Multifamily Is CRE’s Most Liquid Sector

Multifamily transaction volume topped $138 billion last year and hit $32 billion in the first quarter of 2021, making the asset class the most liquid among all commercial real estate property types.

A new report from JLL shows that closed-end fund closings targeting multi-housing assets have totaled $68.4 billion since 2016 and “will provide an ongoing source of liquidity,” especially as pricing discovery in the midst of COVID-19 resulted in more opportunities for private capital to invest in the space. That’s particularly true for high net worth individuals and institutional investors.  

“Amid record levels of dry powder targeting the sector and increased clarity as to rent collections and the stability of the sector, institutional investors have been becoming increasingly competitive in securing transactions so far in 2021,” the report notes. “Investors continue to target secondary markets, primarily located in the Sun Belt, as these markets are home to business-friendly regulatory and tax advantages.”

Dallas-Fort Worth, Atlanta and Phoenix emerged as the top most liquid markets in the US, supplanting the historical mainstays of Los Angeles and New York. Capital momentum is also increasingly targeting garden-style and mid-rise assets in less dense locations, according to JLL.

And both lenders and borrowers have strong appetites for commercial and multifamily mortgages, making debt liquidity “abundant,” the report states. Q1 multifamily mortgage borrowing totaled $51.8 billion in Q1, with agency lenders capturing 62% of loan originations. 

“First-quarter 2021 lending sources diversified as agency lenders started the year off slower following their robust originations last year,” the report states. “While banks, debt funds and insurance companies have more than filled the gap, agency lenders have taken a more competitive approach to winning business since April and we anticipate a strong second half of 2021.”

Supply continues to be a challenge for the sector, particularly among the renter-by-necessity and affordable housing segments, driving pricing. In addition, multifamily produces 4% to 6% dividend yields—better than both sovereign bonds and investment-grade corporate bonds, according to Yardi Matrix data.