The apartment asset class is having a numbers problem with deals and development getting harder to pencil in. Still, the fundamentals are strong enough to withstand these issues.
What will it take for the seemingly indefatigable multifamily asset class to lose steam? Slowing rent growth? Apparently not as many, if not most, markets have experienced a deceleration in rent growth. Too much supply? Again, that would be no. While the volume of apartment development may seem overwhelming on a macro basis it still falls short of housing demand.
Instead, what investors in this space are more fearful of is the interest rate environment, with a whopping 70% of respondents to a Real Capital Markets survey declaring that the prospect of further increases is having, and will have in the future, an impact on acquisition strategies.
Vic Clark, senior managing director for Hunt Real Estate Capital, notes that interest rates have moved up about 60 basis points over the past year. “In the past 12 to 18 months, lending agencies have found ways to reduce pricing and keep rates low despite interest rate hikes,” he says. “So far, cap rates have held firm, but another 60-basis-point rate increase will be difficult to absorb.”
As it happens, the multifamily sector will probably navigate that issue as well. Its fundamentals are too strong to ignore.
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Executive Editor of GlobeSt.com