Stalled Interest Rates Drive Multifamily Investment Up

Multifamily investment activity is up for the year, and interest rates are fueling the renewed demand. In the first quarter, multifamily investment volume was up 10% over 2018. Stalled interest rate increases and lower long-term rates have helped to revive the market this year, and it could mean a strong multifamily buying market through the end of the year.

“The lack of rising interest rates leaves the yield between cost of capital and cap rates appealing to investors especially compared to other asset classes that are tighter,” Chris Hanson, founding principal at Hanson Capital, tells GlobeSt.com. “I think rates dropping does nothing but encourage more investment.”

Hanson is a legacy investor and developer, and buying at low interest rates for a long-term hold has certainly increased his appetite for deals. “My personal investment philosophy is I’m buying and developing assets to keep, I want my portfolio to be a legacy investment that continues to provide value to my family for generations to come and with near historically low interest rates and the length of term from agency debt from Fannie and Freddie that I can’t go wrong with 40 year amortization periods,” he says. “In the words of Warrant Buffett ‘our favorite holding period is forever.’ I don’t have a better crystal ball than anybody else, but I’m able to build new multifamily product with a great yield at today’s costs of debt so I plan to continue to build as much as I can.”

Low interest rates aren’t the only factor fueling the current multifamily investment demand. There continues to be a strong rental market with rising rents as well. “There is a shift from a homeowner economy to a renter’s economy that’s a product of many desires from todays tenant base,” says Hanson. “One being cost of housing is rising faster than incomes making pricing for todays entry level housing get more and more out of reach for the first time home buyer. Second people are getting married later, having kids later, and postponing the move to the suburbs later.”

This cultural shift has led to people living with roommates longer, which increases the need for rental and apartment-style living. “There is an overall contraction in the number of households as people are delaying moving out on their own longer than in previous decades which I believe is due to three main factors. First, the rising cost of education has led to more student debt pushing people to remain at home with their parents longer until they can pay off student loan debt and then begin to save for down payment money. Second, most people in today’s young professional category either lost money in the housing crisis in 2008 or witnessed their parents or family members lose money in the housing crisis which has lead to more caution in stepping out into the home ownership category. Lastly, there seems to be an emerging trend of people moving around more frequently for their professional careers with the rise of shorter-term stays at their companies. The days of the 40 year career with one company retiring with a gold watch and a pension are over which is leading to more moving and less interest in the commitment that home ownership brings over the flexibility of renting an apartment.”