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Multifamily Sentiment Report: Investors Shift Strategies to Offset Market Challenges

There is an estimated $250 billion or more in capital chasing multifamily investment deals, despite looming interest rate increases and other potential threats to the market. Amidst this backdrop, many multifamily investors are shifting course — not to leave this highly successful sector, but to better position themselves for the future.  According to Real Capital Markets’ 2018 Multifamily Investor Sentiment Report, the majority of investors surveyed are in buy mode; however, interest rate hikes, increased competition, overbuilding, and other factors are being seen as concerns.

Investors are taking the following strategies:

  • Cautiously approaching market economics. This means a deeper analysis of the deals and potential shifts in the local multifamily market, and factoring in interest rate hikes into initial projections.
  • Looking closer at value add. Although crowded with investors, those with perseverance and careful analysis of renovation costs may experience a positive outcome. In addition, value-add investing can provide a hedge against rising interest rates and slow rent growth.
  • Focusing on the amenities, conveniences, and other experiences. As with today’s retail environment, apartment communities are moving toward a sense of community and engagement. Those with fitness centers, pools, and WiFi lounges are more likely to draw in renters and encourage them to stay, while also building a sense of social and personal connectivity.

From high rent districts in New York City, Chicago, and Los Angeles to growing population centers in markets such as Dallas, Denver, and Phoenix, investors are still searching for multifamily investment deals. Many are finding a shortage of quality assets, however, particularly in the value-add category. Experts interviewed in the Multifamily Investor Sentiment Report noted that underlying fundamentals shaping rental demand, such as shifts in home ownership rates, are key factors propelling the multifamily investment market.

“Housing is one of the most fundamental needs, regardless of income level or socio-economic status,” said Steve Shanahan, Executive Managing Director, RCM. “Investors will continue to leverage those intrinsic needs, as well as strong market fundamentals, to create and take advantage of a steady stream of investment opportunities.”

Statistics on rents per square foot, cap rates, sales prices and unit completions, aggregated by the National Multifamily Housing Council demonstrate the continued strength of the multifamily sector. Mid-year sales statistics reported by Real Capital Analytics showing $69.8 billion in multifamily sales in 2017 also underscore the findings of the RCM Report.

Among the additional highlights of the report include:

  • Capital is Coming from Multiple Sources— including institutions, private equity, REITS, as well as private and public funds.
  • Job Growth is Driving Multifamily Activity—Strong employment, often from the tech sector, is fueling growth in the multifamily sector in many core and secondary markets.
  • Fundamentals Look Strong—With vacancy rates fluctuating as new supply is brought online, more than half the survey participants believe that further increases in vacancy rates are likely, but the level of increase will be only marginal.

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