Multifamily metrics including going-in cap rates, exit cap rates and unlevered IRR targets for prime assets showed slight improvement in the first quarter, the first such uptick since the Federal Reserve began raising interest rates in early 2022, CBRE reported.
The positive spread between going-in and exit cap rates stabilized at 12 basis points in Q1 after declining for eight consecutive quarters. This suggests that the positive spread will likely continue unless there are unexpected economic deteriorations, according to CBRE.
Unlevered IRR targets decreased by nine bps in Q1 to 7.59%. Most prime multifamily markets tracked by CBRE had stable or lower IRR targets, with Denver and Los Angeles experiencing the biggest reduction
“We are observing notable improvements in underwriting metrics for prime multifamily assets, marking the first improvement seen in two years,” said Matt Vance, head of multifamily research for the Americas at CBRE. “This indicates a potential turning point in the market, with going-in and exit cap rates, along with the stabilized positive spread, showing positive trends.
“These developments suggest that key underwriting metrics may have reached their peak as the market anticipates potential rate cuts in the future,” Vance added. “It is crucial for investors to closely monitor these positive developments as they navigate the multifamily market.”
If you have questions or curiosities about today’s multifamily or income-producing real estate markets on the Gulf Coast of Florida, let’s connect at Dreznin Pappas Commercial Real Estate LLC.
While the surface of this density increase seems positive, at the deeper levels this appears to miss the mark in my opinion. While the article alludes to an example of (“no more than $58,500 a year for a household of two, or $73,100 for a household of four”) those costs as solely the cost of living. I understand the demographics of Sarasota support these levels, but if you are in the need of affordable or attainable housing, these numbers feel way over the mark. I’m not advocating for ample handouts, but the affordability aspect seems like a pebble into a lake versus a rock into a puddle. If I have a 200 unit complex with my new density, 30 units would be required to be attainable. That’s it. The other 85% can be as unattainable as the developer wishes. ~ Sean Dreznin
“The bonus units must include a mix of residences that range in cost from those priced at 80 percent or less of the area median income (no more than $58,500 a year for a household of two, or $73,100 for a household of four) to units priced at 120 percent of the area median income. “
City commissioners voted 3-2 Monday to expand developer incentives in exchange for affordable units to address the city’s affordability crisis.
A rendering of Artist Court, where developers are building a multi-family project that includes affordable units in exchange for increased density. IMAGE: COURTESY PHOTO
Developer giveaway or important step toward solving Sarasota’s ongoing housing affordability crisis? That’s the debate over a series of affordable housing incentives that were expanded Monday by the Sarasota City Commission.
The incentives already existed in downtown areas and along commercial corridors throughout the city, but with the City Commission’s 3-2 vote, they will now be extended to more than 700 parcels. The new zoning text amendment encourages mixed-use developments and provides density and height bonuses to developers who include affordable housing in mixed-use projects along Tamiami Trail, University Parkway, Washington Boulevard, 10th Street between Central and Orange avenues, Fruitville Road east of downtown, and Beneva Road, as well as Southgate Mall and its surrounding area.
The parcels in green in this map of the City of Sarasota are the areas being targeted for the new affordable housing incentives.IMAGE: COURTESY CITY OF SARASOTA
Developers who build in these districts will receive up to a triple-density bonus if 15 percent of the bonus units are priced as attainable. (Bonus units are the extra units above the base number allowed without the incentive.) That will allow up to 75 units per acre in two of the three new zones, and 105 units per acre in third zone that covers the North Tamiami Trail area. Base heights of three stories will be allowed, with an increase of up to five stories on parcels of three acres or more that are located at least 100 feet away from residential single-family homes.
The bonus units must include a mix of residences that range in cost from those priced at 80 percent or less of the area median income (no more than $58,500 a year for a household of two, or $73,100 for a household of four) to units priced at 120 percent of the area median income.
