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The Bagheri Group (Omied Bagheri)

@thebagherigroup

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Multifamily Investment Sales | Development | Debt+Equity Finance | Located in Silicon Valley |

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NMHC Recap

1.) U.S. Treasury has moved counter to overnight lending rate due to continued concern over inflation, slowing sales activity

2.) Continued growth of U.S. equity markets has overweighted institutional investors’ portfolios lending and investing, putting pressure on getting money into those investments.

3.) Downward trend for development starts will continue to push rents

4.) Current debt pricing and volatility of treasury combined with uncertainty with impact of Trump administration has made being aggressive on prices difficult.

5.) JV Equity in development deals are pushing sales because upside potential of waiting to sell is being diluted by time.

6.) Banks are increasing lending due to lower overnight rates, improving the deposit-loan spread and reducing reserves for losses. This boosts liquidity and encourages developers to sell. Higher lending rates continue to widen the gap, supporting further lending.

7.) Until lending markets stabilize and cap rates become predictable, short-term institutional equity will focus on distressed acquisitions. In 2025, most acquisitions will likely come from long-term investors as HNW individuals and total return buyers. by @thebagherigroup

Our U.S. Capital Markets Group Multifamily team will be attending the NMHC conference in Las Vegas from January 28th to the 30th by @thebagherigroup

by @thebagherigroup

Growth in apartment sales has been falling on a year-over-year basis for eight months now. Even with a steady pace of falling activity however, sales are still not at the lows seen in 2020 at the worst of the Covid-19 panic. The $7.1b in sales for April of this year was still $1.5b higher than that seen in April of 2020.
The apartment sector remains the largest, most liquid portion of the commercial real estate investment market in the U.S. but changes in the interest rate environment over the last year have reduced the attractiveness of apartment investment. Cap rates over the 12 months to April of this year stood at 4.8%, the 10yr UST stood at 3.46%, however. The 136-bps spread between these measures simply leaves less meat on the bone for apartment investors. By contrast, when deal volume was hitting record highs in 2021, this spread was closer to 360 bps.
Over the 12 months to April, garden apartment cap rates averaged 4.8%, the same level as a year earlier. The 12-month average for mid/highrise assets stood at 4.7%, up 10 bps from a year earlier.
The decline in deal volume for the month is not a story about deal structure nor one about property subtypes. Both individual asset sales and portfolio deals were down around 75% from a year earlier.
There were no entity-level deals in April of this year or last.
Uncertainty in the finance environment has likely hampered such transactions, with none closing so far in 2023. Both garden apartment sales as well as sales of mid/highrise assets were down around 75% from a year ago.
Prices have been falling on a year-over-year basis each month of 2023 but the actual declines started earlier in 2022. The RCA CPPI for apartments hit a high point in July of 2022 and declined each month thereafter. For April of this year, this index was down 12.1% from a year earlier. Relative to March however, prices were down 17.1% at an annualized pace.
Still, this 17.1% pace can be viewed as an improvement. The steepest declines in prices were seen from November of 2022 to January of this year, with the annualized pace of price drops each month averaging 25% by @thebagherigroup

📷 credit: Real Page and Jay Parson. Jay Parsons’s insights from this morning regarding rental growth. Double digit YoY gains are history for now. Here are the top 10 markets for apartment rent growth right now, and there are a few interesting takeaways from this list (or at least I think so). This covers the year-over-year change in effective asking rents only for new leases (excludes renewals, which are typically priced cheaper).

1) The days of double-digit rent growth are long gone -- and in every major market across the country. Rent growth peaked nationally at 15% in March 2022, and it's now less than 4% on average. In the top spot (once again) is Miami at 8.1%. It's cooled off, too, but at a slower pace than elsewhere.

2) My friends in the Midwest are always talking about how their markets are so underrated (and I largely agree!). But the Midwest's value and reputation is typically STEADINESS -- never in the top 10, never in the bottom 10. Well, that's changing for now.

I can't remember the last time we had SIX Midwest markets in the top 10 for rent growth. I'm not terribly surprised to see Indianapolis, Columbus and Kansas City on this list (which have really surged in national appeal among both investors and renters), but it's more surprising to see Cincinnati, St. Louis and even Chicago in the top 10. Also, Cleveland and Milwaukee both ranked well above the national average with rent growth above 5%.

3) The Sun Belt versus Gateway story is no longer clear cut. There are divergent patterns in both groups to the degree where the aggregate groupings are no longer super helpful. (Continued in comments) by @thebagherigroup

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