Multifamily-Sales Activity Slows as Investors Favor Sun Belt MetrosBy RISMedia Staff
Multifamily transaction activity slowed sharply in the second half of 2022, while investor demand continued to gravitate toward the Sun Belt, according to a new report from Yardi Matrix.
Yardi Matrix’s latest report found that the 2022 trends are now continuing into 2023. Deal flow is stalled by pricing uncertainty and multifamily investors are increasingly focused on markets with growth in jobs and population. Whether and how much deal flow picks up in 2023 will depend to a large degree on stability in the capital markets. Key highlights:
Paul Fiorilla, Director of Research for Yardi Matrix, commented: “Indeed, the biggest question the market faces is not whether we will see more distressed assets but by how much distress will increase. Banks have become conservative with the prospect of a widely projected economic downturn, so borrowers are facing both rising rates and less leverage. “Scenarios that will lead to distress in 2023 include properties that were financed at historically low rates in recent years coming up for maturity at higher prevailing rates; properties whose interest rate cap has expired and are now facing a large jump in debt-service payments; and properties that have a downturn in performance. “Distress may be limited by the strong income growth of recent years and ongoing steady demand for apartments. Even so, value-add investors have raised tens of billions of dollars to take advantage of potential recapitalizations. Indeed, despite the sector’s issues, many investors view multifamily as a safer place to park capital than other investment products or other commercial property classes such as office or retail. “Strong investor demand will provide some buffer for multifamily until market volatility declines. Surveys show market players expect capital conditions to improve in the second half of 2023, which would unleash more sales activity, but that is by no means certain. The 10-year Treasury rate has recently come down to 3.6% from its peak of 4.25% last fall, as bond investors expect the economy to weaken and the Fed to reverse its aggressive inflation stance. While lower rates would boost transactions by reducing mortgage costs, if rates decline because of an economic downturn, demand would likely weaken. “As most economic scenarios contain mixed blessings for deal flow, volatility may be the most critical factor for transaction activity. Transaction activity will pick up when market conditions return to some semblance of stability and market players believe they can underwrite with a higher level of certainty than exists today.” For the full report, click here. |
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