Greystone’s Chief Revenue Officer, Blake Okland, and Cushman & Wakefield Managing Director Lauren Kaufman, recently sat down with Commercial Observer’s Cathy Cunningham at the “2023 State of Multifamily” event to discuss sales and financing trends for the asset class many consider to be the “darling of CRE.”
Despite challenging market conditions including higher inflation and rising interest rates, the multifamily sector has remained on solid ground, with fundamentals that support continued resiliency. That said, capital markets conditions have created an environment that would test even the strongest of asset classes.
For example, Okland noted that rapid rent growth has slowed, and coupled with higher interest rates, even the traditionally reliable sector of multifamily has seen its challenges this year.
Kaufman concurred: “The cost of financing has skyrocketed and lenders have adopted more conservative underwriting metrics, which translates into much more expensive debt and at much lower proceeds compared to before.”
On why transaction activity has dipped this year, Kaufman explained: “Refinancings have been driven primarily by loan maturities, acquisitions are currently anemic, and banks have meaningfully dialed back their leverage. While life companies are trying to meet the market where it is today, we see borrowers just trying to ride out the next two to five years.”
Okland added, “Interestingly, HUD financing is absolutely picking back up this year, with its lower rates and long loan terms that include simple rate reduction opportunities down the road for when conditions improve.”
While borrowers try to figure out their interest rate risk, both experts pressed that data on rate caps is needed to determine where things will go.
And now, eighteen months into this interest rate environment, it’s no longer considered a “new rate environment.” “We’ve been here a while now,” said Okland.
“I think a lot of buyers are motivated to kick the can down the road as far as they can. And it's really a race against time in terms of when they're forced to make a decision and that rates will hopefully come back down again,” Kaufman added.
At the same time, the panelists both agreed that some may have forgotten what it was like during the Great Financial Crisis in the late 90’s, and today’s market is a new scenario for many decision-makers. “There is the question of where real risk-free rates will be for the long term,” said Okland. “It's just getting harder and harder to look back at history for the answer.”
Despite the market difficulties, Greystone and Cushman & Wakefield remain committed to their close affiliation in helping clients navigate the changing environment. “We still have a lot of growth benefits from this collaboration,” said Kaufman. “It's been hugely impactful for our client base to have Greystone along with us from the very beginning of a transaction, coming up with creative solutions for our clients.”