A few years ago, buyers were making offers that belied the fundamentals of investing, and were overpaying for multifamily properties. In 2012 however, the buyers out there are more conservative despite the perceived “shortage” of available properties. Instead of making offers on quality (yet often overpriced) properties, investors are simply not making offers.
Overall, this market “prudence” is probably a good thing, as the market appears to be more balanced and based on the fundamentals of investing vs. speculation. I believe this will actually increase the effectiveness of multifamily investments, as investors are keeping themselves out of trouble and will minimize wide fluctuations in values.
Survey Shows Strong Demand for Multifamily Investments
Genesis Capital specializes in off market, often distressed, commercial real estate for buyers and sellers. The company spotlights a survey which indicates that Multifamily is the most appealing investment choice for property investment in 2012 and is likely to continue as such through 2013. The flight to safety with higher yields is driving the trend. The new division at Genesis, the Small Balance Multifamily Group, was formed in response to demand.
San Francisco, CA (PRWEB) November 13, 2012
The Jones Lange Lasalle 2013 Cross Sector Survey, released in October, showed that investors ranked Multifamily as the most appealing product type (43%).
The survey showed that two factors are driving the trend to multifamily investment. First, Multifamily is viewed as a “flight-to-safety” product, one where risk is relatively
well controlled. Secondly, lending market appetite is fueling multifamily trades for Class A in primary locations and some secondary assets and locations.
Investor demand for Multifamily product continues to increase rapidly as the rate of transactions is at the same level today as it was in 2005, according to Jones Lang Lasalle analysts. It was at $23 billion at the first half of 2012, and at $24 billion at the end of August. National bulk portfolio
sales were a key driver in the surge of Multifamily product deals; they jumped 32% from the first half of the previous year, according to the analysts.
Genesis Capital, which assists off market buyers and sellers of commercial real estate, recently formed its Small Balance Multifamily Group to address the strong demand from buyers and sellers. Genesis Capital continues to help institutional buyers with large multifamily acquisitions, but now smaller buyers can be assisted as well. The new group typically deals with multifamily in the $1M to $3M range +/-.
“The apartment development pipeline has amplified and investor appetite for core multifamily properties has pushed towards peak levels. We anticipate a spike in transaction volume as sentiment toward risk aversion
fades, investors pursue higher yields and entrepreneurial value-add strategies re-emerge,” said Jubeen Vaghefi, managing director and leader of Jones Lang LaSalle’s Multifamily Capital Markets business. “While investor appetite is strong now and will remain so in 2013, the compounding occupancy and rent growth that the Multifamily market is experiencing now may begin to lessen in 2015 and beyond.”
Many urban gateway markets have seen important increases, as many consumers have put off home purchasing decisions due to the unstable economic environment. This has kept the pool of renters growing ever larger. Also, the key home-buying demographic (ages 44 and under) have been stressed by the financial crisis and are much more inclined to rent than to buy, the analysts said.
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