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Small Multifamily Cap Rates Drop to 6%

Investment conditions are improving for this asset class.

By Erik Sherman | November 19, 2024 at 06:56 AM

The big news for the small multifamily market is cap rates have averaged 6.0% for the third quarter. During the three months, the average cap rate was below its six-year high. They are up 31 basis points from the same time last year and 98 basis points above the “cyclical low point set in 2023.” The risk premium above the 10-year Treasury yield increased by 42 basis points to 201. That’s a revision to a pre-pandemic norm.

In general, Q3 was an improvement for the small multifamily market according to Arbor, moving some toward normalization. It attributed much to the rate cuts from the Federal Reserve, with pricing, cap rates, and credit conditions improving. Then there is easing interest rate pressure, strong rental demand in many if not most markets, and government-sponsored enterprises lending strengthening the industry.

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