Podcast Summary
Multifamily housing market trends: The multifamily housing market is experiencing a temporary rent growth slowdown due to oversupply, but the trend might reverse as supply and demand balance out.
The multifamily housing market is experiencing a surge in development, but the demand may not be keeping pace, leading to rent declines or stagnation in some areas. This dynamic is particularly noticeable in desirable markets that have seen significant inflows of wealthy migrants from high-cost cities. Despite this trend, it's essential to note that the migration to these areas is likely permanent, and the rent growth slowdown might be temporary. The relationship between commercial and residential real estate markets is complex, with trends sometimes working in opposite directions and other times in similar directions. The tight single-family housing market has driven up demand for multifamily housing, but the oversupply of new multifamily units has led to rent declines and flatness in recent years. However, as the supply and demand balance out, rent growth is starting to return. While the housing market remains tight, multifamily remains an attractive option for those unable to afford single-family homes.
High-end multifamily development competition: The surge in high-end multifamily development leads to temporary vacancy rate increases for lower-end properties, but the shortage of workforce housing ensures this trend is temporary, offering investment opportunities and the importance of thorough tenant screening
The influx of high-income migration to certain markets has led to a surge in new development of high-end multifamily properties, resulting in increased competition and concessions for renters. This has temporarily impacted vacancy rates for lower-end B and C class properties. However, the trend is expected to be temporary, as there is still a significant shortage of workforce housing. The commercial real estate market is cyclical, and this boom and potential future bust are part of its nature, especially when influenced by migration. For investors, this presents opportunities in the form of incentives on turnkey investment properties. Additionally, the importance of solid tenant screening and tools like RentReady's proof of income verification cannot be overstated.
Multifamily market challenges: The multifamily market is facing challenges due to high financing costs, a glut of new supply, and sluggish rent growth. While new supply can help alleviate some pressure, it may not be a panacea for the affordable housing crisis. Public-private partnerships may be needed to address the root causes.
The current economic climate with high financing costs, a glut of new supply, and sluggish rent growth is expected to negatively impact the multifamily market in the coming years. This is due to the timing problem inherent in real estate development, where a large influx of new supply will come online just as demand begins to dry up. The economy's slowdown due to higher interest rates is a concern, as it could lead to increased job loss and further weaken the demand for multifamily units. However, a potential silver lining is the recent softening of the labor market, which could lead to an increase in household formations and help balance the demand for multifamily housing. Additionally, the affordability issue in the single-family housing market has led some renters to stay in multifamily units longer, which has helped keep vacancy rates lower than expected. However, the new supply coming online will eventually put pressure on rents, and it remains to be seen how much landlords will be willing to lower them to remain competitive. Overall, the multifamily market is facing significant challenges, and while new supply can help alleviate some of the pressure, it is not a panacea for the affordable housing crisis. Public-private partnerships may be needed to address the root causes of the housing affordability issue.
Multifamily Development Impact: Larger apartment complexes can bring positive externalities like rent growth and property revitalization, but also negative effects such as gentrification and displacement. Proper investment and underwriting can help mitigate these issues and keep rents affordable.
The arrival of larger, more affordable apartment complexes in a community can have both positive and negative effects. On the one hand, it can lead to positive externalities such as rent growth and the revitalization of older properties. On the other hand, it can lead to gentrification and displacement of lower-income residents. However, responsible investment and proper underwriting can help mitigate these negative effects and keep rents affordable for existing residents. It's important for investors to consider the unique dynamics of each community and strive for a balanced approach to development. Despite the high expectations for a downturn in the multifamily market to address the affordable housing crisis, the distress has not materialized in the same way as in the residential market during the Great Financial Crisis. Prices have come down, but the level of distress has not matched the expectations.
Loan maturities: Tracking loan maturities can lead to potential investment opportunities in commercial real estate as distressed properties may surface when loans come due.
While the real estate market may not be offering the same level of discounts seen during the last cycle, there are still opportunities for investment. The market has become more conservative due to regulatory changes and learning from past experiences. Distressed properties can still be found, particularly in the office sector, but they may not come with the same level of discounts as before. A strategy for identifying potential investment opportunities is to track loan maturities. When loans are coming due, it can lead to distress and potential transaction opportunities. At a larger scale, this information is publicly available for commercial properties. However, at a smaller scale, finding this information can be more challenging. Overall, the market may not be as distressed as before, but there are still opportunities for those who are willing to do their research.
Multifamily Investing Opportunities: High-interest rates may create opportunities for multifamily investors, particularly in certain markets and through relationships with local banks. Careful evaluation and long-term strategies are essential.
The current high-interest rate environment may create opportunities for multifamily investors by making certain deals less viable for others. Building relationships with local community banks can help uncover potential opportunities. While some markets, such as those that experienced significant migration during the pandemic, may currently have oversupply, others, like some "forgotten" Midwest markets, are showing signs of life due to affordability. However, investors must be cautious about long-term concerns, including rising expenses and the need for a long-term investment horizon in this new interest rate regime. Prices have come down, but careful evaluation and underwriting are necessary to ensure profitability. Many investors and lenders in the multifamily market are adopting a buy-and-hold strategy.
Buy-and-hold commercial real estate: Experts recommend a buy-and-hold strategy for commercial multifamily real estate due to significant capital appreciation potential over the long term. Use BiggerPockets' tool to compare and contrast US markets for informed investment decisions.
The trend in commercial multifamily real estate is shifting back towards buy-and-hold strategies, as opposed to the flipping business that has been prevalent in recent years. Tom, a commercial real estate expert, shared his perspective on how he's seen significant capital appreciation from holding properties for the past 20 years and the benefits of a buy-and-hold approach. Kathy, the podcast host, added that finding a real estate market that fits one's investment goals can be a challenge, but with BiggerPockets' new tool, investors can compare and contrast 100 US markets and make informed decisions with expert recommendations and up-to-date data on factors like appreciation, affordability, and rent-to-price ratio. Overall, the conversation emphasized the importance of a long-term investment strategy in commercial multifamily real estate.