Trouble on the Horizon for Multifamily Investors?

Higher property taxes and insurance costs are making investors take note. But is it as bleak as it seems?

Jessica Fiur, Editor-in-Chief
Jessica Fiur, Editor-in-Chief

Often in an industry, people use cute little idioms to describe a bump in the road (See? That’s one just there). This creates a shorthand—people don’t have to explain the situation, and it downplays some of the anxiety and frustrations caused by the issue. The multifamily industry is no exception. Remember when everyone was talking about the “new normal” during the pandemic? At the time, that could mean limiting residents in common amenity spaces, focusing on mostly video tours or providing community-branded masks to team members. Luckily, that all seems to be past us, making that “new normal” seem neither new nor normal.

What’s the new expression real estate executives are throwing around today? I’m sure you’ve heard it. Say it with me: “Stay alive till ’25.” And unfortunately for multifamily investment, that idiom might be a rallying cry. (Another useful expression!)

There might be trouble for value-add investors who took out floating-rate loans on projects that haven’t reached their projections. And lenders are taking notice.

“I think there are going to be a lot of eyes on the multifamily sector this year,” Stephen Buschbom of Trepp told reporter Joe Gose in “More Distress Looms in Multifamily Finance. Here’s Why.”

Multifamily distress in the third quarter of 2023 totaled $9 billion worth of assets. Additionally, multifamily delinquencies increased last year (though, thankfully, they were still lower than most other property types).

This all signals a potentially bleak year for multifamily investors.

“There is a game of chicken being played right now,” Eric Brody of Anax Real Estate Partners told Gose. “Who flinches first—lenders or investors bringing new equity into the space—will unfold in the first and second quarters this year.”

Here’s to hoping this “new normal” is soon in our rear view, just like that other “new normal.”

Read the February 2024 issue of MHN.

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