Critics at Monday’s meeting expressed worries that the measure amounted to a developer giveaway and that the affordability requirements do not do enough to address the city’s affordable housing crisis. Detractors also shared concerns about increased noise, traffic and stress on infrastructure, and argued that the new developments might negatively affect nearby residential neighborhoods.
All developments within an urban mixed-use zone district must meet daylight plane requirements with a gradual increase in height. The daylight plane requirement allows a maximum height of two stories starting at the side or rear setback line and then extending upward at a 45-degree angle until reaching the maximum height limit.IMAGE: COURTESY PHOTO
Supporters, meanwhile, welcomed the incentive as a step toward the construction of more affordable housing in a city where many workers are being priced out of the neighborhoods where they work, leading to long and costly commutes for teachers, nurses, firefighters and law enforcement officers, among others. The crisis is also affecting employee retention and discouraging workers from moving to the area for career opportunities.
Among Monday’s speakers was Heather Kasten, the president and chief executive officer of the Greater Sarasota Chamber of Commerce, which represents roughly 1,400 local businesses that employ close to 60,000 people.
“Affordable housing is the No. 1 issue our businesses are facing,” she said. “One statistic worth sharing is that 91 percent of the businesses we surveyed said they would support zoning changes that would create more affordable housing options. We cannot keep talking about this issue and kicking the can down the road and sacrificing good for perfect.”
Ron Kashden, who opposed the measure, said, “The impact of this amendment can’t be overstated. If you think the impact is in the distant future, then you don’t have the pulse on the current construction in downtown Sarasota. Just in January, Artist Court [a multifamily development headed to Washington Boulevard in downtown Sarasota] modified its plan to take advantage of the newly passed zoning incentives. So now it will be 10 stories, with 242 units, and just 26 affordable units.”
For builders to take advantage of the new incentives, they will not need approval from the city commission or planning board. Projects can be OKed by city staff unless extra density or height is requested, in which case a community workshop will be required.
Multifamily real estate has crashed, but we’re not at the bottom yet. With more debt coming due, expenses rising, incomes falling, and owners feeling desperate, there’s only so much longer that these high multifamily prices can last. Over the past year, expert multifamily investors like Brian Burke and Matt Faircloth have been sitting and waiting for a worthwhile deal to pop up, but after analyzing hundreds of properties, NOTHING would work. How bad IS the multifamily market right now?
Brian and Matt are back on the podcast to give their take on the multifamily real estate market. Brian sees a “day of reckoning” coming for multifamily owners as low-interest debt comes due, banks get desperate to be paid, and investors run out of patience. On the other hand, Matt is a bit more optimistic but still thinks price cuts are coming as inexperienced and overconfident investors get pushed out of the market. So, how does this information help you build wealth?
In this episode, Brian and Matt share the state of the 2024 multifamily market, explain exactly what they’ve been doing to find deals, and give their strategy for THIS year that you can copy to scoop up real estate deals at a steep discount. Wealth is built in the bad markets, so don’t skip out on this one!
In This Episode We Cover:
The state of multifamily real estate in 2024 and how low prices could go
A “day of reckoning” coming for inexperienced/overleveraged multifamily owners
Whether or not we’ve reached the bottom for multifamily price drops
What rookie real estate investors should do NOW to take advantage of this down market
Rising mortgage rates and how increased costs have KILLED many multifamily deals
Exactly what Brian and Matt are investing in during 2024 to make money no matter how the market moves
Jun 2022: 9.1% Jul 2022: 8.5% Aug 2022: 8.3% Sep 2022: 8.2% Oct 2022: 7.7% Nov 2022: 7.1% Dec 2022: 6.5% Jan 2023: 6.4% Feb 2023: 6.0% Mar 2023: 5.0% Apr 2023: 4.9% May 2023: 4.0% Jun 2023: 3.0%
From @EPBResearch
Shelter/Rent is adding ~150bps to headline CPI on a 3-month annualized basis.
Core inflation fell to a 21-month low on a 3-month annualized basis.
