The Gray Report Podcast

Conditions may not be perfect for multifamily investors right now, but the lending environment and supply/demand fundamentals are lining up for a significant improvements in 2025. With markets currently expecting two more rate cuts before the end of the year, cap rate-interest rate spreads may widen enough to bring more investment activity after a lengthy period in which sales volumes were half the pre-pandemic levels.

Fannie Mae: “Fed Cuts Interest Rates Amid Sluggish Existing Sales but a Rebound in Starts Activity” - https://www.fanniemae.com/research-and-insights/forecast/fed-cuts-interest-rates-amid-sluggish-existing-sales-rebound-starts-activity

Cushman & Wakefield: “Fed Pivots: The Next Chapter for CRE” - https://www.cushmanwakefield.com/en/united-states/insights/fed-pivots-the-next-chapter-for-cre

Cushman & Wakefield: “Unpacking Multifamily Supply Risks and Demand Booms” - https://www.cushmanwakefield.com/en/united-states/insights/unpacking-multifamily-supply-risks-and-demand-booms

Harvard Joint Center for Housing Studies: “Affordability Challenges and the Composition of Middle-Income Renters” - https://www.jchs.harvard.edu/blog/affordability-challenges-and-composition-middle-income-renters

Moody’s Analytics: American Needs More Affordable Housing, Not Just Class A Inventory - https://cre.moodysanalytics.com/insights/market-insights/america-needs-more-affordable-housing-not-just-class-a-inventory/

In this edited replay of our live Gray Report video on the recent interest rate decision from the Federal Reserve,

With CPI showing continued declines in inflation this week and lower ten-year treasury yields foreshadowing an expected interest rate reduction from the Federal Reserve, investors continue to show more activity and interest in the CRE investment market, with multifamily properties specifically showing noticeable positive growth in property prices since the beginning of the year. Rents in the apartment sector will likely follow a similar trajectory as 2023, with seasonal trends pointing to slower rent growth through the end of the year, but investors are not blind to the prospects of the multifamily market and are acting on expectations of stronger performance as the surge in newly-built apartments wanes through the end of 2024 and into 2025.

Sources discussed in this episode:

Associated Press: “Police deny Venezuela gang has taken over rundown apartment complex in Denver suburb” https://apnews.com/article/venezuela-immigrants-aurora-colorado-police-37acd4e064347d51808cb244117ac21e

CBS News: “Colorado law firm report claims Venezuelan gang has "stranglehold" on apartments, takeover began in 2023” - https://www.cbsnews.com/colorado/news/colorado-law-firm-report-claims-venezuelan-gang-stranglehold-apartments-takeover-began-2023/

Bureau of Labor Statistics: “Consumer Price Index, August 2024” - https://www.bls.gov/news.release/cpi.nr0.htm

Colliers: Capital Markets Snapshot: “Major Investors Return to the Market” - https://www.colliers.com/en/research/nrep-uscm-capital-markets-us-snapshot-q2-2024

MarketWatch: “Commercial real-estate investors are ready to get back in the market, says PGIM” - https://www.marketwatch.com/story/commercial-real-estate-investors-are-ready-to-get-back-in-the-market-says-pgim-dbd4fc06

Green Street: “Commercial Property Price Index” - https://www.greenstreet.com/insights/CPPI

Apartment List: National Rent Report, August 2024 - https://www.apartmentlist.com/research/national-rent-data

Yardi Matrix: “National Multifamily Report: August 2024” - https://www.yardimatrix.com/publications/download/file/6087-MatrixMultifamilyNationalReport-August2024

RealPage: “U.S. Apartment Market Sees Negligible Change in August” - https://www.realpage.com/analytics/august-2024-data-update/

For the latest multifamily news from across the internet, visit the Gray Report website: ⁠https://www.grayreport.com/⁠

Sign up for our free multifamily newsletter here: ⁠https://www.graycapitalllc.com/newsletter⁠

DISCLAIMERS: This video does not constitute professional financial advice and is for educational/entertainment purposes only. This video is not an offer to invest. Any offering would be made through a private placement memorandum and would be limited to accredited investors.

Recent years have seen housing costs rapidly climb, and high interest rates are only part of the problem. Housing policies attuned to the benefits of additional housing supply often meet opposition at the hyper-local level, but policymakers are becoming increasingly more attentive to the ways in which deregulation can help solve the housing affordability crisis and create more housing supply. Multifamily rent growth has been dampened by the record levels of new apartment supply, but apartment investors remain encouraged by the signs of sustained housing demand.

The multifamily market continues to work through historic amounts of new apartment supply as the end of peak leasing season approaches, and rent growth could remain below average through the end of this year. At the same time, cap rate estimates suggest higher investor demand moving forward, particularly when factoring in a more favorable debt environment, and persistent housing demand is expected to support a more active and competitive apartment market as the amount of newly-built apartments diminishes through the end of 2024 and into 2025.

