Investment

Given the sharp rise in interest rates which has created both pricing and lending pressures, sales activity for multifamily has plummeted. Would-be buyers are holding off in hopes of price erosion, would-be sellers aren’t bringing product to market unless they have to. Meanwhile, the gap between bids and asking prices remains substantial. Anecdotally we have seen and heard of disparities anywhere from 5% to 25%.

Current market fundamentals do not help the situation. The recent run up in lease rates means it is harder to find apartment product with rental rate growth potential. This is certainly true at the top of the scale, though there may be some value-add opportunities hidden away within the Class B and Class C marketplace. But even that may be a challenge given recent multifamily investment pricing and the existing gap between buyers and sellers. Until multifamily prices reset, it is going to be a challenge for buyers to find properties where they can unlock hidden value to boost returns on investment. That is not to say we won’t continue to see activity from long-term players looking to park their money and willing to hold the properties they buy until market fundamentals return to supporting rent growth. This may not be as far away as many fear—greater economic clarity over the course of 2023 could change this landscape quickly. But for now, we expect activity to remain challenged.