Multifamily Investors Target Newer Assets for Stable Cash Flows

Apartment properties built after 2017 have dominated US multifamily transactions in 2023 and 2024 due in part to a flight to quality as investors transition to core and core plus strategies.

Buyers have been favoring newer assets that often feature modern amenities and energy-efficient designs that attract both tenants and investors in hopes they will generate stable and predictable cash flows and contribute to higher transaction volumes, according to Berkadia’s quarterly CRE market update for October.

At the same time, sellers have been motivated to dispose of newer assets for several reasons, including liquidity needs, end of fund life, the need to achieve broader business goals and loan maturities, said the report. Merchant builders have been selling when lease-ups are slow or costs too high.

Multifamily transactions are still occurring although volume has decreased, as the sector’s resilience and steady income streams appeal to investors in a volatile economic environment.

Acquisitions have been dominated by both private and institutional investors this year, including fund shops, syndicators, separate account managers, private investors, a foreign pension fund, and a public REIT, the report said.

“Some public REITS are partnering with foreign capital and seeding platforms with existing assets in exchange for a commitment of capital to pursue new opportunities,” Berkadia said. “These groups have substantial dry powder and access to competitive financing options, enabling them to pursue large-scale deals. They believe they can acquire high-quality assets at a discount to today’s replacement cost in a less competitive market.”

The top three buyers for the quarter were FPA Multifamily with a transaction volume of $783 million, Kairoi Residential with a transaction volume of $445.4 million and Blackstone with a transaction volume of $422.4 million. Top sellers during the quarter were CIM Group with volume of $619 million, Heitman with $529.4 million and AvalonBay with $479.7 million.

During the past two years, 80% of all US apartment transactions over $50 million have been concentrated in 25 markets, with Austin, Dallas, Atlanta, Phoenix and Miami leading the way, according to the report. These areas attract investors thanks to strong population growth, robust job creation and favorable economic conditions as well as high demand for rental housing from young professionals and families seeking lower living costs.

Markets that were not overbuilt in the last cycle continue to attract investors seeking stability, liquidity and long-term growth potential. This includes Boston, Chicago, Washington, D.C., and New York. Pockets of existing oversupply are likely to be absorbed over time, said Berkadia.

The New York City metro market constituted 9.7% of Q2 transaction volume, followed by Phoenix, Dallas, Los Angeles and Washington, D.C.