Commercial Investment Real Estate March/April 2018 | Page 18

INVESTMENT
A N A LYSIS
Full Speed Ahead
Multifamily sector will advance along its long runway.
by Blake Okland
D
Investor Shifts
Every capital food group wants exposure in a strong sector. Last
year, about 66 percent of multifamily investors were private buy-
ers, and the remaining 34 percent were institutional. Expect
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March | April 2018
greater diversification during 2018 and new equity in the space,
including more international capital.
International sources invested $11.3 billion in U.S. multifamily
during the last year, according to ARA Newmark research. Expect
heightened activity as high net-worth families and sovereign
wealth funds shift their attention from trophy offices and hotels.
However, direct funding may be less common. International
capital has become increasingly fond of identifying U.S. sponsors
for multifamily investments.
Market Variations
Which markets will be hot in 2018? Look for secondary mar-
kets to continue to outpace primary markets, especially in the
Southeast and Southwest. Three primary factors will affirm the
frontrunners.
Extending 2017 success: Atlanta and Dallas are considered
global gateways and have economic tailwinds helping — tax-
friendly policies and robust job growth. Inventory in these cities
is growing at twice the pace of the national average.
Chasing yield: Orlando, Fla., and Houston will maintain
attractive yields, from the 5.1 to 5.5 percent range. Orlando
finished 2017 with record sales volume. Houston continues to
present a compelling story, as oil markets stabilize and the impact
of Hurricane Harvey pulled significant single and multifam-
ily offline, substantially driving up marketwide occupancy and
providing new support for rent growth.
COMMERCIAL INVESTMENT REAL ESTATE
espite rumors to the contrary about multifamily’s
growth, 2018 will be a seller’s market.
As long as off-market portfolio transactions and
recapitalizations continue — keeping the amount of
available deals and cap rates down — so will aggressive bidding.
Even with transaction volumes at historic highs, several factors
should fuel this demand cycle.
Absorption: Multifamily is expected to have strong absorp-
tion through 2019 as fewer apartments come to market.
Secondary markets: As secondary cities increasingly attract
capital, expect more cap rate compression in those markets com-
pared to large metros.
Tech hubs: After outpacing the national average by double
digits since 2012, technology-driven employment hubs will
maintain the strongest rental growth.
Cap rates: Each of these factors may further suppress
broadly marketed activity and likely trickle into secondary
and tertiary markets that have attracted capital as investors
seek yield.
Ironically, it’s the prospect of these reliable dynamics that will
shake up other aspects of multifamily next year.