Deal Flow For Multifamily Hitting Record Levels
March 4, 2022 | Lynn Pollack | GlobeSt.com
Deal flow for the multifamily asset class has officially hit record levels, as increased competition for assets is pushing investors into smaller markets.
New research from Marcus & Millichap notes a “historic level of trading activity” in 2021 after a 22% contraction the year before. Deal velocity for apartments at $1 million and above rocketed up 50% in 2021, while rents grew by double digits.
Deal flow was also influenced by investor concerns over possible changes to the capital gains tax, according to Marcus & Millichap analysts. And “abundant investor demand has translated into higher sales prices as a result,” they note. “The U.S. average price per unit rose nearly 9 percent in 2021 to over $180,000. Cap rates have compressed as a result, with the national mean dropping to 5 percent.”
Initial yields for trophy assets in desirable markets traded in the mid-2% range last year, helped along by historically low interest rates. Rates are expected to continue rising this year, however, which will temper yields: “Paired with competition from other parties, this trend will likely drive investors to widen criteria this year, bolstered by a generally recovered economy,” the report predicts.
