3rd Quarter Report
October 2, 2023 – Bloomfield Hills, MI
IPO is pleased to announce our 2023 multifamily investment sales through Q3. After three quarters of activity, the 2023 YTD numbers remain in stark contrast from 2022 levels. As the market adjusts to 10 consecutive Federal Funds Rate increases, our sales volume is down 75%. Transactions have begun picking up steam as market participants anticipate the end of the rate increase environment. We currently have 29 multifamily sales pending, which have increased by over 300% as the year has progressed, showing a clear pattern of recovery. Real estate markets turn slowly, and we expect it to take another two to four quarters for the market to fully stabilize.
- $30M in transactional volume
- 8 transactions, reflecting 354 units in total (down from 20 assets in Q3 2022) – sales in Metro Detroit, Saginaw, and Lansing markets
- 29 sales are currently pending, which is a return to 2022 level; IPO also had 29 pending sales in Q3 of 2022, suggesting transactional recovery is well underway
- We are seeing promising activity progressing in Kentucky and Tennessee as we expand our reach further into the southernmost Midwestern markets.
Many market participants with capital events on the horizon, such as maturing loans, are now being forced to sell versus refinance as rates have drastically impacted the ability to easily refinance a maturing loan. This situation has been exacerbated in the last 60 days by a drastic tightening of credit from banks and credit unions – the largest source of apartment debt financing. Many local lenders are simply not lending, and the active ones are conservative with LTVs and underwriting criteria. However, good borrowers are getting financed for deals that make sense. Smaller assets in strong markets and locations are trading with fluidity if reasonably priced. Large deals are challenging right now, with transactions above $25M virtually nonexistent.
IPO expects sales to fully resume once the fed pauses rate increases for two consecutive quarters. It is our professional opinion that this would give market participants the stability needed to execute on equity and debt investment decisions, which have been stalled or withheld, waiting for the market to normalize. We are optimistic that we are at the end of all the rate hikes and feel that significant opportunity exists right now for buyers.
All long-term outlooks we have reviewed suggest the federal funds rate will drop 200+ bps once the dust clears. This view is confirmed by the inverted yield curve, indicating investors are betting that will happen based on current treasury yields and purchasing patterns. The question is, are we all done with the rate hikes or are there more to come? Trends are suggesting that the worst is behind us.
Last quarter we predicted many assets would hit the market at the end of 2023 and that prediction has proved up; IPO brought over 20 assets to market in the last few weeks alone. With values down 5-20% depending on asset class, performance, and location, there is tremendous opportunity for active buyers in the next 12-18 months.
We would like to thank our clients for entrusting us with your multifamily investment brokerage needs. Often that entails listing and selling a property, sometimes it is providing intelligent, insider data and analysis. As this challenging market cycle evolves, our brokerage will navigate through deals all the way to closing. We strive to be the best brokerage in the apartment industry and reflect it in everything we do. Our goal is to build partnerships that stand the test of time, deliver significant value for our clients and, in the process, create generational wealth. Our firm has been able to serve clients with insight and skill through all market cycles over the past 3 decades, and that will still be the case for the decades to come.
Income Property Organization (IPO) offers customized brokerage and related services to a broad range of clients – both private owners and institutional investors – that are participating in the purchase or sale of multifamily assets. To learn more or inquire about multifamily investment opportunities, contact IPO at 248.932.0300