Yes, Opportunities Are Still Out There for Multifamily Investors

The multifamily sector appears to be charging (nearly) full speed ahead into the end of 2022, despite volatility in the capital markets. But will that momentum slow as the cost of capital continues to rise? 

In conversation with Scott Thompson, VP and Global Events director at GlobeSt at this month’s GlobeSt Multifamily conference, Cameron Jones, managing director, US Housing Strategic Transactions at Nuveen Real Estate, said any talk of a recession “is definitely capital markets driven,” adding that fundamentals remain strong.

“I’m optimistic,” Jones said. “We make prudent investments, and there are great opportunities out there to have a lot of conviction and be focused. It’s somewhat nice to not feel the absolute frenzy I think a lot of us felt over the last two years, and to take a step back, recalibrate and make good decisions.”

Jones said Nuveen’s portfolio continues to perform well, and the firm anticipates that will continue.

“We are extremely focused on combating any softness quickly,” she said. “We have weekly calls with asset managers on performance and where they’re seeing weakness.  We incorporate real-time data in how we’re viewing markets, how were underwriting, where we’re seeing opportunities and trends. Things are holding firm but we’re not seeing double digit rent growth like we have the last six months.”

Jones also added that Nuveen typically buys assets in all cash, a strategy that in times of volatilities plays to the firm’s advantage. And while the market “always has the agencies, the cost of that debt is high,” she said.

Nuveen had a very active first half of the year, she said, but was not always successful in bidding due to a competitive deal landscape. The volatility in the capital markets has since led to a pullback in available opportunities and transactions, and “we’ve since seen that price discovery,” she said.  “Buyers and sellers are going into the market with mindset of let’s test where market is.” And deals closing today were priced six months ago, so they may not be reflective of what’s actually currently happening in the market.

In terms of geography, Nuveen focuses its investment strategy on population growth, employment drivers, and whether those are sustainable over the next five to ten years.

“In Texas, you see strength with employers coming in,” she said. “But on the flip side, it’s typically much easier to build anything in Texas and that includes multifamily. You have to weigh the supply side of that equation. We like the Sun Belt, of course; it’s been a very strong performer through COVID. But we are being very focused on pockets. We are making sure we’re buying in pockets where if there is supply it’s realistically absorbed. It’s really market-by-market and a top-down view of where the opportunities are.” 

Jones said Denver has been a tough market to gain a foothold over the last few years but remains high on the firm’s list of targets. Other choice areas include Atlanta, Phoenix, submarkets within the Inland Empire of Southern California, and the Seattle MSA.

“As acquisition person I’m on the side of the optimist so I can feel good about a lot of markets,” she said.

She also alluded to the psychological effect of relentless coverage of and discussion about rate hikes.

“I do think this somewhat becomes a self-fulfilling prophecy,” she said. “It gets into our psyche. Around the fringe we may start to see some softening…but it feels so volatile right now. Today the market feels good…but then who knows what tomorrow may bring.”