Multifamily Forecast: Unsettled Conditions Prevail in Short Term

By Teresa O’Dea Hein, Managing EditorLas Vegas–“While there currently is a gap in pricing expectations between buyers and sellers and transaction velocity has slowed considerably, the fact that there’s no ideal alternative opportunity to multifamily means that the market will come out of these short-term challenges with renewed strength–we just have to get there,” predicted Linwood Thompson, managing director at Marcus & Millichap. Thompson was speaking at the 2008 Multifamily Executive (MFE) Conference held in Las Vegas from Oct. 13 to 15.”There is no consensus that we’ve reached a pricing bottom yet,” Thompson added. He believes that most apartment buyers are now in waiting mode–keeping their powder dry. “Now, we’re in a market stalemate.” Furthermore, he expects that “we’ll go another 18-24 months until we get competition back into multifamily lending.” The short term will be tough, but we won’t replicate what we saw in the early 1990s. “Echo Boomer demand supports appreciation, as does demand from immigration. Also, the fact that construction starts declined 25-30 percent in the past two years will help a lot in 2012,” Thompson noted. Thompson shared the following key observations for 2009:The multifamily capital markets remain fractured and expensive.Revenue growth will be moderate but not as low as in previous cycles.Sales velocity remains low.Transactional cap rates continue to differentiate for quality.Buyers are more cautious.However, apartments are 100 to 150 basis points inherently more valuable than they were 10 years ago, Thompson believes. Furthermore, U.S. apartments will be worth dramatically more in 2013 than in 2008, he predicts, so Marcus & Millichap is bullish on the U.S. apartment market. However, Thompson warns, one variable is rising unemployment, which is already being seen in previously strong multifamily markets like Seattle and New York.