Matthews Real Estate Sees Opportunities Amid Challenging Multifamily Market

The story of multifamily so far for 2024 has been one of high supply. That has not been ideal for CRE developers and owners as it has led to flattening rents.

But Matthews Real Estate Investment Services, which represents the largest developers and clients, is still seeing enough activity in certain areas.

David Harrington, president of the brokerage firm, which leads the industry with over 20,000 transactions annually, said that he is seeing “tremendous” multifamily demand in the Southeast, particularly. So think in states like the Carolinas, Georgia, or Florida.

“I know that a lot of the assets that are being taken to market there get a lot of attention,” he told GlobeSt.

“They’re getting multiple offers these days.”

Harrington will be a panelist at GlobeSt’s upcoming multifamily conference in Los Angeles on October 15.

Harrington added that Texas markets including Houston, Austin, and Dallas have been getting a lot of attention too.

“Houston is a very large metro, very spread out, but has gotten more favorable job data over the last year or so. That does prop up the investor interest,” he said.

Interestingly, Harrington added that demand is also strong in California despite pushes for new regulations and costs creating “problems and issues for landlords.” For example, recently Kamra Paydar, First Vice President of CBRE told GlobeSt that the company’s operations in Los Angeles operators have seen struggles with the city’s ULA tax that was first implemented in April 2023. The law requires commercial and residential operators that earn more than $5 million in sales to pay a four percent tax. And for anything over $10 million, the number gets boosted to 5.5 percent.

Harrington agreed that he has seen some difficulty for landlords in LA as well. But obviously, it’s a huge market for many multifamily CRE operators that’s home to millions of residents.

“It’s just a cost of doing business for them,” Harrington said of landlords operating in states with stricter regulations and capped rents.

“You can get these deals to a place where they can make you money, but it comes with a lot of headaches, that’s for sure.”

One such headache is  the Los Angeles County Board of Supervisors’ proposal to cap rent hikes at four percent for small property owners and five percent for luxury landlords.

“I do not see the pricing reversing in a market like LA anytime soon, it’s going to need to be priced right, whatever that means for the market to get the activity level,” Harrington said.

Currently, Matthews Real Estate is keen on maintaining and improving support service for its roughly 800 agents. Harrington also noted the company will look at adding to its team.

“I see recruiting opportunities there for us, and we have been looking” at them, he said.

“My interest is expanding service lines to provide solutions to the owners that we’re already working with.”

While the demand might be on par in certain areas, the high supply in the multifamily sector has caused limited rent growth nationally. But Harrington is confident in the short-term, as he expects a likely rate cut by the Federal Reserve and the election to clear up uncertainties.

” I see [multifamily] getting back to a more healthy transaction volume over the next 18 months,” he noted.

“As we close out this year, you’re going to have some answers to some unknowns that will help lay the groundwork for business decisions to get made. And that will be very helpful in having people pushing money out into marketplaces where they see opportunity because the supply and demand curve for units built in a lot of these markets – that’s tailing off.”

And while Harrington thinks there’s a greater chance of the country hitting a recession than not, he thinks there will be opportunities in multifamily next year.

“Some of that is going to create motivation from sellers who haven’t been able to execute their business plan, and they need to sell, they need to exit,” he said.

“And you’re going to have buyers who are ready to take that over and execute a business plan because they can see far enough into the future where they know they’re going to get a return on that.”

Harrington predicted that the multifamily will see “significant upticks” in transaction volume through the remainder of the year and into 2025.