4 Reasons Investors Love Multifamily
Article via Real Estate BisNow
Multifamily is a darling among investors, and arguably Florida is the darling among the states in that sector.
1) EVERYBODY WANTS IT
Demand for quality multi-housing product continues to be extremely strong, with interest coming from institutional, private, and foreign equity alike. While demand for core investments remains strong, there’s also a growing demand for value-add investments as investors get more comfortable that property fundamentals will remain healthy over the long-term.
2) PRICES ARE HIGHER
There’s significant competition for properties in the multi-housing arena, which is driving low cap rates and upward pricing. Cap rates are ranging from 4.5% to 5.5% for core, centrally located properties in South Florida and 5.5% to 7% for older, more value-add product. Yields are slightly higher in other parts of Florida.
3) BUT NOT TOO HIGH
As long as attractive debt remains readily available, the HFF crew believes pricing will remain stable. Driving a lot of investor interest is the wide availability of inexpensive GSE financing, and for all the talk of “winding down” Fannie and Freddie, that isn’t going to happen soon. This attractive debt is extremely accretive to value and allows investors to achieve substantial cash-on-cash returns on their investment dollars.
4) NO OVERBUILDING, YET
While the apartment pipeline is growing, demand should keep up with supply over the next several years. There’s brisk absorption of new construction properties, in the range of 25 to 40 units per month. But there will be certain submarkets where several assets will be delivered simultaneously, and so in those places there will be momentary increases in vacancy as the new assets lease up.