Here’s Where Multifamily’s Investment Opportunities, Pitfalls Lie In 2022

As cap rates continue to stay low and capital flows into multiple asset classes and property types, there are many emerging opportunities to take advantage of in the U.S. multifamily sector, according to lending and capital expert panelists at the GlobeSt. MULTIFAMILY Conference.

Speaking to an audience in Hollywood, Florida, senior managing director of Meridian Capital Group, Morris Betesh, singled out Manhattan as being especially full of opportunities. But there are a couple of big questions on his mind: where are people working and moving to, and are they staying there or is it temporary?

“Where are the structural changes in terms of employment sticking? And where’s the fluff?” said Betesh.

For investors, the ‘smile states’ in the Southeast and Southwest offer a lot of investment opportunities. And Miami is in a new stage of its development, in Betesh’s view.

“I’m not going to comment on prices, but I do believe Miami is in a new phase,” said Betesh.

Though it’s not a good idea to stray too much from an investment trend, Michael Friedman, founder & CEO of The REvision Group, said Indianapolis, Pittsburgh, Tulsa and Columbus are good places to invest with great rent growth.

“You don’t want to bet against the trend, but there’s a lot of opportunity in the Midwest,” said Friedman. “People in the Midwest have money.”

With the work-from-anywhere concept now a big trend, many are wondering if it’s sustainable. If it continues to grow, that will require more long-term maintenance and residents will want more space.

“The work-from-home model is here to stay,” said Friedman. “The multifamily apartments are going to have to be structured differently.”

Predictions

Betesh said he believes most of the moves in interest rates have ended.

“I don’t think it will have a sustained move well beyond 2%,” said Betesh. “I don’t think you’re going to see 3%. With respect to every time you see something like this, there’s a quick move and then the market adapts.”

As the market adapts, sales volume will slow down, according to Betesh, who said he thinks we’ve seen most of the moves in borrower costs.

“I do think there’s going to be a move in interest rates. I don’t think it’s going to be as scary as people talk about,” said Betesh.

Another likely outcome is that rates will go up and liquidity will contract, noted Dwight Dunton III, founder and CEO of Bonaventure, a real estate investment and management company.

“What happens to the borrowers and the investment sales market?” Dunton asked.

Betesh said the investment sales market will slow.

“Whatever happens, it’s going to be a window in time,” said Betesh. “It will create some level of deflation. That is the purpose of it. People have to understand that.”

No ‘Big Ego’: Select the Right Partners

The panelists predicted that, in the next 24 months, there’ll be some volatility and patience will be required to transact.

It’s also important to be discriminatory about who you work with and represent, according to Friedman.

“We cannot work with sponsors or developers who are either chasing the deal, they have a big ego, or a lack of patience,” said Friedman. “If you’re in the lending business, or equity providing business, you better pick the right best-in-class partners.”

For both big and small sponsors, Dunton suggested preparing for the worst.

“Remember, your pro forma is wrong. It is not a prognostication of the future. It’s a forecast and forecasts are wrong, like the weather,” said Dunton. “Will you survive that outcome? Structure your deal in a way that you can survive a market correction before you get out.”

Betesh said it’s important to “bet on the jockey” and support strong sponsors that can foster a good business partnership.

“If 1,000 people are moving to Miami a day, no one can create 1,000 new units in multifamily per day. There is opportunity out there. You have to pick your spots,” said Betesh. “Find the right opportunities and anytime there’s a change there’s opportunity.”