Colliers Capital Markets, Mortgage, and Valuation & Advisory Services professionals attended the 2023 NMHC Annual Meeting in Las Vegas. Below are 10 takeaways and themes gathered from conversations with market participants.
- The general sentiment was more positive than attendees were expecting, which was a pleasant surprise to many.
- There are lots of investors looking to buy, but mostly reluctant sellers. This trend is perpetuating a wide bid-ask spread. However, investors are expecting a strong second half of the year.
- Rising costs are a concern for investors and owners. Operating expenses and increasing insurance prices were common pressure points. These expenses also apply to unit upgrade materials, including appliances, flooring, lighting, hardware, and plumbing.
- Lenders are willing to put capital to work on the development side, and with a fresh allocation of funds in 2023, there are signs of a market thaw. Meanwhile, other groups are pushing to place preferred and mezzanine equity. They are looking at 13%-14% preferred equity returns filling the 75%-85% loan-to-cost tranche in the capital stack.
- Rents have soared, and this is weighing on household formation. Landlords are seeing pushback from tenants on affordability, likely capping rental levels in the near term.
- Owners emphasize the labor market’s strength, offering potential demand upside. At the same time, hands-on management and attentive teams can help minimize unit turnover and cash flow surprises.
- Capital still likes the growth markets of the Sun Belt, but core coastal markets will get more attention as cap rate strata reemerge.
- Investors are looking to acquire multifamily with a cap rate in the 5% range, although some recent deals are trading in the 4% range. The Fed’s decision at upcoming meetings will go a long way in determining if buyers or sellers give in first.
- Projects under construction present appealing acquisition targets, as floating-rate debt is more expensive than at underwriting, and slower lease-up could result in distress sales.
- Long-term demographics and longstanding undersupply of housing have investors optimistic about the future of multifamily investment.
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