The multifamily sector has been on a wild tear since the onset of the pandemic, with double-digit rent growth across both gateway cities and markets typically regarded as secondary or even tertiary. But that runaway growth begs the question: how long can investors and owners expect the trend to continue?
Despite mounting headwinds for the overall economy, “capital will have a strong preference for multifamily,” says Bobby Khorshidi, president and chief executive office of Archway Capital in Los Angeles. “The last downturn was based on a freeze in the credit markets and an intense liquidity crunch. This time around, there is a tremendous amount of liquidity and emergence of the non-bank lending sector, which has contributed in a material way to the growth of values since the last economic downturn.”
Khorshidi will join other industry experts at next month’s GlobeSt Multifamily conference in Los Angeles to discuss what will be required for transactional success in the sector going forward – but he spoke to GlobeSt exclusively to offer a sneak preview.
“Patience is key,” he advises. “There is a spread between the bid and ask as the market finds new footing. You will never pick the bottom, but make sure that the pricing reflects the new interest rate environment. Stress test your financial models and ensure that the deal still pencil.”
He also recommends that investors prepare for a “worst case scenario.”
“Renovation costs are sky high, cap rates are in transition, and lenders are changing their rates and guidelines,” he says.