May 5, 2023
Multifamily investors can breathe a sigh of relief as underwriting assumptions for prime multifamily assets have started to stabilize, according to a recent report by CBRE. The first quarter of 2023 marks the first significant quarterly decrease in cap rate expansion since the Federal Reserve began raising interest rates in early 2022. In addition, the first quarter saw other metrics decelerate, including unlevered internal rate of return targets, exit cap rates, and rent growth.
While all markets recorded higher going-in cap rates between the third and fourth quarters of last year, five had no additional expansion in the first quarter of the year, indicating a broader stability in multifamily underwriting assumptions. Certain cities like Austin continue to have the lowest risk requirements on an underwriting basis among major multifamily markets. Although the average going-in cap rate has expanded by 136 bps to 4.72%, further expansion is anticipated, with underwriting assumptions for prime multifamily assets likely to peak in the second half of this year.
While underwriting assumptions of annual rent growth for the first three years of multifamily deals have declined over the last two quarters, gateway markets now have higher average rent growth expectations. With more markets stabilizing, rent growth assumptions are expected to move lower and end up near a long-run average.
At Offerd, a digital multifamily brokerage and advisory firm, we believe that these positive developments are an opportune time for multifamily property owners and investors to take advantage of our services. Our team of experts utilizes the latest technology and data-driven insights to help clients make informed decisions that maximize their returns.
As the CBRE report suggests, buyers, sellers, and lenders are expected to increase their activity once interest rates stabilize. In light of this, Offerd encourages multifamily property owners and investors to take advantage of our digital brokerage services to stay ahead of the game. With a deep understanding of the market and a vast network of contacts, we can help our clients identify opportunities that match their investment goals and help them navigate the complexities of the multifamily market.
In conclusion, while multifamily investors remain cautious, the recent stabilization in underwriting assumptions for prime multifamily assets is an encouraging sign.
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