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Investor Focus Shifts In Multifamily

By Paul Bubny, December 8, 2017

BETHESDA, MD—Investors in the multifamily sector are turning their gaze outside the urban core. Capital One’s fourth annual survey of investor sentiment, conducted at the RealShare Apartments conference in Los Angeles, found that 43% are looking at secondary/tertiary markets, or more than twice as many as those who saw the greatest potential for value in urban markets, while another 35% said they see the best opportunities in the suburbs. A year ago, a plurality—47% of respondents—cited urban markets as the leading opportunity.

“All signs point to the multifamily sector heating up in 2018,” says Jeff Lee, president of Capital One Multifamily Finance. “Investors are looking to engage in secondary and tertiary markets, where they see increasing opportunity. These markets have seen rent growth, and their broad appeal should generate interest and activity as we head into 2018.”

Accordingly, fewer investors plan to remain idle in the coming year. Just 16% of respondents said they expect to be neither a net buyer nor a net seller in ‘18. That’s in marked contrast to the 43% of respondents who said the same thing last year.

A majority of investors (57%) plan to focus on acquisitions in 2018, while 27% plan to sell. Both figures experienced a slight uptick from the 2016 survey, and the percentage of net buyers was also up noticeably from the 41% of respondents who were polled at the National Multifamily Housing Cuncil conference in San Diego this past January. Value-add is the major driver of NOI growth as far as this year’s survey respondents were concerned, cited by 83% of those surveyed.

This year’s edition of the survey also identified a shift in financing sources. Forty-three percent of multifamily executives expect to seek financing from agency lenders, up 15 percentage points from the year prior. This marks the first time that agency lenders are the top choice of multifamily executives. Banks ranked second, identified by 39% of respondents.

Meanwhile, rising interest rates remain a leading concern among industry professionals. Forty-seven percent of respondents identifying interest rates as the biggest risk for multifamily equity investors, although that’s down somewhat from the 52% of respondents who saw interest rates as the biggest risk factor this past March. Also figuring high is the effect of domestic and international politics, cited by 42% as a significant risk for equity investors in multifamily.

Far and away the biggest influencer among age cohorts is Millennials. Seventy-two percent of survey respondents said this age group will have the greatest impact on multifamily demand in 2018, followed by Generation X (16%) and Baby Boomers (12%).

Technology is reshaping how consumers interact with and use goods and services; in multifamily specifically, 59% of respondents expressed the greatest interest in advances that would reshape the tenant/landlord relationship. Twenty-one percent of those surveyed said that technology to help identify investment opportunities would be most welcomed.

Capital One Multifamily Finance conducted the survey at RealShare Apartments conference on Oct. 18 and 19. The survey gauged emerging trends and industry insights from commercial real estate professionals in the US, and is based on 121 responses.

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