Multifamily Investment Sales Plummet 74% in the First Quarter

Investors who have historically made multifamily sales a consistent, reliable real estate choice are pulling back. In the first quarter of 2023, they purchased $14 billion of apartment buildings, according to a preliminary report by CoStar Group that was reported in the Wall Street Journal.

But that huge investment represented a 74% drop from the same quarter in the prior year, according to the WSJ. Equally significant is that this is the largest annual sales decline since early 2009 when there was a 77% pullback due to the Great Recession.

Moreover, the fall represents a significant industry departure since multifamily sales have proved safe overall compared to other real estate assets. The reason is that investors and developers have focused on this category because they know that apartment residents need housing even when the economy falters. And many now who have wanted to buy homes haven’t been able to because of high interest rates and low inventory.

The question looms if this presents an isolated concern or the beginning of a longer-term trend. The latter may be the case based on data from multiple sources. For instance, apartment prices experienced the largest annual decline of all property types this past February, falling 8.7% from a year earlier. That was the biggest drop for this segment since 2010, according to MSCI’s Michael Savino. “Even that annual rate of decline underplays the higher frequency change: The monthly decline of 2.7%, when annualized, would be a fall of 28.2%,” he wrote.

At Colliers, Aaron Jodka also wrote about multifamily sales volume slowing. In February, $4.8 billion traded, the lowest monthly total since the same month in 2012, he said. “Multifamily fell in the third most heavily traded asset class in the month for the first time since January 2015. It is uncommon for multifamily to rank outside the top two in any given month,” he wrote.

And there may be more troublesome news for the asset class: More than $430 billion in multifamily debt is maturing between 2023 and 2024, according to LightBox. About a third were probably loans with expectations of renewal because of the low rates in effect when they were planned, it said. 

At the same time that these signs indicate possible trouble ahead, some transactions—and big ones—are still closing. Jodka cites Blackstone’s acquisition of the Ellington Midtown property for $133 million from Goldman Sachs. The building sits in Atlanta’s Midtown neighborhood, near downtown. The transaction with 473 units equaled $281,200 per apartment.