The leap in the amount of players looking to up their allocations to the sector signals that investor sentiment is increasingly shifting, relates Jubeen Vaghefi, managing director and leader of Jones Lang LaSalle's multifamily capital markets practice. "Multifamily is a sector to watch in 2010 as investors seek strong, stable assets with growth potential," he explains.
Of those looking to increase their multifamily activity, a slight majority--57%--intend to increase their investment to 60% next year, with opportunistic plays being the number-one preference among investors. A good 90% of survey participants said they will likely try to go down the opportunistic road in 2010, which is more than double the 44% of investors who were seeking those types of plays last year.
What is down, however, is the number of investors looking to funnel money into value-add opportunities; 88% of those polled in 2008 said they are likely or very likely to invest in value-add assets, whereas just 60% said the same this year. About half of investors intend to invest in core assets, and four out of five are less likely or not likely to buy new development--60% feel the same for redevelopment opportunities.
On the disposition front, it's looking like the gap between sellers' expectations and what buyers are willing to pay is narrowing. Expect to see more opportunistic assets on the market in 2010, but the offerings will look more like a trickle than a flood, reports JLL. "While it appears opportunistic and value-add plays will be the types of assets hitting the marketplace in 2010, it's clear that a majority of those surveyed plan to hold on to their strong-performing properties in the year to come," says JLL managing director David Young.
While 6% of property owners planned to shed opportunistic assets last year, 22% said they're likely to sell off those types of assets in this year's study. Those planning to sell value-add assets rose to 20%, up 800 basis points from last year. And just 12% of owners currently holding core assets are thinking about putting them on the market, down from one-quarter of survey respondents in the last survey.
Aside from buyer and seller habits, the study also found that about two-thirds--64%--or multifamily professionals expect cap rates in the sector will rise in 2010. Another 27% predict apartment caps to decline, while the rest expect conditions to remain status quo.
[IMGCAP(2)]Along a similar vein, none of the survey responded are optimistic that rents would rise next year. In fact, half of the poll sees rental rates decreasing by 5% next year, with the Southwest and Southeast most impacted by the shadow condominium market.
Despite the dearth of condo units, 80% of the respondents said they will probably seek opportunities in the Southwest, and 77% will consider the Northwest. And whereas 18% of multifamily professionals were interested in the Midwest last year, the region isn't on anyone's radar screen for 2010. Outside of the States, 86% of professionals said they were not likely to venture across the border to Canada or Mexico.
There is optimism for those looking to tap debt and equity capital in the coming year, particularly from Fannie Mae and Freddie Mac. More than a third of professionals believe the ability to source capital will not change from last year's study, up from 22% a year ago, but most--27%, down from 56% last year--predict that it will become harder to access capital in 2010.
As such, none of those polled feel like liquidity has returned to the market and pricing has reached equilibrium, or will do so within six months. Actually, most--55%--of survey participants think liquidity will come back and pricing will regulate within the next 12 to 18 months, and another 36% say conditions won't improve for more than 18 months.
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