Multifamily Investor Sentiment Improved Decisively in Q1
Economic uncertainty remains a nuisance, but it's not deterring the majority of buyers and sellers, according to CBRE.
The slower pace of interest rate cuts signaled lately by the Federal Reserve has not affected investor sentiments for value-add and core assets, according to CBRE’s latest quarterly Multifamily Underwriting Survey.
Core multifamily asset underwriting assumptions improved in the year’s first quarter, while those of value-add assets declined slightly.
Stable IRR targets for core assets in the first quarter were found for 16 of the 19 markets that CBRE tracks. Los Angeles, Miami, and Washington, DC, had their core-asset IRR targets reduced. For the first time in three years, no markets increased.
“The standout finding from the Q1 survey was the notable shift towards positive sentiment from both buyers and sellers, not only in core assets with improved underwriting metrics across the board but also in value-add assets, despite a slight expansion in cap rates,” Travis Deese, director of multifamily research at CBRE, told Multi-Housing News.
“This demonstrates the multifamily sector’s resilience in investors’ eyes, even amid heightened volatility stemming from policy changes.”
For its part, The Fed has hesitated as it awaits clarity on the Trump administration’s policy shifts.
Tariffs, trade war worth monitoring
With the uncertainty surrounding November’s presidential election resolved and interest rates slowly trending downward, there are reasons for optimism, Todd Cohen, principal at Lee & Associates South Florida, told CPE.
“Still, the tariffs and potential trade war roiling the broader equities markets worldwide are worth monitoring,” he said. “While stock market trouble and global market uncertainty could negatively affect buying power and real estate investment demand, it could also create a flight to safety for investors seeking tangible, domestic assets.”
Across the Sunbelt and South Florida markets – where fundamentals remain strong and long-term demand is intact – there are clear signs of improved buyer and seller sentiment, Danny Fishman, CEO at GAIA Real Estate, told CPE.
“Despite the market’s recent volatility, investors view the apartment sector as a safe asset that has continuously proven itself to work, even amid today’s high interest rates and oversupply,” Fishman said. “There is a growing sense that the market is stabilizing, and buyers and sellers are beginning to find common ground.”
The motivation seems more driven by a desire to transact than any major fundamental shifts, Brandon Polakoff, Avison Young’s Head of New York City Investment Sales, told MHN.
“Investors are getting off the sidelines and looking for signs of encouragement instead of fixating on the challenges,” he said.
Fed’s rate cuts ‘thawed things out’
After watching from the sidelines for quite some time, buyers and sellers appear to be meeting in the middle.
“Rents are trending up across most markets, especially in California, where some of my clients are hitting record-high rents on their properties,” Simon Herrmann, senior vice president of PearlX, a solar and battery storage company serving the multifamily sector told MHN.
“The bid/ask gap is still there, but less dramatic – buyers with capital on the sidelines are itching to put money to work, and sellers are getting more realistic about where values are. Some ownership groups need to move properties now due to funding timelines, or they’re willing to take a smaller return to redeploy that capital elsewhere to take advantage of the lower purchase prices.”
Deals are about resilience
So, what exactly constitutes a worthwhile investment these days? As capital markets regain momentum, investors are targeting high-quality core assets in stable markets, signaling renewed confidence despite ongoing macroeconomic uncertainty, Stephan de Sabrit, Managing Partner of Leste Group, a Miami-based asset management firm, told CPE.
“Capital is coming off the sidelines, but with a sharper focus; today’s deals are all about quality, resilience, and long-term fundamentals,” he said.
Interest and activity in core assets tend to be relatively stronger in turbulent times as part of the “flight-to-quality” trade, according to Saad Saghir, CFA, chief investment officer at Nelson Management. told MHN, “In times of palpable volatility, investors find comfort through near—and medium-term volatility by investing in irreplaceable assets,” Saghir said.
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Every indicator is flashing green for acquisitions, Mark Stewart, CIO, The Bainbridge Companies, told MHN, which is launching its first Acquisition Fund. “Bainbridge has acquired as many units as we’ve developed,” Stewart said. “Our management team is seeing strong demand at our projects, but the heightened competition among nearby developments has created negative pressure on rents. However, the significant slowdown in new starts will give the market the necessary time to absorb all of the supply.”
Sellers not as defensive
While not overly bullish yet, sellers are no longer in a defensive posture—they’re meeting the market more readily, BJ Connolly, Greysteel, managing director, investment sales, told MHN.
“Value-add deals remain more nuanced, with softer fundamentals and more cautious sentiments, particularly in the Sun Belt or on lender-controlled assets, but there’s still movement,” Connolly said.
“There’s also a significant increase in deals awarded and going into escrow compared to mid-2024 levels,” Conolly added. “As pricing expectations align further, the shifting preference to commercial real estate as an asset class will bring more transaction volume in the next few quarters.”
Improvement apparent
In Chicago, steady rent increases, partly due to home affordability challenges, as well as boosted cash flow and NOI for multifamily investors are at play, said Max Grossman, a director at Interra Realty.
“Rising construction costs and limited new supply coming to market create robust demand for existing, well-located, well-managed apartment stock,” Grossman said. “There remains a disconnect between buyers and sellers regarding potential asset values, but the viability of the multifamily asset class and the sentiment surrounding it remain strong.”
John Felker, Co-CIO at T2 Capital Management, told MHN his portfolio has improved over the past six months, and he expects to see opportunities to sell properties within the next year or so. “While the recent volatility around tariffs leaves many unknowns, it appears to point toward a continued slowdown in deliveries of new apartments and strong fundamentals for rent growth on existing projects.”
