This year, multifamily activity has slowed slightly, but there is still an abundance of capital in the market looking to invest in multifamily—and all asset classes. The abundance of capital in the market is driving activity and values up. To find out about the capital markets climate today for multifamily and get a look ahead, we sat down with Gary Tenzer, co-founding principal and managing director at George Smith Partners, for an exclusive interview.

GlobeSt.com: What is lender appetite like for multifamily deals?

Gary Tenzer: Yes, for multifamily and for everything. There are so many new funds formed every day that have money for different asset classes. There is an abundance of capital, and it is fueling values. That is why values are so high, because the market is awash with money.

GlobeSt.com: Many reports have shown slowing rental rate growth. Is that a concern for lenders?

Tenzer: Rental rates are a concern. Obviously, if you are looking at supply and demand, there is a lot of supply in the pipeline. There is a lot of new competition for these properties. Some people think that supply won't get absorbed, and other people say that there is a shortage of 10,000 units. Lenders are concerned about rent growth. If you are doing a prospective deal, rents would be factored in, but even in those deals, you don't trend rents. The question you might ask is how fast can you really lease units without giving concessions.

GlobeSt.com: What is your expectation for multifamily activity next year?

Tenzer: It is so market specific. There are certain submarkets where there is going to be a supply-demand imbalance. That might mean that rents will be soft in those locations for a while. With pricing as high as it is, there has been a slow down in acquisition volume and trades. There has been a slowdown in acquisition financing, but refinances are always happening because loans mature.

GlobeSt.com: What about capital markets activity 2018?

Tenzer: The last time, the crash in values occurred because a shut down in the capital markets, and I don't see that happening again. There is more conservatism, and there is so much more capital in the market and an abundance of capital from overseas. Because of relative perception of risk and returns, people would rather invest in the US. That is why you see so much investment here. As long as there is offshore investment here, values are going to remain high. I think 2018 is going to be more like this year. I am not expecting a bad year next year at all. At some point there is going to be an adjustment in values. You can only tell when you look back over time; you can't tell today. If there is a reduction, is going to be more like air leaking out of a balloon more that a balloon bursting. It is going to be a slow deflation, and then things will pick up again.

Instant Insights /

Abundance of Capital Is Fueling Values

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