Sources discussed in this episode:

CBRE: “U.S. Cap Rate Survey H1 2024” - https://www.cbre.com/insights/reports/us-cap-rate-survey-h1-2024

Fannie Mae: “2024 Mid-Year Multifamily Market Outlook – Skies Remain Cloudy” - https://www.fanniemae.com/media/53066/display

Bisnow: “Harris and Trump Agree On Lowering Housing Costs — But Their Plans Take Radically Different Paths” - https://www.bisnow.com/national/news/multifamily/housing-has-emerged-as-a-top-election-issue-heres-where-harris-and-trump-stand-125615

For the latest multifamily news from across the internet, visit the Gray Report website: ⁠https://www.grayreport.com/⁠

Sign up for our free multifamily newsletter here: ⁠https://www.graycapitalllc.com/newsletter⁠

DISCLAIMERS: This podcast does not constitute professional financial advice and is for educational/entertainment purposes only. This podcast is not an offer to invest. Any offering would be made through a private placement memorandum and would be limited to accredited investors.

With the Democratic National Convention bringing increasing attention to the policy platform of presidential candidate Kamala Harris, the Gray Capital team breaks down her comments on the economy and housing made during a campaign stop several days before the convention.

Sources discussed in this episode:

The New York Times: “U.S. Added 818,000 Fewer Jobs Than Reported Earlier” - https://www.nytimes.com/2024/08/23/business/the-big-number-818000-jobs-revision.html

The White House: “Remarks by Vice President Harris at a Campaign Event in Raleigh, NC” - https://www.whitehouse.gov/briefing-room/speeches-remarks/2024/08/16/remarks-by-vice-president-harris-at-a-campaign-event-in-raleigh-nc/

Peter Welch (US Senator from Vermont): “Welch and Wyden Introduce Legislation to Crack Down on Companies that Inflate Rents with Price-Fixing Algorithms” - https://www.welch.senate.gov/welch-and-wyden-introduce-legislation-to-crack-down-on-companies-that-inflate-rents-with-price-fixing-algorithms/

The Atlantic: “We’re Entering an AI Price-Fixing Dystopia” - https://www.theatlantic.com/ideas/archive/2024/08/ai-price-algorithms-realpage/679405/

Marcus & Millichap: "The CRE Investment Climate Just Changed…" - https://www.marcusmillichap.com/research/videos/the-cre-investment-climate-just-changed

For the latest multifamily news from across the internet, visit the Gray Report website: ⁠https://www.grayreport.com/⁠

Sign up for our free multifamily newsletter here: ⁠https://www.graycapitalllc.com/newsletter⁠

DISCLAIMERS: This video does not constitute professional financial advice and is for educational/entertainment purposes only. This video is not an offer to invest. Any offering would be made through a private placement memorandum and would be limited to accredited investors.

While recent stock market volatility brought about strident calls for relief from the Fed, longer-term trends like the steadily lower yields for Ten-Year Treasuries since May, consistently lower inflation numbers since March, and a slowing labor market are equally if not more persuasive indicators that an interest rate reduction would be appropriate. CRE sales remain subdued, but there are growing signs that investors are tracking similar trends and expect a more favorable environment for investment in the coming months.

Sources discussed in this episode:

Bureau of Labor Statistics: “Consumer Price Index, July 2024” - https://www.bls.gov/news.release/cpi.nr0.htm

Institutional Property Advisors: “Interest Rates Trend Lower, Paving Way for

Invigorated Commercial Property Investment” - https://www.institutionalpropertyadvisors.com/research/special-report/2024/08/research-brief-august-capital-markets

NAR: “Commercial Real Estate Market Insights, July 2024: ‘While the market awaits the interest rate cuts from the Federal Reserve, commercial real estate is also on hold.’” - https://www.nar.realtor/commercial-real-estate-market-insights/july-2024-commercial-real-estate-market-insights

Institutional Property Advisors: “Interest Rates Trend Lower, Paving Way for

Invigorated Commercial Property Investment” - https://www.institutionalpropertyadvisors.com/research/special-report/2024/08/research-brief-august-capital-markets

For the latest multifamily news from across the internet, visit the Gray Report website: ⁠https://www.grayreport.com/⁠

Sign up for our free multifamily newsletter here: ⁠https://www.graycapitalllc.com/newsletter⁠

DISCLAIMERS: This video does not constitute professional financial advice and is for educational/entertainment purposes only. This video is not an offer to invest. Any offering would be made through a private placement memorandum and would be limited to accredited investors.

Weaker jobs numbers, rising Japanese interest rates, AI bubble fears, and election-year uncertainty are among the many factors posited as the cause of the stock market's steep declines this week, and the lengthy period of elevated interest rates in the United States has helped create this fragile economic environment more vulnerable to recession. A major economic downturn would be keenly felt for apartment operators facing continued challenges with lower rent growth and higher expenses, but given the magnitude of housing demand, the proven resilience of apartment assets, and the likelihood of lower interest rates, many investors are anticipating more activity and opportunity in the multifamily investment market.

