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.
Colliers InsightAaron Jodka
“Investors are looking to acquire multifamily with a cap rate in the 5% range, although some recent deals are trading in the 4% range.”
- 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.