Could 2020 Bring a Buyer’s Market?
- Dec 10, 2019
An overwhelming majority of multifamily professionals—74 percent—surveyed recently by Capital One said they would be buyers in 2020 but many acknowledged that rent control and affordable housing initiatives may impact plans for investments in their primary markets.
Capital One surveyed 105 multifamily professionals in late October during an industry conference and found they were much more bullish this year than in 2018 when 19 percent responded they would be buyers, 32 percent said both buyers and sellers and 42 percent said neither. This year, 74 percent said they would be buyers in 2020; 19 percent said they would be sellers and 7 percent either said neither or did not respond to the question.
Jeff Lee, president of Capital One Multifamily Finance, said in a prepared statement the survey results indicated the multifamily community is more confident about strong opportunities in 2020 even in the midst of potential changes that may result from issues like rent control. He added that sturdy fundamentals combined with strong investor appetite should position the multifamily sector for sustained growth next year.
Rent Control, Affordable Housing Concerns
But the survey did highlight some concerns, particularly the changes in rent control legislation in parts of the U.S. like New York City and continued legislative pushes for affordable housing, and how they could affect multifamily investments in 2020. Nearly two-thirds (63 percent) expect rent control to have an impact in their primary markets with 45 percent responding it would somewhat reduce investments and 18 percent saying it would drastically reduce investments in their primary markets. Twenty-eight percent said there would be no change in primary market investments and 9 percent said it would increase somewhat in those markets.
On the affordable housing question, the expected impact on strategy for 2020 was closer with 31 percent responding they would shift markets and 28 percent saying no change in strategy. However, 27 percent pointed to a shift in property types and 14 percent said the move for more affordable housing will result in a decrease in overall investment.
Opportunities and Financing
A majority of the multifamily professionals surveyed (40 percent) said they expect the greatest investment opportunities next year will be in secondary and tertiary markets. That’s a trend that is increasingly gaining traction, particularly for investors looking to maximize yield. Cushman & Wakefield’s Multifamily Market Q2 2019 Marketbeat report found investment was strong for the first half of 2019, up 13 percent-year-over-year to $77.5 billion, with secondary markets seeing the strongest growth.
Twenty-two percent of the respondents told Capital One they would be investing in urban markets in 2020 while 15 percent said suburban markets. Fourteen percent of respondents said they expect to see the greatest opportunities in all markets and 9 percent predicted less opportunity in 2020.
The numbers track fairly close to 2018 when 40 percent of survey respondents also told Capital One they were eyeing secondary or tertiary markets and 21 percent said urban markets. Last year, 11 percent said they expected more opportunity in urban markets while 14 percent said generally about the same in all markets and another 14 percent predicted less opportunity in 2019.
Banks are expected to maintain their position as the main source of financing for the multifamily sector with 37 percent, according to the Capital One survey. The next biggest sources of capital for multifamily investments next year are agency lenders (24 percent) and other capital sources (18 percent). Debt brokers received 8 percent of the responses followed by debt funds (6 percent), CMBS lenders (4 percent) and life companies (3 percent).
Capital One noted that they added debt brokers to the list of possible funding sources in 2018 and debt funds and life companies were added in 2017. Last year, 36 percent of survey respondents chose banks as their preferred source of financing followed by agency lenders (30 percent), other capital sources (14 percent), debt funds (13 percent), debt brokers (4 percent) and life companies (3 percent).