Cap rate trends and interest rate trends have come under the spotlight, with several reports on the topic as well as specific developments that will play a major factor in how the economy progresses.

Sources discussed in this episode:

Federal Reserve Bank of the United States: “Monetary Policy Report” - https://www.federalreserve.gov/publications/files/20240301_mprfullreport.pdf

Capital Spectator: “US Growth Expected To Slow In Next Month’s Q1 GDP Report” - https://www.capitalspectator.com/us-growth-expected-to-slow-in-next-months-q1-gdp-report/

CBRE: “U.S. Cap Rate Survey H2 2023” - https://www.cbre.com/insights/reports/us-cap-rate-survey-h2-2023

https://sprcdn-assets.sprinklr.com/2299/d55fbd12-8b34-4725-8e93-6ae0119dad6d-603683686.pdf

Newmark: “Valuation and Advisory’s North American Market Survey” - https://www.nmrk.com/storage-nmrk/uploads/documents/va-market-survey/Newmark_VA_North-American-Market-Survey-2024.pdf

Marcus & Millichap: “January CRE Foreclosures” - https://www.marcusmillichap.com/research/videos/2024/03/january-cre-foreclosures

Apartment List: “National Rent Report, Feb. 2024” - 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

Learn more about Gray Capital's latest multifamily investment offering for accredited investors: https://www.graycapitalllc.com/new-offering/

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.

As we move further from the uncertainty and rent growth stagnation of 2023, an increasing number of sources are finding room for optimism in the multifamily investment market. A looming drop-off in multifamily supply, the consequence of an interest-rate-driven decline in new construction projects, has become a central part of projections for the multifamily market, leading to expectations of higher rent growth and increased apartment demand in 2025 and 2026.

Single family rentals are a growing portion of the housing market, and while the single family market is correlated and connected to multifamily performance, single family rentals are not necessarily a competitive threat to the multifamily market.

This month's inflation report came in slightly higher than expected, causing some worry that the much-anticipated interest rate cuts from the Fed may not arrive as quickly as previously thought. A "higher for longer" environment is one reason why some are pessimistic about multifamily in 2024, but there is little evidence for continued declines in multifamily valuations, which are already 20-30% below the peak. Consistent demand, a more balanced supply/demand environment after 2024, and, yes, lower interest rate expectations are a strong counter-balance to multifamily doomsayers and help explain why investors intend to be far more active this year compared to 2023.

Gray Capital's latest multifamily offering for accredited investors: https://www.graycapitalllc.com/new-offering/

Link to webinar on February 20 at 1PM Eastern: https://youtube.com/live/LCkECUK05BI?feature=share

Sources cited in this episode:

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

BiggerPockets: “Multifamily Is at High Risk of Continuing Its Historic Crash in 2024—Here’s Why” - https://www.biggerpockets.com/blog/multifamily-crash-to-continue-through-2024

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. Offering limited to accredited investors.

Compared to the prevailing uncertainties of 2023, a better view of the multifamily market and its driving forces points to increased investment activity as the year progresses. Significant challenges remain for apartment operators in 2024, but greater clarity on apartment construction, interest rates, housing demand, and the economy, alongside pent-up demand from investors who were inactive this past year, are a marked contrast from 2023 and highlight the solid investment prospects of the multifamily market.

The enormous amount of apartment supply expected this year should temper any expectations of apartment demand, but newly-published research on the topic argues that U.S. housing needs are far larger than can be addressed even with the historic amount of multifamily completions last year and forecasted for this year. On the capital markets side, recent data points to a substantial increase in CRE investment interest, but given the Federal Reserve's recently-announced intentions to keep interest rates at their current levels past March of this year, the market may not thaw until later in the summer when financing conditions improve.

Sources cited in this episode:

CBRE: “2024 U.S. Investor Intentions Survey: Investment Activity Expected to Increase” - https://www.cbre.com/insights/briefs/2024-us-investor-intentions-survey

Moody’s Analytics: “One Good Year Does Not Solve America’s Housing Shortage” - https://cre.moodysanalytics.com/insights/cre-news/one-good-year-does-not-solve-americas-housing-shortage/

Harvard Joint Center for Housing Studies: “Six Takeaways from America’s Rental Housing 2024” / America's Rental Housing 2024 - https://www.jchs.harvard.edu/blog/six-takeaways-americas-rental-housing-2024 / https://www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_Americas_Rental_Housing_2024.pdf

While recent migration and employment data highlights the continued growth of the Sunbelt, the massive amount of newly-built apartments in Sunbelt markets far outweigh the effects of demand drivers like population or job growth. Given this dynamic, investors may find higher-performing assets in multifamily markets in the Midwest and Northeast that have not seen as much apartment construction.

Sources discussed in this episode:

John Burns Research and Consulting: “How to Ride the Apartment Supply Wave” - https://jbrec.com/insights/how-to-ride-the-apartment-supply-wave/

Apartment List: “Renter Migration Report: 2024” - https://www.apartmentlist.com/research/apartment-list-renter-migration-report-2024

RealPage: “Our Economists’ Picks for Favorite Apartment Markets in 2024” - https://www.realpage.com/analytics/markets-outperform-2024/

Fannie Mae: “2024 Multifamily Market Outlook: Instability Expected as Skies Remain Cloudy” - https://www.fanniemae.com/media/50101/display

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.

Markets in the Northeast and the Sun Belt continue to get attention, along with mountain locales like Idaho and Montana, but affordability is a significant draw for Midwestern markets like Cincinnati and Indianapolis.

Recent reporting on commercial real estate financing has highlighted the role of private credit in providing funding for CRE sponsors/owners and delaying the need for a capital call, and despite the expectation of interest rate reductions later in the year, it is clear that private credit will remain an important tool in 2024. Newly-published reports on multifamily performance continue to clarify the near-term challenges for apartment operators, but data showing record vacancies for office properties presents a bleaker picture and signs of persistent shifts in remote/in-person work that could lead to more sustained housing demand in the future.

Sources discussed in this episode:

Bureau of Labor Statistics: “Consumer Price Index, December 2023” - https://www.bls.gov/news.release/cpi.nr0.htm

MSCI: “Inflating Returns with Private Lending Subscription Lines of Credit” - https://www.msci.com/www/blog-posts/inflating-returns-with/04311213880

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

Integra Realty Resources: “2024 Viewpoint Report” - https://www.irr.com/news/just-released-viewpoint-2024-25065

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.

While the continued surge in newly-constructed apartments is relatively unchanged from 2023, the outlook for 2024 interest rates is less clear. The longer-term prospects for the multifamily market remain strong, but given the continued pressure from apartment supply, investors who speculate on lower interest rates and future asset valuation increases could be vulnerable to short-term headwinds.