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Cap Rate Anxiety Dragging Down Multifamily Market

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The Fed’s rush to raise interest rates this year has injected a ton of uncertainty into multifamily housing, one of the most reliable commercial real estate investments of the past decade. .

Despite the nationwide housing shortage, Driving historic rent growth This year, lenders, developers, and investors have paused trading because the underlying mathematics of buying and lending has changed dramatically.

“We are one of the bystanders. [of] Pricing and cap rate” Vicky Randy Wilbon,president integral group, an Atlanta-based mixed-income housing developer. “We’ve come to a point where it’s not the time to be enthusiastic and ready.”

Bisnow/Jared Schenke

James Winston of Resia, Margaret Stagmeier of TriStar, Bill Brading of Affordable Housing Investment Brokerage, Carmen Chubb of Columbia Residential and Vicki Lundy Wilbon of Integral Group.

Multifamily sales transactions nationwide fell 17% in the third quarter, according to data provided by . MSCI, However, 2021 and beyond are still up 25% year-to-date.

the industry leader Bisnows The Southeastern Multifamily Conference in Atlanta this month showed that they are very cautious about new deals until they figure out where interest rates top out.Inflation still going on Over 8% YoY as of Septemberand we expect another 75 basis points hike at the Fed’s next meeting on November 1st.

“There is no clear outlook six months ahead,” said Matt Reinberger, regional sales manager at Lima One Capital.

The reversal in the capital markets was as dramatic as it was rapid. Total commercial real estate sales hit a record high last year, he hit $809 billion, breaking the previous record of about $600 billion set in 2019. According to MSCIThe Mortgage Bankers Association predicted: 2022 will be an even more active year.

With inflation reaching a 40-year high and remaining high, the Fed embarked on a campaign to raise its benchmark interest rate from 0.25% in March to 3.25% today.federal watchers Expect interest rates to exceed 4% by the end of the year.

“It’s a lack of trust, because we’ve all been told that This inflation is temporary And it will disappear.” Bobby Corsidypresident of short-term real estate lender Archway Capital, said at an event held at the Hyatt Regency Atlanta. It was that belief that made me strong, so I used to have a hard time trusting politicians, but now more than that.”


Bisnow/Jared Schenke

Jerome Russell of HJ Russell & Co., Ellen Garland of Silver Studio Architects, Rod Mullice of Windsor Stevens Holdings, Walker Mills of Juneau Construction and Jim Lott of Waypoint.

The actions of the Federal Reserve are impacting building capitalization rates. Expected rate of return on real estate investment. While cap rates are still below their pre-pandemic level of 4%, they have increased by 72 basis points over the past six months in response to market volatility and higher borrowing costs. Reported by CBRE.

According to panelists, changes in cap rates are causing buyers to reconsider the price they are willing to pay for an apartment, especially as lenders become more willing to underwrite both rental growth and capital spending forecasts. increase.

Brett Duke, Chief Operating Officer of Dallas-based apartment developer and investor Atlantic Pacific Real Estate Group, said:

Investors who have purchased apartments at historically low cap rates in the past year are likely to need to hold onto their assets longer, which could lead life insurers and large pension funds to invest more in the sector. The door will open for you to purchase. Rod MullisManaging Partner of Windsor Stevens Holdings, based in Atlanta.

“I think about the deals you need to hold [will be] More than five years,” said Mullice. “The real estate private equity market may not be the best partner, knowing they have to return money to investors within five years. A single-vehicle pension fund may be the best partner.”


Bisnow/Jared Schenke

Shea Campbell of CBRE, RADCO Cos. Norm Radow and Andrew Schwarz of Audobon Communities.

Rising interest rates have brought a chill to housing overall. The US economy grew he 2.6% in the third quarter, but residential investment he fell 26%. According to the Bureau of Economic AnalysisDemand for apartments fell by more than 82,000 units in the third quarter. According to RealPageThis is the largest drop in demand in the company’s database in 30 years.

But not everyone is sitting on the sidelines of the current economic situation.

Radco Cos. CEO) Noam RadauThe company, which heads one of the Southeast’s most prolific commercial real estate investment firms, said its past few apartment purchases were made using variable rate debt because there were no banks to offer fixed rate loans. I was.

Radau said he believes the Fed will cut interest rates in the near future, so he is prepared to accept the short-term pain and refinance when interest rates return.

“Minor inflation appears to be contained… Treasuries are back at July levels,” he said. “So I think we’re looking at the perfect timing for the end of the lease up this year. I’m willing to go negative for a year knowing that I have very good value. Negative interest rates for that period.” Just use Carrie.”


Bisnow/Jared Schenke

Chris Van Kley of Studio Architects and Brittani Sanders of Portman Residential

There are concerns that the Fed will continue to raise interest rates to ensure inflation reaches its 2% target band, Portman Residential Vice President Britani Sanders said she believes higher cap rates will be a short-term problem.

“It’s very hard to guess where the cap rate will be, but at the same time, I believe this will be relatively short-lived, to get them off the ground,” she said. “I think we’ll probably see some movement towards the middle or the second half of next year. We need to be ready to make a difference as soon as things start up again.”

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