April 4, 2018
By Adam Levin and Robert Johnston, Levin Johnston, Marcus & Millichap
With Q1 2018 at a close and the Fed’s recent announcement regarding continued interest rate increases, many multifamily investors are asking: What’s the next move?
The multifamily investment market is still strong, while demand remains high. This will continue through Q2 2018, even with rising interest rates. Still, investors should consider the following strategies to help navigate potential challenges brought on both by cost of capital and the sector itself.
Invest in the Tangible
We are increasingly seeing clients cash out of the stock market and move toward more tangible assets. These investors like multifamily product; they recognize there will always be a need for housing. As such, multifamily properties can serve as safe havens for cash flow. As we enter Q2, look for more investors to gain more control over their capital through apartment assets.
Consider a Transition
At this point in the cycle, both buyer and seller opportunities exist. For sellers, it’s a great time to consider transitioning to larger properties with higher unit counts in order to maximize returns. For buyers, there is an opportunity to lock-in today’s interest rates for a fixed term, before they increase.
Look at the “Real” Comps
Buyers and sellers must ensure they are working with professionals who understand the true metrics of the market in which they are investing. Comps can be misleading, especially in markets where product has been over-improved and consequently, over-valued. Evaluating the whole picture rather than accepting comps at face value is a must at this point in the cycle.
Stick with Class B
Investors are increasingly looking at Class B multifamily investments, especially those located in regions with strong market fundamentals. This activity will continue in Q2. Both Class B and C properties offer a potential value-add proposition, even in a tight market.
In summary, multifamily properties continue to be popular investment choices. As market fundamentals and interest rates continue changing, strategies should be adapted to ensure that multifamily investments help meet outlined goals.
For comments, questions or concerns, please contact Amy Sorter