So with a global pandemic mercifully receding, and the multifamily market showing great resilience in a tough environment, are there only good times ahead for investors? Or do other factors need consideration?
This is indeed a good time for multifamily investments—the data shows this market has proved to be among the strongest segments in CRE. In addition to rents remaining stable in most regions (and now on an upswing in many areas), there’s also a new generation of renters on the move and looking for options outside the most obvious locations.
However. . .we’re also undergoing a major transition in the national economy, and that will affect everything from property prices to interest rates. We’re getting into uncharted territory here, and that’s why the best time to make a deal is now, and in the near term.
There are several reasons why. To start with, capitalization rates have trended downward nationwide over the last year, just as interest rates remain historically low, which recent Fed comments have already caused some changes to assumptions in the near and mid term. Now balance growing demand—investor money that was parked during the pandemic is coming out to play—with constricted supply, and you have the perfect formula for high prices.
On a separate-but-related front, the 1031 exchanges that have long fueled many acquisitions may be in for a shock: The new administration has proposed caps on this program, and industry observers believe this will sharply curtail CRE transactions. Speaking at the recent National Multifamily Housing Council strategy conference John Chang, SVP and Director of Research Services at Marcus & Millichap, reported that many investors would be advised to sell now than hold for one to three years, particularly if they believe capital gains taxes and interest rates will rise.
Finally, consider the process. At any given time, it’s estimated that perhaps half of all multifamily acquisitions happen off-market—that is, without a traditional market listing. Right now, the current environment makes this practice even more attractive.
First, by avoiding the listing process, sellers pay no brokerage fees, and that makes a significant difference in the ultimate margins. But there are actually many more benefits.
At Offerd, we track not only listed properties but also 90,000 ‘off-market’ assets around the nation. In addition to the physical assets, we collate hard data around occupancy rates, demographic changes, local employment, schools and colleges, population forecasts, income shifts and much more, over 10,000 categories in all. We analyze all this data to offer investors the assets that best suit their search criteria—not hundreds of listed properties that happen to be in a particular region. This is ideal for investors who want to avoid the complications of a traditional brokerage process, particularly bidding wars. The buyers are vetted, the negotiations are on point, and the deals are closed quickly.
We’re out there right now talking to investors in cities ranging from Tulsa, OK, and Wichita, KS, to Denver, CO, and Raleigh, NC. We keep adding to the database and refining the data. It’s all to ensure that the research is done before the search for the right property even begins
It’s a win for the seller, and a win for the buyer—and it’s perfect for an environment in which deals should be closed before the year ends.