In this month’s Market Insights, we have Kyle Carruthers speaking with Eric Northbrook about the future of the multifamily industry. Kyle specializes in multifamily apartment buildings in both North County, San Diego, and South Orange County, with a focus on the coastal assets West of the 5 Freeway.
The Current Multifamily Landscape
In this video, Kyle notes that although Voit may not specialize in single-family homes and the residential market, those trends apply to multifamily deals, especially those smaller ones. What everyone is talking about in all of those markets is the recent increase in interest rates, which has had an immediate impact on the market.
What Rising Interest Rates Does to the Multifamily CRE Market
Kyle states that the “residential market definitely takes the immediate impact. We’re seeing an increase in inventory, and homes are sitting on the market. The days of listing your home and on day one, you get 10 offers and sell for $100,000 over the asking price, those days are gone.”
“As that translates to the smaller multi-family market, we’re not seeing quite as much of an impact quite yet. There’s still a lot of cash out there. There are a lot of 1031 exchange buyers, which keep the market afloat. Eventually, over time in this current new environment with these increases in interest rates, we should see the market start to soften a little bit as cap rates need to get more in line with the current lending environment.”
Cash Buyers in the Market for Multifamily Property
Cash buyers who have been on the sidelines for that last year or two are starting to come out of the woodworks. Kyle states, “if you’re a cash buyer, I think you should expect to see some opportunities in the marketplace.”
What Does the Future Look Like for the Multifamily Property Market?
Over the next year, it is projected that we’ll see at least another 100 basis points; what does that mean for the multifamily market?
Currently, there is a disconnect between the buyer and seller. Seller’s expectations take a long time to adjust to everchanging buyer appetites. We’re seeing a few price reductions in the market now, though once seller expectations line up with the new environment, the ball with start rolling a bit more.
“In closing, in the coming days and weeks, if it is announced that we’re in an actual recession, there’s gonna be a lot of negativity in the marketplace. Everything you’ll be reading is going to be negative. I advise my clients not to look too much into the media. My team and I prefer to take a more of a positive outlook into the marketplace because the reality is, whether the market’s up, down, or sideways, there’s always a way to get things done.”