MHN Asks: When Will Multifamily Investment Recover?
Tour counts and bid lists for multifamily properties have rebounded to early 2022 levels, CP Capital's Jay Remillard tells MHN.
Historically, multifamily has been the best-performing asset class, and that keeps investors optimistic in the current cycle, too. This is especially true for investment managers who adhere to long-term opportunistic strategies and can benefit from favorable supply-demand dynamics on the horizon. But currently, there is still a lot of uncertainty, and investment managers need to protect against risk.
To get the investment manager’s point of view on the market, Multi-Housing News interviewed Jay Remillard, managing director & co-head with CP Capital. Remillard joined the company in 2018, where among other duties, he implements the firm’s strategic initiatives and ensures safeguards are built into every deal. CP Capital’s underwriting standards include conservative interest reserves, extended delivery timelines and escalation contingencies, Remillard said. He shared insights about investing amid the multifamily “supply tsunami” and its impact on rents in some markets.
How has the tight financing landscape affected CP Capital? What strategies have you developed to maximize profits given rising costs?
Remillard: Over the past year, higher interest rates and lower loan-to-cost ratios—50 to 55 percent—have made it challenging to achieve favorable internal rates of return on new development deals. The increased rates have also widened the bid-ask spread, complicating asset sales. However, we’ve recently seen a rise in development yields due to stabilizing construction costs and strong rental demand in the multifamily market.
As interest rates begin to decrease and LTC ratios improve to the 60-to-65 percent range we prefer, coupled with enhanced rent growth projections due to diminishing new supply, we anticipate more attractive underwritten IRRs.
To maximize profits during this period, we’ve focused on creating ancillary income streams, such as offering bulk WiFi, preferred parking and leveraging technology platforms to aid in lease-ups. Additionally, we’ve made significant efforts to control operating expenses and ensure efficiency across our portfolio.
READ ALSO: Why Multifamily Finance Is Poised to Come Back to Life
Overall, how would you describe the U.S. multifamily market at this point in 2024?
Remillard: We enter the latter half of 2024 optimistic as demand fundamentals are robust and appear poised for long-term growth in 2025 and beyond.
Despite concerns about increased levels of new supply and challenges from high interest rates, the U.S. multifamily market is experiencing strong demand in 2024 and is expected to grow further in the coming months. The inflated cost of home ownership, demographic shifts and changing lifestyle trends are fueling demand for multifamily properties across the U.S. This bolstered demand, coupled with limited housing options and reduced new inventory moving forward, is likely to keep growth and occupancy rates steady for the foreseeable future.
What trends are currently driving multifamily performance?
Remillard: Real estate is inherently cyclical and mounting evidence suggests the market is approaching a growth phase. The market surge of 2021 and early 2022 was unsustainable and rent growth has since aligned with historical averages. Over the past 18 months, wage growth has outpaced rent growth, widening the demand funnel and enabling renters to afford increasing multifamily rents.
Macro factors, such as tapering inflation and a cooling labor market, hint at future rate decreases by the Federal Reserve, which bodes well for the multifamily investment market. In fact, tour counts and bid lists for multifamily properties have returned to early 2022 levels, signaling the return of long-dormant buyers, including larger institutional players. This resurgence brings increased competition and liquidity, helping to drive prices upward.
While some markets still struggle with an oversupply of new units—and implicitly negative rent growth—a housing deficit persists nationally, and new construction is slowing. What are your views on the demand-supply dynamics?
Remillard: After the multifamily market’s period of sensational post-pandemic growth, developers flocked to capitalize on the success, leading to a wave of new construction. This surge hit markets nationwide in late 2023 and has continued through the first half of this year. Despite this supply tsunami, rents have held steady and are now starting to grow again.
This stability is largely due to strong multifamily demand driven by the high cost of homeownership. Currently, owning a home is over 50 percent more expensive than renting, prompting many people to rent longer, which has bolstered apartment demand.
Additionally, new construction starts in 2023 were down nearly 15 percent from 2022 and are projected to drop another 20 percent or more in 2024, according to the National Association of Home Builders. This steep decline means fewer projects will be completed by 2025 and beyond.
While new multifamily construction is expected to decrease, demand is expected to remain strong. This is great news for investment managers like us, who have a strong track record of development-focused strategies and can benefit from the favorable supply-demand dynamics anticipated in the coming years.
Asher is a 336-unit property under construction in North Charleston, S.C. All images courtesy of CP Capital 
The property is southwest of the newly expanded I26/I-536 interchange, two miles from Charleston International Airport. 
In addition to its own amenity package, Asher will also benefit from its proximity to the Tanger Outlets and the Park Circle area, a hub of retail and dining options.
Which regions are CP Capital most interested in and why?
Remillard: We focus on the existing balance between supply and demand when selecting regions. We target markets with significant population and job growth, prioritizing submarkets with relatively low supply or considerably less projected supply than demand. Many opportunities can be found in the Sun Belt and mountain regions.
Additionally, we seek out markets that offer stable employment bases, strong demographics and high barriers to entry for new development, even if they have lower population growth. The outer suburbs of gateway cities like Boston and Philadelphia exemplify this approach and remain key areas of interest for us.
What can you tell us about CP Capital’s endeavors in 2024?
Remillard: In 2024, CP Capital has prioritized enhancing asset management, construction management and investor relations. Our focus has been preparing projects for sale to deliver returns and liquidity to our investors.
While the sales market has been challenging over the past 18 months, we’re encouraged by a resurgence of buyer interest and improved pricing. We expect this positive trend to continue as interest rates decrease and rent growth returns to historical norms, allowing us to capitalize on these opportunities and strengthen our portfolio.
What concerns you most about the current economy? What are you optimistic about?
Remillard: In the current economy, one of our primary concerns is whether the Federal Reserve has kept interest rates too high for too long, potentially impacting consumer sentiment and wage growth. However, we’re optimistic that the anticipated rate cuts next month could help achieve a “soft landing” and stabilize the economy. This potential shift gives us hope for a more favorable economic environment moving forward.
