CBRE’s Senior Managing Director Talks Multifamily Investing in 2016

Stephen Zaleski predicts the future of multifamily financing.

stephen-zaleski_740x620As managing director of the Multi-Family Group for CBRE Investors, Stephen Zaleski leads the firm’s multifamily and investment business, and he has a strong pulse on what’s going on in the industry.

A 25-year vet of the commercial real estate industry, Zaleski has served as a partner, head of acquisitions, investment committee member and portfolio management committee member for Berkshire Property Advisors, and spent time as a principal and multifamily acquisitions director with Lend Lease Real Estate and Boston Financial Group.

Over his career, he has completed more than $10 billion in transactions, representing over 150,000 units on behalf of eight institutional funds and various separate accounts.

MHN: We’ve hit the midpoint of 2016, what did you see in the first half of the year and what can you forecast as to what’s to come when it comes to multifamily investing?

Zaleski: The first quarter sales were down but we’re seeing it picking up. I think there is some uncertainty in the market among investors and I do expect the second half of 2016 to be more active in terms of sales than what we’ve seen so far in the beginning of the year.

MHN: Why do you believe that? What are you seeing that supports this view?

Zaleski: Some of the rent forecasts are coming down to a more normalized level. I don’t think it’s anything alarming, more a reflection of the multifamily market stabilizing. We’ve seen above average rent growth in a lot of markets for a number of years and we’ve been predicting that that was going to come down for about 18 months now, and we’re starting to see that in the market. There was uncertainty at the end of 15, which continued in 2016. But as people adjust their expectations in terms of rent growth and on the sell side in terms of pricing, you’re going to see more activity.

MHN: What’s the buzz when it comes to secondary and tertiary markets? Is this a strong investment trend?

Zaleski: I haven’t seen a lot of the large institutions building into the secondary markets, I think that was something that happened the last cycle and people are more cautious. I think regional players have a big advantage in the secondary and tertiary markets because they can take advantage of their scale on a more micro-level and they understand the markets better and the submarkets within that. For the big institutional players I don’t think we’ve seen that trend.

MHN: For these larger investors, what trends are you seeing?

Zaleski: We have seen a little more movement in terms of traditional multifamily from urban to suburban and that’s been an area that’s been overlooked. It’s a little bit older property. I think there’s a lot of opportunity in ’90s vintage inner suburban product, which has been overlooked since 2008, because people are focused on urban in-sell and now the large investors are looking more at the suburbs and apartments with more affordable rents.

MHN: What’s expected for multifamily finance in the year ahead?

Zaleski: I think we’ve already seen a little more caution in lending; we’ve seen a widening of spreads. Certainly, spreads have increased for acquisitions and there’s a lot more caution on the financing side for new development. It’s becoming increasingly more difficult. Our strategy is really to bring value-add to both our core investments and our value-add investments.

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