Sources discussed in this episode:

Axios: “The Stock Market Slump Doesn’t Mean We’re in a Recession” - https://www.axios.com/2024/08/06/stock-market-recession

Bloomberg: "My [The Sahm Rule] Recession Rule Was Meant to Be Broken" -

CRE Analyst: "Sorry, low rates can be bad for real estate…" - https://www.linkedin.com/posts/cre-analyst_sorry-low-rates-can-be-bad-for-real-estate-activity-7226198761625018370-QE-4

The Wall Street Journal: “Fannie, Freddie Are Poised to Tighten Real-Estate Lending Rules” - https://www.wsj.com/real-estate/fannie-mae-freddie-mac-commercial-property-lenders-brokers-rules-116907c2

Yardi Matrix: “National Multifamily Report, July 2024” - https://www.yardimatrix.com/publications/download/file/5938-MatrixMultifamilyNationalReport-July2024

Apartment List: "National Rent Report" - https://www.apartmentlist.com/research/national-rent-data

For the latest multifamily news from across the internet, visit the Gray Report website: ⁠https://www.grayreport.com/⁠

Sign up for our free multifamily newsletter here: ⁠https://www.graycapitalllc.com/newsletter⁠

DISCLAIMERS: This video does not constitute professional financial advice and is for educational/entertainment purposes only. This video is not an offer to invest. Any offering would be made through a private placement memorandum and would be limited to accredited investors.

In the multifamily market, rents growth continues to be sluggish, but growing signs of apartment demand support the long-term health of the sector. In the broader housing market, household growth and pent up demand are bracing against affordability barriers like high interest rates.

Sources discussed in this episode:

MSCI - "As Fed Rate Hopes Shift, So Too Does Real-Estate Sentiment" - https://www.msci.com/www/blog-posts/as-fed-rate-hopes-shift-so-too/04826872290

Cushman & Wakefield: “The much-anticipated lagged relationship for housing inflation still exists” amid a “Decidedly Dovish Shift from Powell” - https://www.cushmanwakefield.com/en/united-states/insights/market-matters-exploring-real-estate-investment-conditions-and-trends

Marcus & Millichap: “Will Commercial Real Estate Distress Surge?” - https://www.marcusmillichap.com/research/videos/will-commercial-real-estate-distress-surge

Apartment List: “More young adults now live with their parents than at any point since 1940” - https://www.apartmentlist.com/research/most-young-adults-live-with-parents-since-1940

Harvard Joint Center for Housing Studies: “What Effects Will the Recent Surge in Immigration Have on Household Growth?” - https://www.jchs.harvard.edu/blog/what-effects-will-recent-surge-immigration-have-household-growth

Carl Whitaker (RealPage): “Average household size ticking down” - https://www.linkedin.com/posts/carlwhitaker15_for-the-first-time-in-many-years-the-country-activity-7223682871243194368-HPbd?utm_source=share&utm_medium=member_desktop

For the latest multifamily news from across the internet, visit the Gray Report website: ⁠https://www.grayreport.com/⁠

Sign up for our free multifamily newsletter here: ⁠https://www.graycapitalllc.com/newsletter⁠

DISCLAIMERS: This video does not constitute professional financial advice and is for educational/entertainment purposes only. This video is not an offer to invest. Any offering would be made through a private placement memorandum and would be limited to accredited investors.

Single family homes prices are as high as they've ever been, but home sales are low. High interest rates have suppressed both multifamily and single family building, and lack of housing supply has led to declining affordability and a sustained housing deficit. There is significant pent up demand in the housing market. In both single-family and multifamily markets, this extended period of unusually low sales activity has led to building pressure as this pressing need for homes contends with housing costs that are too high for demands to be met.

Sources discussed in this episode:

John Burns Research and Consulting: “Unlocking single-family rental (SFR) trends early and accurately” - https://jbrec.com/insights/unlocking-single-family-rental-sfr-trends-early-and-accurately/

NAR: “Residential Real Estate Market Snapshot” - https://www.nar.realtor/research-and-statistics/research-reports/residential-real-estate-market-snapshot

Moody’s Analytics: “Elevated Completions Continue to Weigh on Multifamily Rent Growth” - https://cre.moodysanalytics.com/insights/cre-news/elevated-completions-continue-to-weigh-on-multifamily-rent-growth/

For the latest multifamily news from across the internet, visit the Gray Report website: ⁠https://www.grayreport.com/⁠

Sign up for our free multifamily newsletter here: ⁠https://www.graycapitalllc.com/newsletter⁠

DISCLAIMERS: This video does not constitute professional financial advice and is for educational/entertainment purposes only. This video is not an offer to invest. Any offering would be made through a private placement memorandum and would be limited to accredited investors.