Despite Rising Interest Rates, Multifamily Investors Still Confident in the Strength of Market

Multifamily investors are bullish on the strength of the market, according to the recent findings of the Mid-Year Berkadia Powerhouse Poll, conducted by the lending firm in July.

Even with many disruptive market factors, like rising interest rates and an uncertain political and regulatory environment, 70% of Berkadia mortgage bankers and investment experts say that by year’s end, multifamily industry deal volume will either increase or stay the same, and 67% said the same about the number of multifamily transactions in the industry.

The sentiment remains optimistic from the beginning of the year, when the first Powerhouse Poll found that nearly three-quarters (74%) of mortgage bankers expected to see no downturn in the multifamily lending space this year.

Seventy-two percent of respondents in the mid-year survey say that multifamily will be the most active sector for the remainder of the year, and 81% of respondents say that their outlook now is either more positive or the same compared to what it was at the beginning of the year.

The hottest areas for lending and investment activity are in the Southeast, Southwest, and West, with 81% of survey respondents saying these areas will continue to see the most activity in the industry. In particular, six of the country’s top 10 markets have seen strong activity over the previous year, including New York, D.C., Phoenix, Houston, Seattle and the Los Angeles metro area.

Millennials are also driving the multifamily rental market as the cohort continues to opt to rent instead of purchase. Berkadia says investors and property managers are ensuring that their properties appeal to this generation’s apartment desires.

“The millennial renter is different from any other previous generation when it comes to the sorts of amenities and features they like in their apartments, as well as the type of space they need and how they prioritize their rental’s location within a metro area,” says Ernie Katai, executive vice president and head of production at Berkadia, in a news release last week. “From emphasizing tech amenities to coveting properties that have restaurants and entertainment on the premises, millennials are shaping the future of the multifamily sector.”

When it comes to lending, 87% of respondents still expect that Government-Sponsored Enterprises (GSEs) will provide most of the financing in the remainder of the year, while on the investing side, more than 86% of respondents say that domestic capital will lead the way for investments for the remainder of the year, with domestic private investors accounting for 60% and domestic institutional investors accounting for 26%.

Foreign investors, on the other hand, have their sights set on student housing. “There’s a very real faith in the strength of the U.S. market, both at home and abroad,” says Katai. “Foreign investors—particularly from Canada and Asia—are becoming quite comfortable with the student housing sector. As U.S. colleges and universities gain more and more recognition across the world, cross-border capital is more likely to flow into properties near those institutions.”

The Berkadia survey was taken among Berkadia’s 60 offices throughout the U.S., consisting of 56 investment sales brokers and 100 mortgage bankers, totaling 156 overall respondents.

By Lauren Shanesy