The Multi-Family 2023 Opportunities Outlook: Cautious Optimism in 2023 by Adam Riddle

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The Multi-Family 2023 Opportunities Outlook: Cautious Optimism in 2023
Written by Capstone Partner, Adam Riddle

Conflicting highs and lows, that’s been the general theme for 2022.

Inflation is up but unemployment is down. Rental rates have increased but rent growth has decreased. Fears of a recession have risen, although economic growth remains strong.

The post-pandemic picture has been nothing but paradoxical, but the path forward is clear.

While the multi-family market is indeed shifting gears, we’re still in drive, albeit with less pressure on the gas. To get to where we want to go, staying focused on what matters, analyzing what the numbers really mean, and keeping distractions at bay will be the key to avoiding a wrong turn.

The fundamentals are softening but still look good

Demand for multifamily units has remained surprisingly resilient and while demand is expected to soften, the deceleration will be to numbers that were at all-time highs.

Increasing mortgage rates will continue to sustain demand for multifamily units as evidenced by the latest Renter-by-Necessity performance metric which increased by 40 basis points in October, according to a recent survey by Yardi Matrix of the top 140 markets. (via Multihousing News).

Of note, although demand for multifamily rentals has slowed down, so have concessions. According to Fannie Mae, the value of concessions dropped from 8.8% to August 2021 to 7.7% in August 2022, although they still remain above their pre-pandemic levels. Moreover, the percentage of units offering concessions has also declined from 7.9% of all units in August 2021 to about 5.3% in August 2022.

Of note, average U.S. asking rent growth has also slowed down, but at 8.2% year-over-year in October, it remains healthy. Of particular interest is that all of Yardi’s top 30 markets delivered rent gains over the same period last year.

Occupancy dropped by 0.5% over the year in the market’s surveyed to 95.5%, a number still higher than the long-term average for the metric.

The market is shifting but opportunities remain

As the numbers show, the multifamily panorama is indeed shifting, and while the fundamentals remain good, the mixed signals the landscape is displaying is prompting mixed reactions from the market.

While some investors have chosen a “pencils down” strategy to see what sticks, others are seizing the moment to capitalize on a less competitive space, especially as the debt market remains at a standstill.

Looking forward, zero in on these market-driven opportunities


In the first half of 2023, the stalled debt market means there will be opportunities for the well-capitalized, in particular for those investors that can stomach the LTVs.

Cash will continue to prevail through the first and second quarters allowing cash buyers to take advantage of discounts that wouldn’t have otherwise been available. Now is the time—before the debt market stabilizes— to lock in a good basis without much competition.

Loan assumptions

Given increasing interest rates, loan assumptions will become more prevalent, at least until rates begin to decline to the point where new financing makes sense.

On the field, we’re already seeing more properties being listed as offering assumable debt. While loan assumptions are not a guarantee, after all they still need to be approved by the lender, assumable debt deals can be a win/win.

Investors will like the lower rates locked in prior to the whiplash-inducing interest rate hikes. Securing the lower cost of debt will prove to be a better inflation hedge allowing investors to take advantage of still-increasing rents to stay ahead of costs to bring in more favorable rates of return.

At the same time, sellers benefit by avoiding pesky and costly prepayment penalties.

The right market

With mixed signals coming in at the macro level, investors will benefit by seeking out markets with indicators that align with their investment strategy.

For example, Denver remains a very attractive market for multifamily capital investment.

The unemployment rate for September came in at 3.2%, well below last year’s 4.7% and below the national average of 3.3%.

The metro benefits from an educated workforce that brings in average weekly wages of $1,649, about 17% higher than the national weekly wage.

Multi-family investors will note that the median home price for the Denver-Aurora MSA went up 5.1% from Q1 2022 to Q2 2022, to come in at $695,800, sure to increase the Renter-by-Necessity market.

Meanwhile, year-over-year rent growth is forecasted to continue through next year.

As we move into 2023, there will undoubtedly be more ups and downs, but by steering clear of distractions we’ll more readily find the right opportunities.

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