A Personal Note
January flew by as school started up again for the kids and we kept very busy digging into our 2021 goal setting and planning. We were able to strategically plan our moves over the next twelve months to accomplish our business and personal goals. Our family feels that goal setting and planning small daily tasks to accomplish those goals are very important. We are excited to start accomplishing those small wins each day that lead to our larger goals this year!
January in Review
January didn't start as busy as we hoped on the multifamily front. There were a few projects that hit the market but unfortunately they didn't meet our strict buying criteria. Towards the end of the month we did tour two properties that looked promising and we hope those will come to fruition as an offer in February. The multifamily buying process is slow so we anticipate around 90 days from an offer to close. This means if we were to make an offer today we won't see it close until early April.
Why We Love Multifamily In This Market
Investors anticipate steady demand for multifamily housing
In an environment filled with uncertainty, multifamily housing continues to attract real estate investors. Apartment buildings possess characteristics that insulate them from the societal shifts threatening the office and retail real estate sectors. Remote workforce trends and online shopping do not change the fact that people need places to live.
Add in a low supply of largely unaffordable single-family homes, and investors increasingly view multifamily housing as a viable opportunity for healthy returns. In fact, those who control large amounts of capital have not been shy about investing in apartments.
Financing remains available for housing
Housing shortages throughout the country have made lenders and governments receptive to new housing projects or renovations of existing properties. A look at recent multifamily deals illustrates the money that is on the table. In November 2020, Bain Capital Real Estate and Magnolia Capital announced their intention to invest over $900 million in multifamily properties across the United States. [1] This joint venture identified apartment complexes catering to middle-income residents as a particular area of opportunity.
The year closed out with other multifamily deals from large players. For example, CapitaLand out of Singapore and an Austin, Texas, organization plan a $300 million joint venture for the acquisition and development of multifamily properties in both the Southeast and Southwest. Additionally, the private equity real estate company Turner Impact Capital has committed $350 million to buying nearly 10,000 units. [2]
Inflation expected to raise CRE values
It is no secret that the government has been injecting large amounts of money into the economy as a stimulus to counter pandemic economic disruptions. Fears of inflation naturally follow such acts, but this time economists predict that inflation will affect commercial real estate and other assets more than consumer goods.
One-time Wharton professor Peter Linneman, speaking in a Walker & Dunlop Walker Webcast, explained that large portions of stimulus funds have gone to huge entities like JPMorgan and Goldman Sachs, who then invest in assets. They make moves in the hundreds of millions of dollars, which results in lifting the value of assets due to more money being in the system. [3]
Affordability issues keep people in multifamily housing
Multifamily housing investments rely on renters, and economic realities appear to almost guarantee a strong supply of renters for years to come. Although many people would like to buy a home, they end up renting because their incomes cannot support a home purchase. The Washington Post reported that home prices nationwide rose a minimum of 10% in the fourth quarter of 2020. According to data from Attom Data Solutions, home affordability declined across multiple markets in 2020 compared to the same period in 2019. [4]
Multifamily properties showed strong performance in 2020
The past does not always equal the future, but any sector that did well in turbulent 2020 possesses resilient qualities. The head of investment sales at the commercial mortgage servicer Berkadia said that multifamily properties produced $122 billion in transactions in 2020. This made it the number one commercial real estate sector. Industrial property ranked second at a considerably lower $86 billion in transactions. [5]
Positive long-term forecast
The traditional view that multifamily housing can provide consistent returns remains true in a changing world. Private capital has shown a clear interest in investing in apartments due to a large segment of the population being priced out of single family homes. Additionally, the possibility that inflation could swell the value of assets provides investors with a reason to act soon.
Overall, the basic function of multifamily housing removes it from concerns that can trouble other forms of commercial real estate. New technologies can disrupt the profitability of industrial tenants. Changing consumer habits and rising overhead costs continue to plague retail operators. However, at the end of the day, many people will continue to live in apartments.
References:
[1] [2] https://www.multihousingnews.com/post/the-top-multifamily-stories-of-2020/
[3] https://www.bisnow.com/national/news/economy/how-inflation-will-boost-big-cre-owners-usher-in-multifamily-golden-age-107281?utm_source=outbound_pub_15&utm_campaign=outbound_issue_45011&utm_content=outbound_link_7&utm_medium=email&fbclid=IwAR3CpYf1fCPNPttlfyYCVvFcu3EDlQgyx0SNQ66CZe7S2zUNM3WAKECWze4
[4] https://www.washingtonpost.com/business/2021/01/11/2021-housing-market-predictions/
[5] https://www.connect.media/berkadia-experts-are-bullish-on-outlook-for-multifamily-lending-acquisition/
January flew by as school started up again for the kids and we kept very busy digging into our 2021 goal setting and planning. We were able to strategically plan our moves over the next twelve months to accomplish our business and personal goals. Our family feels that goal setting and planning small daily tasks to accomplish those goals are very important. We are excited to start accomplishing those small wins each day that lead to our larger goals this year!
