Berkadia Optimistic Apartment Deal Pause Will End After Labor Day

It’s still August and Berkadia has already established its second highest volume year in the company’s history. That helps to give it strong credentials when it comes to identifying trends in multifamily housing investing.

The company has released results from its 2022 Mid-Year Powerhouse Poll, which finds the sector enjoying strong rent growth tailwinds until recently being moderated by rising interest rates and inflation.

Conducted in July 2022, the proprietary poll recognized rising consideration for environment, social and governance (ESG), addressed advancing technology for brokers and apartment operators and the predictable and somewhat perplexing resilience of markets such as Florida and California among other topics.

The poll includes insights from 123 Berkadia investment sales agents and mortgage bankers across 65 offices to assess expected commercial real estate activity and opportunities for the second half of 2022 and beyond.

Housing Markets Poised for Balancing

Ernie Katai, executive vice president and head of production at Berkadia, spoke to some of the results, telling GlobeSt.com that the continuation of 20 percent to 30 percent annual rent increases puts the industry in a good place.

“But with rising inflation and interest rates, there’s a balancing that’s going to come soon, but it is impacting single-family homes more than apartments,” he said.

“It’s costing more to finance a home – and the Federal Reserve is indicating that there could be one or two more rate hikes, but the price of homes has not corrected itself for the most part.” (Some July housing data is showing prices beginning to fall).

Katai said, transaction-wise, the industry took a bit of a pause in the summer and that things should activate again after Labor Day. “Owners were feeling things out, and now we have some headwinds, but job growth and wage growth remain, so it’s debatable whether we’re in a recession. What would disrupt all of this would be a deep recession.”

Katai said that “forever” California has been the golden market, but lately, there have been some moderate declines in growth. “It’s probably the state still in a pandemic hangover,” he said. “We believe it will rally back.”

As for Florida, “You have to look at where people are going and where they’re coming from,” Katai said, pointing to the state’s general attractiveness. “Just how many people can Florida absorb, anyway.”

ESG Benefiting Residents

ESG is “certainly taking root” in discussions, he said. “It’s helping to get better rates. Overseas capital is following it more than anything. In the US, we’re in catch-up mode; this has mostly been a big thing in Europe.”

He said the non-regulatory framework makes it more difficult for investors and operators to create strategies.

“On the social side, we’re seeing more communities offering daycare and financial services for residents, which helps them greatly; it can be a game-changer for them and their budgets,” Katai said. “The owners like that because it can improve retention.”

On the energy side, he’s seeing more solar installations this year. “I’m surprised that took so long,” Katai said.

Market Tracking More Important Than Ever

Katai said Berkadia has developed impressive tools that analyze market data, including standard expenses, crime, schools and points of interest so brokers can “have that on their fingertips in real-time, which makes a big difference.”

“There’s data everywhere but using it in this way is important. We’d rather equip our brokers and clients with actionable, trustworthy insights, even if it means losing out on a deal.”