EP#101 Lee Everett | 2027 Budgeting Hot Takes: Will Concessions Just "Burn Off"?

Jay Parsons (0:03)

Welcome, welcome. It's episode number 101 of The Rent Roll, your podcast on all things, rental housing, apartments, sanitary rentals, and build to rent. And it's everybody's favorite time of year. It is budget season. And I know it's a grind. And honestly, it really takes a special individual to actually love budget season. And I know some of you out there, you actually do love budget season. I know there are some of you, and my hat's off to you.

But for the rest of us, everyone's got to do it. And so my hope is this week's episode helps equip you.

And obviously, just a little bit, I know there's a lot of many things you're going to consider that I can't factor in, of course, but maybe just a little bit helps equip you to thinking about revenue and expenses in 2027 Thinking about topics like what's going to happen with rents? And how does that look for new leases versus renewals? What about expenses? Are we going to see rising consumer inflation start to impact OPEX a little bit? And then, of course, the topic du jour on the revenue side, concessions.

Will all those concessions just burn off in 2027 as some of your budgets and pro-farmers might be banking on? We'll get into all that. And it will be joined by the head of research and strategy for the nation's top 10 largest apartment owners and operators, Lee Everett from Cortland. One of the smartest guys I know in the business and a repeat guest of The Rent Roll, by the way, and we'll try to siphon some budgeting wisdom from his mind to help us think about 2027

All right. Big shout out to our headline sponsor. Thank you to JPI, a leading apartment developer with a state of purpose to transform building, enhance communities and improve lives. Check them out at jpi.com. JPI is the cutting edge of some major innovations in apartment development and construction. All right. So as always, we could kick it off. Well, a little section we call, Here's a Chart. And again, I know we've had some new folks join the podcast this year. This is a podcast of segments. And so we got a lot of different segments. We break this out. The second half of the podcast is the interview. But we always start off with a chart. Because I'm a data nerd, so that's what we do.

And just a little quick housekeeping thing. Most of today is going to focus on apartments. For my friends in San Antonio Rentals and BTR, I think a lot of this is still going to be very relevant to you. But we will go deeper on SFR and BTR in next week's episode. And we'll be joined there by the CEO of Invitation Homes, Dallas Tanner, for next week's episode. So that's going to be a good one. So join us for that. All right. Here's a chart is sponsored by Northspire. If you've developed anything, then you know this one. The budget and the forecast live in one spreadsheet. The draw package lives in another, and somebody in your team spends the last week of every month stitching them all together into a report that's already stale by the time it goes out. Northspire was built by a real estate developer to end that. One platform for budgets, forecasting, draws, scheduling, and vendors across every project you've got. Northspire has facilitated more than $500 billion of projects. northspire.com. All right. Now, before we look forward, we got to look backward a little bit. Because if you don't know where you are, and where you're starting from, then how can you know where you're going? Now, as I'm saying that out loud, it's dawning on me that some of you smart Alex listening are probably thinking, well, I just typed in my location on my GPS on my phone. It hit the button that says My Location, and it tells me where I am and where I'm going. So let's just pretend that we hit My Location button on your map, and now we're looking at where we are, and then also hopefully a little bit of path, a little bit of a, it's not quite as clear as the ways directional map, of course, but just a little bit of a rough idea for directionally where we might maybe be going. So first chart, this is year-to-date rent growth through August. In 2026, that's the purple dotted line. And I'm comparing that solid, kind of faded blue line is going to be the pre-COVID average from 25 to 2019 And then you got this other colors represent 23, 24 and 25 So big takeaway here, rent growth year-to-date, this is effective asking rents for US apartments. It's the best number in four years. Now that's the glass half full. What we're looking at the glass of empty is, hey, we're still well below normal. And both statements are true. But as we think about 2027, I think a couple of things to think about. Number one, where we sit today, supplies come down, rents are not back to normal, but they are improving the best in four years. It appears that the worst is behind us. Now, it's hard to say, hey, we reached bottom until you're well from it. But it looks like the bottom was this past winter. And so as you're thinking about 2027, I mean, I know there's a lot of sense around this. This had survived till 2025 It'll fix in 26 And I was saying, it'll be having in 27 And I get all that cynicism. But in some, it's fair, by the way. But I think the market bottomed in the late part of 2025 I think 26 has been a transition year. And I think for some markets, 27 is gonna be a more normal year. Other markets, it's continuing that transition. That's where we are right now. I think that sets up some better rent growth in 27, assuming the economy and the job market holds up. All right, now those are effective asking rents. Now let's look at tradeout. These are replacement rents. So new lease tradeout is you live in a unit, you move out, I move into the same unit. What do I pay above or below? You paid for the same unit. Renewal tradeout is of course, you renew your lease in the same unit. What do you pay compared to your previous lease? Now, it's been no secret these last few years, the rent rolls have really been boosted by renewals. And renewals have been growing at 3%, 4%, pretty steady. The last two or three years, it's come down from the peak, but it's still pretty steady. We're seeing high retention. I think we're seeing retention moderate, normalized a little bit. It's not normalized, the wrong word. We're seeing it is stabilized, is the right word for the most part.