January in Review
January didn't start as busy as we hoped on the multifamily front. There were a few projects that hit the market but unfortunately they didn't meet our strict buying criteria. Towards the end of the month we did tour two properties that looked promising and we hope those will come to fruition as an offer in February. The multifamily buying process is slow so we anticipate around 90 days from an offer to close. This means if we were to make an offer today we won't see it close until early April.
Why We Love Multifamily In This Market
Investors anticipate steady demand for multifamily housing
In an environment filled with uncertainty, multifamily housing continues to attract real estate investors. Apartment buildings possess characteristics that insulate them from the societal shifts threatening the office and retail real estate sectors. Remote workforce trends and online shopping do not change the fact that people need places to live.
Add in a low supply of largely unaffordable single-family homes, and investors increasingly view multifamily housing as a viable opportunity for healthy returns. In fact, those who control large amounts of capital have not been shy about investing in apartments.
Financing remains available for housing
Housing shortages throughout the country have made lenders and governments receptive to new housing projects or renovations of existing properties. A look at recent multifamily deals illustrates the money that is on the table. In November 2020, Bain Capital Real Estate and Magnolia Capital announced their intention to invest over $900 million in multifamily properties across the United States. [1] This joint venture identified apartment complexes catering to middle-income residents as a particular area of opportunity.
The year closed out with other multifamily deals from large players. For example, CapitaLand out of Singapore and an Austin, Texas, organization plan a $300 million joint venture for the acquisition and development of multifamily properties in both the Southeast and Southwest. Additionally, the private equity real estate company Turner Impact Capital has committed $350 million to buying nearly 10,000 units. [2]
Inflation expected to raise CRE values
It is no secret that the government has been injecting large amounts of money into the economy as a stimulus to counter pandemic economic disruptions. Fears of inflation naturally follow such acts, but this time economists predict that inflation will affect commercial real estate and other assets more than consumer goods.
One-time Wharton professor Peter Linneman, speaking in a Walker & Dunlop Walker Webcast, explained that large portions of stimulus funds have gone to huge entities like JPMorgan and Goldman Sachs, who then invest in assets. They make moves in the hundreds of millions of dollars, which results in lifting the value of assets due to more money being in the system. [3]
Affordability issues keep people in multifamily housing
Multifamily housing investments rely on renters, and economic realities appear to almost guarantee a strong supply of renters for years to come. Although many people would like to buy a home, they end up renting because their incomes cannot support a home purchase. The Washington Post reported that home prices nationwide rose a minimum of 10% in the fourth quarter of 2020. According to data from Attom Data Solutions, home affordability declined across multiple markets in 2020 compared to the same period in 2019. [4]
Multifamily properties showed strong performance in 2020
The past does not always equal the future, but any sector that did well in turbulent 2020 possesses resilient qualities. The head of investment sales at the commercial mortgage servicer Berkadia said that multifamily properties produced $122 billion in transactions in 2020. This made it the number one commercial real estate sector. Industrial property ranked second at a considerably lower $86 billion in transactions. [5]
Positive long-term forecast
The traditional view that multifamily housing can provide consistent returns remains true in a changing world. Private capital has shown a clear interest in investing in apartments due to a large segment of the population being priced out of single family homes. Additionally, the possibility that inflation could swell the value of assets provides investors with a reason to act soon.
Overall, the basic function of multifamily housing removes it from concerns that can trouble other forms of commercial real estate. New technologies can disrupt the profitability of industrial tenants. Changing consumer habits and rising overhead costs continue to plague retail operators. However, at the end of the day, many people will continue to live in apartments.
References:
[1] [2] https://www.multihousingnews.com/post/the-top-multifamily-stories-of-2020/
[3] https://www.bisnow.com/national/news/economy/how-inflation-will-boost-big-cre-owners-usher-in-multifamily-golden-age-107281?utm_source=outbound_pub_15&utm_campaign=outbound_issue_45011&utm_content=outbound_link_7&utm_medium=email&fbclid=IwAR3CpYf1fCPNPttlfyYCVvFcu3EDlQgyx0SNQ66CZe7S2zUNM3WAKECWze4
[4] https://www.washingtonpost.com/business/2021/01/11/2021-housing-market-predictions/
[5] https://www.connect.media/berkadia-experts-are-bullish-on-outlook-for-multifamily-lending-acquisition/