Current Economic Data Supports Multifamily Investments

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The Editors's picture

The macro data suggests that multifamily investments and properties continue to be a strong performing asset class, says the CEO of a specialty investment bank focused on real estate, according to a release.

Multifamily is still supported by strong economic fundamentals, generally outperforming most other property sectors, David Blatt, CEO of Capstack Partners says in the release. Lenders have recently begun to express caution about financing new multifamily investments because of concerns that there is too much inventory. Many banks share the belief that the added supply will cause vacancies to increase and rents to drop, especially those lending into primary and high growth markets, which have been seeing the most investment activity over this last market cycle.

While it is certainly valid to monitor the volume and delivery pace of apartment inventory, banks’ views can often get distorted when their primary data source is their loan portfolio allocation, Blatt says in the release.

 While lenders will naturally become more selective as they consider increasing their multifamily investments exposure, it’s critical that they rely on a broader dataset to ensure attractive multifamily lending opportunities are not overlooked. The most prudent lenders also rely on historical and economic data to help guide their capital allocation decisions, according to the release.

Current economic macro data supports multifamily investments

For instance, while the national vacancy rate for multifamily property is projected to increase to 5.6% in 2017 and to 5.7% in 2018, according to CoStar Group, these figures are still below the 15-year average vacancy rate of 6.1%.

  • Meanwhile housing starts are at a historic low. Fewer homes are available for sale than in any previous cycle and the cost to build is climbing, especially with the recently implemented tariffs against Canadian softwood lumber imports.
  •  Additionally, the recent and continued rise in interest rates make it more challenging for people to purchase homes.
  •  All these factors will redirect prospective buyers back into the rental population, helping multifamily maintain its status as a safe and stable asset class.

“In high growth markets, we check the apartment inventory data against fundamental economic drivers like growing industries and labor force,” Blatt said in the release.

Multifamily investments are supported by current economic data says David Blatt  of Capstack Partners

David Blatt, CEO of Capstack Partners

“We look to structure our clients’ debt and equity financing to be stable enough to handle momentary ebbs and flows in the cycle. This allows developers and operators to zoom out and focus on executing a fundamentally sound investment strategy based on drivers like jobs and population growth,” he said.

Multifamily is largest asset class in real estate investing

Multifamily is the largest asset class within real estate investing.

When high profile institutions actively build then sell in the short-term, and lenders begin to murmur about too many apartments, it is important for private investors to remember that buying and building rental properties isn’t a market timing game.

Rather, it is about managing and locking down your property operating and financing costs, increasing your rental revenue, and enjoying the appreciation of your investment over time.

About CapStack Partners

CapStack Partners is a specialty investment bank focusing on the real estate, hospitality, infrastructure and energy industries. Founded and led by capital markets expert David Blatt, CapStack provides a full range of investment banking services including project financing, private placements, mergers and acquisitions, loan syndications, workouts and dispositions, and strategic advisory. CapStack’s diverse range of clients include private and publicly traded companies as well as universities, not-for-profit institutions and municipalities.

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