As an investment advisor, you understand the importance of market cycles and their impact on real estate investments. As of mid-year 2024, we are beginning to see promising signals indicating that the pricing resets on multifamily properties may be nearing an end.
This could represent the bottom of the late-stage commercial real estate (CRE) cycle, presenting a unique opportunity to discuss the upside potential of value-add real estate investment strategies with your clients.
The CRE market has experienced significant turbulence over the past few years, but recent data suggests a potential stabilization. According to Green Street's mid-year report, the Commercial Property Price Index (CPPI) shows that prices have fallen more than during the Great Recession, yet have remained flat throughout 2024.
Notably, prices have returned to pre-pandemic levels, indicating a possible bottoming out of the market. CBRE's latest market insights echo this sentiment, highlighting gradual improvements in investor sentiment and transaction volumes.
Source: Greenstreet.com
Multifamily properties have shown resilience amidst broader market fluctuations. Marcus & Millichap's recent analysis points out that multifamily assets continue to attract investor interest due to their stability and consistent demand. Despite challenges such as maturing loans in a high rate environment and economic uncertainties, the multifamily sector remains a strong contender for value-add investors eager for a market recovery.
As interest rates decline we will observe a gradual improvement in financing conditions which should begin to spur market recovery. The recovery phase offers a window for strategic investments, particularly in multifamily properties that benefit from declining rates and improving market fundamentals.
While it may be tempting to look at the broad multifamily investment market for signs indicating a timely entry-point for your clients, it’s important to remember that each multifamily property valuation will be significantly influenced by a range of other factors.
Understanding how these factors influence property values will impact potential investment returns is critical and should be thoroughly vetted in your due diligence process.
With Green Street reporting that multifamily prices have stabilized after a significant decline, and with Yardi reporting multifamily month-over-month rent growth at the start of Q2, 2004, there are encouraging signs of a strengthening market.
While your clients may grapple with the question of when to enter the market, they should keep in mind two critical factors that are equally as important when evaluating a multifamily investment opportunity.
Now is an opportune time to engage your clients in conversations about the upside potential of value-add investment strategies in multifamily properties. The current market conditions, combined with the expertise and strategic approach of an experienced investment manager, create a favorable environment for making informed and profitable investment decisions.