Owners and operators who incorporate this technology into their payments and communications systems can gain a significant advantage

over their competitors.

Angela Mago, EVP, Head of KeyBank Real Estate Capital®

”

Brandon Nowac, SVP, is the Group Head of Key’s Commercial Real Estate and Public Sector Payments teams. Through a team across the U.S., he is responsible for delivering payments solutions to private and institutional commercial real estate customers, governments, and higher education.