5 Predictions for the Multifamily Investment Market in 2024

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Brian D. Milovich

Managing Principal, Calvera Partners

Happy New Year!

Looking back, 2023 was a quiet, but bumpy year. The 10-year US Treasury started the year at 3.57%, peaked at 4.99% in October, and ended at 3.86%. That’s one heck of a roller coaster ride, and apartment values whipsawed with it. As a result, apartment transaction volume fell 71%.

Building operations in 2023 were also challenging. Rent growth slowed down as a lot of new apartment supply hit the market and inflation’s effect was felt throughout the broader economy. As a result, operating expenses increased 9.3% across the board, and NOI growth was limited.

This all created a dreadfully quiet 2023 in terms of apartment transactions, as those who can are waiting for better days. Will those better days come in 2024? Let’s find out with my top 5 predictions for 2024.

1. Phenomenal buying opportunity as time runs out for many owners.

2021 was a big year for apartment purchases, and euphoria ran wild. Inflationary rent growth and near-zero interest rates fueled aggressive purchase activity. Those acquisitions were financed with short-term, floating-rate bridge debt, and 2024 marks the end of the initial 3-year term for those loans. Instead of extending the loans further, a sale will be the only palatable option.

If bridge debt wasn’t used, there’s a good chance that floating-rate agency financing was. Those loans required interest rate caps for an initial 2- or 3-year term. Those interest rate caps will need to be renewed in 2024, which will cause financial pain. A cap that cost $30k 3 years ago now costs $1M, and many owners don’t have the capital to make this payment.

Investment funds end every year, and debt maturities are often the conclusion of a property’s business plan. Provided a refinance doesn’t make sense—and the owner is rational—a sale is the likely option. We saw this on a deal we recently pursued.

The time is up for many owners in 2024, and we’ll see transaction volume increase as a result. I don’t expect a banner year for volume, but forced sales will become more prevalent and the bid-ask spread will narrow, creating an opportune time to pick up new deals.

2. Considerable new apartment supply creates tepid rent growth.

Many new apartment projects broke ground in 2022, and those started to deliver in 2023. More will arrive in 2024, marking the peak deliveries, according to Yardi Matrix. In Yardi’s winter report, they cite that “some 1.2 million apartment units are under construction, the most since the suburban garden apartment boom of the 1980s.”

I expect rents to remain flat or barely grow in 2024. Low growth in the 0.5 to 2.0% range is our base case for 2024, depending on the market. For example, in Austin, TX, close to 27,000 new apartment units are expected to deliver in 2024 (9.5% of its existing inventory). Despite this massive supply growth, Yardi still projects positive rent growth of 0.9% for 2024.

Once the new apartment supply is absorbed, I expect rent growth to surge and be above average. 2024 will not be that year, though it will provide attractive valuations for buyers.

3. Insurance and other expenses will remain elevated, causing NOI (net operating income) to be flat or down from 2023.

I don’t expect insurance premiums to drop in 2024. Other operating expenses, which all saw inflationary increases, are also not expected to recede. These factors combined with slow, or no, rent growth, will cause NOI to be flat or down in 2024.

Even at Calvera, we’re not seeing many ways to reduce expenses as we work through the budgeting process. One area of hope is in tax reassessments. Lowering the assessed value reduces the property taxes and provides needed cash flow to offset the other expense increases. Unfortunately, it won’t be enough to keep NOI from being weak. Keeping with the theme, this will temper valuations and make appealing buying opportunities.

4. We’ll get clarity on the 10-year US Treasury by Q3…either 3.5% or 5.5%.

Since I’m not an economist, I won’t predict what the 10-year UST will be. However, I don’t believe it’s staying near 3.9%. Without a negative shock like a recession, the 10-year will settle around 3.5% and stay there for quite some time. On the other hand, if inflation ramps back up, which it did in the early 1980s, it could reach 5.5%.

I just don’t believe we have enough information right now to do a victory lap on the Fed’s interest rate tightening cycle. Plus, whenever it seems like everyone is on board with a certain scenario (i.e., the soft landing), it hardly ever turns out that way. Where rates end up isn’t point. In order for the market to heal, it needs interest rate stability and we should get that in 2024.

5. Cash will be trash again.

The Fed is predicting 3 interest rate cuts in 2024, and the market is projecting 7 cuts. As a result, those 5%+ short-term treasury yields and high-earning money-market accounts will soon be a thing of the past. At the same time, the S&P 500 is near its all-time high. Even Bitcoin rallied by 150% in 2023 as investors seek higher returns. Holding cash will no longer be as attractive as it is now, and investors will be looking for the next opportunity.

One asset class that has yet to rally is real estate. I believe that investors will once again see the relative value in real estate and want back in. Not only will the cash flow from owning apartments be more attractive compared to money-market yields, but the appreciation potential from buying at near cycle-low prices will reward those ambitious investors. 2024 is real estate’s turn to make moves.

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