Multifamily Investment's Bright Spots for 2023

CRE investors are generally acting rationally given the current lending environment, according to Ken Munkacy, senior managing director at Kingbird Investment Management.

However, while rising interest rates, a potential policy-induced recession, credit terms, and valuation uncertainties are all a reality, the current “doom and gloom” headlines oversimplify and obscure the long-term positive fundamentals of the multifamily asset class specifically, he said.

Based on Kingbird’s research and analysis, the underlying fundamentals in this asset class remain solid, and investing in distress as 2023 unfolds presents an opportunity to capture strong risk-adjusted returns.

Workforce Housing a Bright Spot

The US market is chronically undersupplied – a shortfall of millions of units by most estimates.

Despite the more than 400,000 units completed during 2022 and another nearly half a million new apartment units that will be delivered by the end of 2023, according to CoStar, “it will hardly make a dent in this housing shortage,” Munkacy said.

And it’s not just the shortage of units – it’s a shortage of the type of units that Americans need, he said. Luxury housing alone isn’t meeting the rental market’s needs,” according to Munkacy.

“The overwhelming portion of US new developments are high-end, high-rent buildings,” he said, “However, amidst stagnant wage growth, high inflation, and broader economic concerns – the luxury renter pool is already shrinking as rent increases have priced millions out of luxury buildings, contributing to new vacancies.”

Munkacy said there is an increasing need for workforce housing to capture those caught in the middle – both those now priced out of class-A buildings and those that have rented in the workforce housing category all along.

Regional Hotspots Emerging

Various new large-scale federal programs – the Inflation Reduction Act, the $280 billion CHIPS Act (which incentivizes microchip and semi-conductor manufacturing), and the Department of Energy’s new $250 billion clean energy loan program – all portend to “jump start” critical new on-shoring and re-shoring initiatives in green technologies, energy, advanced computer electronics, and infrastructure.

All of this will generate the need for new housing in general – multifamily in particular – especially in markets such as Austin and Columbus, according to Munkacy.

Several other cities where Kingbird has apartment investments; including Dallas, Huntsville, New York City, and Los Angeles; are also gearing up significant new technology, infrastructure, media, defense, and aerospace projects. Those workers will need places to live.