2nd Quarter Report
July 1, 2023 – Bloomfield Hills, MI
IPO is pleased to announce our 2023 multifamily investment sales through Q2. After two quarters of activity, the 2023 YTD numbers remain in stark year-over-year contrast. As the market adjusts to 10 consecutive Federal Funds Rate increases, our sales volume is down 75%. Transactions have been so muted we are still in “price discovery mode” for active market participants, but as the year wears on, we are starting to see activity pick up and we currently have 23 sales pending. Q2 closed with over $28M in transactional volume.
- 9 investment sales transactions, reflecting 402 units in total (down from 20 assets in 2Q 2022).
- Sales in Michigan, Ohio, and Indiana; seeing notable activity progressing in Kentucky and Tennessee as we expand our reach further into the southern Midwestern markets.
- 23 sales are currently pending, compared to 29 in 2Q of 2022, suggesting transactional recovery is underway and emerging slowly but surely.
Many market participants with capital events on the horizon – such as loans maturing in the remainder of 2023 and the first half of 2024 – are now being forced to come to market for sales versus refinance as rates have drastically impacted the ability to effortlessly refinance a maturing loan. This situation is exacerbated by a drastic tightening of credit in the last 60 days from the largest source of debt financing for most apartment investments – banks and credit unions. Although operating fundamentals remain outstanding, many institutions are simply not lending at all right now due to the impact of the Fed’s rate hikes. The failure some banks have had on deposits and the resulting impact on bank reserves are curtailing their lending capacity. The final blow is the $1 trillion in treasuries that are going to be auctioned off as a result of the debt-ceiling deal made by congress. Many market observers expect troubled banks to throw remaining balance sheet liquidity into short term treasuries (2-Year yield is close to 5%) versus lending out for real estate in a volatile environment for another 100 to 150 basis points. Many predict this will evaporate remaining liquidity among many banks. Although the academic argument is compelling, it remains to be seen. We believe the private market will easily and quickly finish what the Fed started if it gives the market time to post the data we are feeling from the inside. The upside to this is the expectation that the Fed will be forced to retreat and lower rates beginning in late 2023 or more likely, early 2024.
IPO expects sales to pick up once the fed pauses on raising rates for two consecutive quarters. It is our professional opinion that this would send a clear signal to market participants to have the confidence in stability needed to execute on equity and debt investment decisions, which have been stalled or withheld waiting for the market to stabilize. The hope is that we are at, or very near the end, of the Great Rate Hike, and feel that significant opportunity exists right now for opportunistic buyers – strong liquidity and bank lending relationships enable purchasing deals at attractive values that can be refinanced at interest rates up to 200 bps lower at some point in 2024 or 2025. All long-term outlooks we have reviewed suggest federal funds rate will drop back 200 plus bps once the dust has settled, and this view is certainly confirmed by the inverted yield curve, indicating investors are betting that will happen based on current treasury yields and purchasing patterns. So, the question is, are we all done with the rate hikes, or are there more to come? We think one more is on the horizon before being done. Either way, the worst is behind us, and trends are suggesting as much. By late 2023 we foresee a lot of product hitting the market as investors with maturing loans seek to “explore options”. Our office is fielding many calls from clients looking to begin this conversation, and depending on how much product hits the market, we could see a further softening in values.
We would like to thank our clients for entrusting us with your multifamily investment brokerage needs. Often that entails selling a property; sometimes it is providing intelligent, insider data and analysis. As this unique market cycle evolves, our brokerage – made up of nimble and creative problem-solvers – will navigate through deals in challenging landscapes 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 and deliver significant value for our clients in the process, creating generational wealth. No matter the market conditions, there are great opportunities to be found and deals to be made. 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 next 3 decades.
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