Jay Parsons is one of the Multifamily real ones at realpage, Inc and his wealth of knowledge, research and commentary is monumental to keep the industry on the pulse of what’s happening.
Check out this map highlighting the most active tertiary markets for apartment development. Multifamily construction isn’t just a major market thing. It’s not just a Sun Belt thing. It’s all over the country at multi-decade highs or all-time highs. Lots of focus typically goes to big markets like Seattle and Austin. But what about tertiary markets?
Note the nation’s leaders for apartment construction (on an inventory growth basis, adjusting for market size) are heavily concentrated in and around the Mountain region of the country.
Lots of buzz around Boise ID, but look at others like Bozeman MT, Provo UT, Colorado Springs CO, Greeley CO, Billings MT, Coeur d’Alene ID and Rapid City ID. Sioux Falls ID up there too.
And West region markets like Santa Fe NM, Prescott AZ and Bremerton WA.
The Southeast has surprisingly few entrants on this list (and none in Texas!?) led by Ocala FL, Huntsville AL, Lakeland-Winter Haven FL and Jacksonville NC. Just missing the cut were: Gainesville (GA, not FL), Sarasota/Bradenton FL, Port St. Lucie FL, and Asheville NC.
All of these have been hot demand markets since COVID (and most were attractive pre-COVID, too), but certainly will get tested in the short run by supply. Smaller markets tend to take an outsized hit in the short run as supply delivers. BUT most of these are likely well positioned longer term.
Our view is that the “Zoom towns” and tertiary markets with attractive long-term demand drivers and a nice job mix (not just a one-trick pony spring break town) should thrive in the next cycle.
In a speech Wednesday, Federal Reserve Chairman Jerome Powell seemed to signal a potential slowdown in interest rate hikes. Powell said, “the time for moderating the pace of rate increases may come as soon as the December meeting.” Though the Chairman acknowledged some “promising developments” in the economy, he maintained a cautious approach, saying, “we have a long way to go in restoring price stability.”
Titan’s Takeaway
While Powell did signal a downshift in the Fed’s tightening pace next month, rates are likely to stay at restrictive levels for some time. The market reacted positively to the news, with the S&P 500 ticketing higher, the dollar turning lower, and treasuries trimming their losses. However, with inflation still materially above the Fed’s 2% target, higher levels of interest rates are likely here for a while.
Private Hiring Slows
127,000 jobs were added in the private sector in November, according to ADP, materially below estimates and a slowdown from the 239,000 added in October. Leisure and Hospitality continue to add workers, but steep drops in manufacturing, financial activities, and information services are a sign that the labor market is loosening. Job openings also fell to 10.3 million from 10.7 million a month earlier.
Titan’s Takeaway
The Fed’s monetary tightening is beginning to have a material impact on the labor market as companies turn to cost-cutting measures instead of growth. The continued slowdown in the labor market could be a key measure the Fed is waiting for to slow the pace of its rate hikes.
“The power of imagination makes us infinite.”— John Muir
➌ Euro reaches parity with dollar: The U.S. dollar and the Euro achieved parity for the first time since 2002. A historic energy crunch from Russia’s war on Ukraine and rising U.S. interest rates have pushed investors toward the dollar in favor of the feeble Euro. For U.S. travelers vacationing in Europe, the precipitous decline in the value of the Euro equates to roughly a 15% discount from the same time last year.
Titan’s Takeaway: The flood of capital into the U.S. for the safe-haven currency and to take advantage of rising interest rates could tame inflation as a stronger dollar makes for lower import prices. However, the dollar’s rise is a double-edged sword as emerging economies holding American debt are now paying a premium.
With the Fed meeting this afternoon, it’s highly likely that we’ll see interest rates spike in the near term. Our analysts anticipate three consecutive 50-basis-point increases in May, June, and July. Some lenders appear to be pricing these increases into their loan offerings. While multifamily rates are trending a bit lower right now, it helps to have an advisor to understand what your next loan terms could look like.
The Multifamily Site 
You must be logged in to post a comment.