This Will Be an 'Exceptionally' Active Investment Year for Multifamily

Marcus & Millichap released its 2022 multifamily investment forecast and in a video, John Chang, senior vice president and director of research services, explained that he had just spoken to many investors at the National Multifamily Housing Council’s Strategies Conference.

“I met with numerous apartment investors. The most important feedback from the numerous active investors at the conference was that 2022 will be an exceptionally active investment year, especially for the large apartment market,” Chang said. “I can’t tell you how many times investors told me they had hundreds of millions of dollars ready to deploy.”

Just one problem: a tough time finding where to place the capital. “There’s a shortage of properties for sale and as a result, large multifamily property prices are being bid up, especially in growth markets in the southern half of the US,” Chang said.

The South has been leading in multifamily volumes, as Richard Barkham, global chief economist and head of Americas research at CBRE said at the GlobeSt.com Multifamily conference in Los Angeles in the fall of 2021.

Given the amount of money seeking alternative investments, with current performance of the stock market and concerns about hedging against inflation, this makes sense. 

Additionally, according to Chang, large multifamily fundamentals are strong. Vacancy rates sit at their lowest levels in 30 years and rent growth hit records in many markets. Investors are also convinced that there’s a run of multi year growth coming. However, rent growth has been slowing and it isn’t clear whether that will pick up later in 2022 or move strongly forward after.

Cap rates, as one might expect, are compressing. Last year, the pressure was in a small number of high-growth markets, according to Chang.

“But since then, the demand for large apartment properties, generally those with at least a hundred units, has spread nationwide,” said Chang. In top-tier assets and premier markets, like Austin, Phoenix, parts of Florida, and some other markets were in the mid-to-upper 2% range. Large upper tier properties in other parts of the country were trading at 3% to 4% cap rates.

Large value-add multifamilies and large properties in tertiary markets have also been trading at a premium. Cap rates there ranged from 3.5% to 6%.

“This could be the best time yet for private apartment investors to shift strategies and capitalize on the record prices,” Chang said. The owners could move out on a 1031 exchange and redeploy capital in higher yield properties.