As seen in Colorado Real Estate Journal>>

Written by: Kevin Brinkman, Co-Founder & CEO, Brinkman Real Estate

The whispers are growing louder: multifamily investors are wanting back in. While some investors may be hesitant to jump in until the recovery is undeniable, waiting for a definitive bottom could mean missing out on

significant opportunities. Industry giants like Blackstone are already making their moves with their recent $10 billion multifamily purchase, recognizing the “pillars of a real-estate recovery coming into place” and noting that they “are, of course, not waiting for the all-clear sign and believe the best investments are made during times of uncertainty” (Karmin et al., 2024).

With cap rates expanding, it’s not quite “go” time for those seeking short-term returns, but for investors targeting longer holds, it’s time to act. There are more and more deals coming online that don’t quite meet the expected cap rate threshold but can be acquired at an excellent all-in basis, strengthening the portfolio in the long term.

Emerging signs of market strength

In addition to institutional groups ramping up investments again, investor interest with intent to acquire is up 16% over last quarter, painting a promising picture (Rick Palacios, Jr., 2024).

While concerns linger around the $1.5 trillion in loans maturing over the next two years, almost $300 billion of which were extended from 2022, it’s crucial to remember the vast amount of capital available. Just money markets ($6.5 trillion) and bank deposits ($4 trillion) alone provide over $10 trillion of dry powder for the market.

Jobs and wages support renters

The jobs report from March 2024 instilled confidence that the labor market is strong and contributing positively to economic growth. The U.S. Bureau of Labor Statistics (2024) reported employment growth of 303,000 which is a larger gain than the previous 12 months and marks the 39^th consecutive month of job growth. The unemployment rate decreased slightly from the previous month of 3.9% to 3.8%, shifting 29,000 people out of unemployment. Income growth outpaced rent growth for the 16^th consecutive month and is likely to continue as many markets balance out the supply and demand equation and keep rents stable. Overall, consumer confidence is on the rise and the renter population is in a strong financial standing with job stability and therefore, more likely to move into new apartments and sign leases.

Immigration leading to record population growth

Additionally, immigration trends are creating a potential demand surge that could help with absorbing some of the supply coming into the market. The U.S. experienced the largest one-year increase in net population growth on record of 3.8 million in 2023 (Finnigan, 2024). The Congressional Budget Office estimates this growth to continue with the assumption that net immigration is responsible for most of the growth considering the declining fertility rates (Congressional Budget Office, 2024).

Supply/demand gap shrinking

Occupancy rates have remained remarkably stable in many areas despite initial anxieties surrounding the record-high new supply hitting the market during the slow leasing season of late 2023/early 2024. Even with the influx of new rental units, net absorption is at its highest level in two decades, with the gap between supply and demand shrinking in most areas. RealPage data highlights a record-breaking first quarter in 2024 for net leasing, with over 100,000 units absorbed. At the same time, housing unaffordability is an ever-growing concern and apartment-to-single-family home move-outs are almost non-existent, hitting their lowest level since the 2008 financial crisis. The current wave of new supply shows signs of recorrecting with construction starts dropping off a cliff, down 70% from their 2022 peak (CBRE, 2023). This confluence of factors signifies a stabilizing rental market that we believe will hit the upward trajectory of the real estate cycle in the next 12-18 months.

Historical & Forecast Multifamily Construction Starts

Source: CBRE, 2023

A golden window for savvy investors

The multifamily real estate market is poised for a significant rebound, and once everyone else is off the sidelines with you, it will be too late. Pent-up demand, fueled by demographic shifts, robust job growth, and a favorable wage-to-rent ratio, is creating a perfect storm for opportunistic early movers. With institutional capital still largely waiting in the wings and construction activity declining, a golden window of opportunity exists before competition begins driving up prices. By investing now, savvy investors can position themselves at a low basis and capitalize on the inevitable upswing generating strong, reliable returns for years to come.

Written by Kevin Brinkman for Colorado Real Estate Journal’s Multifamily Quarterly.

References:

Karmin, Craig and Peter Grant, “Blackstone Making $10 Billion Multifamily Purchase, Going on the Real Estate Offensive: Acquisition of AIR Communities is Blackstone’s largest transaction in the multifamily market.” Wall Street Journal, April 8, 2024, https://www.wsj.com/real-estate/blackstone-making-10-billion-multifamily-purchase-going-on-the-real-estate-offensive-f3126928

Rick Palacios, Jr. [@RickPalaciosJr]. (2024, April 8). A much higher percentage of investors now say they plan on purchasing apartment communities in the next six months (green).  [Image attached] [Tweet]. X. https://twitter.com/RickPalaciosJr/status/1777404753460236625/photo/1

Congressional Budget Office. (2024, January 18). The Demographic Outlook: 2024 to 2054. https://www.cbo.gov/publication/59697

Eric Finnigan, [@EricFinnigan]. (2024, February 15). US population grew +3.8M in 2023 – the largest one-year increase in US history.  [Image attached] [Tweet]. X. https://twitter.com/EricFinnigan/status/1758148646615363975/photo/1

U.S. Bureau of Labor Statistics. (2024, April 5). Employment Situation Summary [Press release]. https://www.bls.gov/news.release/empsit.nr0.htm

CBRE. (Q3 2023). Slight Apartment Oversupply Expected in 2024. CBRE. https://www.cbre.com/insights/books/us-real-estate-market-outlook-2024/multifamily