Managing risk in apartment development

Abstract

Multifamily investment is popular with US institutional investors at present despite weak fundamentals in the rental market. There is evidence that apartments provide some protection from recessionary forces and are the first product type to recover from a downturn. Capital flows have increased to the sector, putting downward pressure on capitalisation rates. Development of new stock allows investors to capture the spread between return on cost to build and capitalisation rates on existing properties. Managing the risks inherent in development is a different prospect than underwriting existing properties. This paper examines methods for managing the risks associated with construction, marketing, financing and interest rate risk, among other factors. Copyright © 2002 Henry Stewart Publications