FIVE MULTIFAMILY INSIGHTS FROM OUR MANSION GLOBAL EXPERT PANEL

November 2024

As interest rates shift and construction costs stabilize, potential investment opportunities may be emerging in the multifamily real estate market. At the recent Mansion Global and Ignite Investments panel, industry leaders Charlie Keels of Encore Multifamily, Danielle Hale of Realtor.com, and Dr. Bharat Sangani of Encore Enterprises shared timely insights on the sector’s emerging opportunities and the effects of the U.S. Federal Reserve interest rate cuts. Here are five takeaways for investors.

1. Healthy Job Growth with 5 Mile Radius is a Key to Multifamily Success

“Jobs, jobs, jobs always affect GDP. If you have constant growth in jobs over the next five years, you are relatively immune from anything else that happens around you.” – Dr. Bharat Sangani, CEO and Founder, Encore Enterprises

A strong jobs market is foundational for multifamily real estate, as steady employment can help fuel housing demand and stabilize rental income. Dr. Sangani emphasized the importance of “micro-GDP,” advising investors to focus on areas with robust five-year job forecasts. According to Dr. Sangani, this approach could allow for greater resilience against economic fluctuations, making location-specific job growth of a given submarket just as critical, if not more critical, than broader economic trends.

2. Navigating Financing Amid Fed Rate Cuts

“The fact that the Fed has started cutting [rates] is great… but it’s really not about the Fed’s rate, which is an overnight rate; it’s about long-term interest rates.” – Danielle Hale, Realtor.com

Hale highlighted that multifamily investments have benefitted from long-term interest rates stabilizing around 4% on the 10-year Treasury, which has impacted financing costs for multifamily projects.¹ This trend could potentially nudge more households toward homeownership, but multifamily rental demand remains robust due to persistent affordability challenges in the housing market.

3. Construction Cost Stabilization May Create Development Openings

“For the first time, we’re seeing projects pencil that haven’t penciled due to increased construction costs… if you can get projects out of the ground now, you might get significant savings.” – Charlie Keels, President, Encore Multifamily

While constructions costs surged during the pandemic, Keels noted a welcomed leveling out with costs decreasing between 5% and 7% on some of his active projects, benefitting from increased bid competition among contractors. This could create a potentially favorable moment for developers who are able to navigate the financing landscape and build efficiently with qualified contractors. Projects stalled by high costs are now feasible again, which may provide significant opportunities in multifamily development.

4. Demand for Multifamily Rentals Remains Strong²

“I do think we’ll see multifamily demand remain elevated… because the housing market is still quite challenging to get into from an affordability perspective.” – Danielle Hale

Hale emphasized that despite a softening in interest rates which is bringing mortgage rates down, the affordability gap in single-family housing keeps demand high for multifamily rentals. According to Hale, we had roughly a decade of underbuilding in the housing market on the single-family side, which continues to play a role in current rental demand dynamics. Although future demand cannot be determined with certainty, this sustained rental demand could support stable occupancy and rental rates through mid-2025.³

5. Adapting to Market Cycles Without Trying to Time Them

“Investing in real estate is not for the weak stomach… you can adapt to the market, but you cannot time it.” – Dr. Bharat Sangani

Dr. Sangani encourages investors to seek experienced partners with a strong track record rather than attempting complex investments alone. He also advises a flexible approach to real estate, avoiding precise market timing in favor of adaptability. He noted that recent interest rate adjustments have reignited institutional buying in high-barrier-to-entry markets, especially for distressed assets that larger investors are acquiring below replacement costs.

For investors, the key takeaway from this panel is the importance of adapting to new conditions – whether through strategic underwriting, leveraging financing shifts, or capitalizing on stabilizing construction costs. Above all, investors should seek partnering firms with verifiable track records, ample experience across market cycles, and an openness to answering questions directly, ensuring confidence in a changing market.

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1. Marroquin, Mario. “Fed Rate Cuts in 2025 Could Unlock Multifamily Deal Flow.” 30 Oct. 2024, www.globest.com/2024/10/29/fed-rate-cuts-in-2025-could-unlock-multifamily-deal-flow.

2. Skivjani, Arben. “RealPage Forecasts Continued Strong Apartment Demand.” RealPage Blog, 9 Oct. 2024, www.realpage.com/analytics/forecast-update-3q24.

3. “Four Key Findings From the 2024 State of the Nation’s Housing Report | Enterprise Community Partners.” Enterprise Community Partners, 20 June 2024, www.enterprisecommunity.org/blog/four-key-findings-2024-state-nations-housing-report.

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