Dive Brief:
- Multifamily transactions fell 79% year over year to $7.7 billion in May, while prices slid 12.5%, according to a report that data firm MSCI Real Assets shared with Multifamily Dive.
- Mid- and high-rise sales dropped 65% YOY in May, while garden properties saw an 85% fall. Individual asset sales plummeted 79% for both mid- and high-rise communities. Portfolio activity came in at $2.5 billion but was powered by one purchase. In that deal, Chicago-based Nuveen acquired a portfolio of more than 12,000 units concentrated in New York City from New York–based Omni Holding Co.
- Although the RCA Commercial Property Price Indexes (CPPI) posted another double-digit decline, the changes have become more modest of late, according to MSCI. Compared to April, prices only dropped 9.9% month over month. From November to December of 2022, they were falling an average monthly of 24.8%.
Dive Insight:
Without the Nuveen deal, sales would have been as low as they were in May 2020. Transaction declines are now reaching lows not seen since 2008 and 2009. Overall, apartment sales volume has been falling at YOY a rate of about 60% for seven months now, when interest hikes began to throw cold water on the market.
“It's quiet,” said Eddie Lorin, founder and CEO of Calabasas, California–based affordable builder Alliant Strategic Development. “It's a lot quieter than it was in 2020. We definitely are seeing more activity now than we did at the end of 2022. But it's not nearly to the level that we saw in 2021 and at the beginning of 2022.”
The Federal Reserve paused rate hikes last week, which could bring a tiny bit of stability back to the market.
“Closing becomes extremely challenging when interest rates are rising,” said Jordon Emmott, co-founder of New York City–based brokerage firm Global Real Estate Advisors. “The economics can get out of balance in a hurry, which is what we have been fighting through the past 18 months.”
Still, others think the hiatus will have a minimal impact. “I don’t see the recent pause as having a material impact on the current environment just yet,” said Brennen Degner, managing partner and CEO of Denver-based apartment owner DB Capital Management. “The pause is a step in the right direction but the general narrative around there being the potential for one to two more hikes still creates the same uncertainty as existed before the pause announcement.”
And other observers think rate cuts need to occur before things really get better. Alexander Apfel, managing director and principal with commercial real estate investor Concord Capital Partners in Beverly Hills, California, said Fed Chairman Jerome Powell’s “hawkish rhetoric” provides some insight into what the market can expect in the next year or two.
“Market expectations have centered around the hope that the Fed would quickly cut rates once [rates] reach their peak, a tactic that would boost transaction activity and buoy owners who are currently underwater,” Apfel said. “However, Chairman Powell clearly stated that the Fed would likely only start cutting rates a ‘couple of years out,’ leading us to believe that the cap rate expansion that we’ve experienced over the last 12 months may, like inflation, be here to stay.”
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