The Multifamily Industry
The Phoenix of the Real Estate Investment Space
by Erica LaCentra
It is no secret that the multifamily space was one of the hardest-hit segments of the industry when the pandemic hit. However, as the housing market has rebounded and thrived over the last year, with single-family rentals being the darling of real estate investors, things in the multifamily space have really been picking up steam and all signs are pointing to a surge in multifamily investor activity in the year ahead with the space already posting impressive numbers this year. And this is by no means a very recent development, by summer of this year, asking rents were once again climbing in many parts of the country. According to Yardi Matrix, “multifamily asking rents increased by 6.3% on a year-over-year basis in June.” This was the largest y-o-y national increase in the history of Yardi’s dataset, which has been tracking this information since 2001.
So, what’s causing rent prices to grow and this space to rebound so significantly in such a short period of time? Plain and simple, the demand is growing. Just as we saw people leaving cities when the pandemic first hit, people are once again migrating to cities. People are returning to urban centers like New York, Seattle, Chicago, and Washington D.C. in mass, and these areas, like many other metros, are quickly rebounding. Increased demand from renters in cities with a limited supply of apartments is naturally causing rents to go up. This in turn has caught the eye of savvy investors who see the value in the long-term passive income that can be generated through multifamily rentals and want to take advantage of this rent growth.
Yardi reported that “out of the top 30 markets they cover, 27 had positive y-o-y rent growth.” The Southwest and Southeast metros, in particular, are seeing the most drastic rent growth, with Phoenix, Tampa, the Inland Empire, Las Vegas, and Atlanta all experiencing double-digit year-over-year growth in June. While many experts believe this trend will ultimately level off at the end of 2021, these short-term gains have been a boon for the multifamily sector. The rapid growth in rents has also caused a growing interest in another area of the market which should also ultimately boost the multifamily space and give investors another area to direct their attention, affordable housing.
The Affordable Housing Opportunity
The affordable housing crisis is not new and was an ongoing issue pre-pandemic. The pandemic only served to exacerbate the issue, but as we move through the end of 2021 and into 2022, there is not only hope for a renewed focus on affordable housing, but this area presents itself as a massive opportunity for investors that are willing to get involved in this space. Just as we are seeing a boom in build-to-rent projects in the single-family space, the multifamily sector is expected to follow a similar path as demand continues to swell in major metros.
The biggest concern, and potential roadblock, continues to be the increased cost of new construction projects due to material supply chain issues. However, many developers and investors are eyeing multifamily construction prospects in less dense markets that still have easy access to larger metropolitan areas as potential areas of opportunity for affordable housing going forward. Builders also have an increased interest in adaptive reuse projects and converting unused commercial properties, and even hotels, that are already perfectly situated in urban centers into affordable multifamily apartments. These types of complicated issues call for creative solutions, and the multifamily sector seems to be rising to that call and presenting opportunities for those braver investors that are willing to take chances.
Lending in the Multifamily Space
So, as we have seen the multifamily real estate space rebound rapidly this year, which bodes well for investors looking to get into this space, how is multifamily lending fairing? Multifamily lending took quite the tumble in 2020, but just as multifamily real estate righted itself and then some. Multifamily lending is also poised for a phenomenal recovery meaning investors will have access to the capital they need to get multifamily projects going in 2022.
Just to put into perspective how well the multifamily lending space is doing, the Mortgage Bankers Association “expects a 31% increase in commercial and multifamily lending this year” and projects that multifamily mortgage bankers will “close $578 billion of loans backed by income-producing properties in 2021, up from $442 billion in 2020.” These projections and increased transactions continue to speak to the rebound of multifamily as well as the renewed investor interest in this segment.
The association also has confidence in the multifamily space through 2022 also. The association is projecting activity “rising to $597 billion in commercial/multifamily originations and $421 billion in total multifamily lending” in 2022. All of this bodes very well for investors that are looking to make the most of multifamily this year as well as in 2022.
The multifamily industry is truly a story of resilience, as many thought it would not recover for years after the hit it took in 2020. However, all signs point to 2022 being a tremendous year for the space as well as for any investors that are looking to get in on the action. There is no sign of renter demand slowing anytime soon, especially as housing inventory continues to remain extremely low, meaning profits for multifamily investors are ripe for the taking. It will certainly be interesting to keep an eye on this space and see where it goes in the new year, but for now, it’s nice to see how it’s been able to rise from the ashes of 2020.
