21 Jun Yardi Matrix US Multifamily Sales
In 2021 Yardi Matrix has stated that US multifamily property sales hit an all-time high of $215 billion, a 67.3% increase from the prior high point in 2019. On average it cost $192,000 per unit, a 21.6% increase over the past year. Rent growth has also been above the long-term average for at least half a decade (besides in 2020) and is up 14% for the year.
Many high-cost coastal states such as California and New York have had negative domestic migration with many people in search of more affordable housing. There is a clear higher compound annual growth rate (CAGR) for smaller and lower quality properties. Higher growth was related to those places that had the ability to be renovated to thus increase rent and be resold at a higher price. For this reason, investors have been looking for smaller assets geared towards working class residents because of the potential for high rent growth over time.
As seen in this chart as property sizes increase too much, the CAGR started to decrease. The best CAGR was for the 100-149 unit buildings (more likely than not these are the properties that were intended for the working class that the investors have been looking for).
The South has the highest average CAGR followed by the West, Midwest, and lastly the Northeastern part of the United States.
Currently the average cap rate for multifamily buildings is 4.5%, which is causing investors to steer towards a value-add strategy. With this they would buy older properties and renovate to increase rents.
Multifamily loan coupons were between 2.5% and 4% from 2021-2022 and now have hiked between 4-6%, making it less enticing to invest. Multifamily still has good prospects relative to other segments of the economy and extremely high occupancy rates. But with this there are enough red flags that show the possibility of a serious down-turn and investors should invest with caution.