A Recession Is Multifamily Investors’ Top 2020 Concern

A recession is among the biggest concerns for apartment investors in 2020, but recent interest rates cuts could have stopped a recession from hitting in 2020. However, there are still expectations that the economy could slow next year, and investors are preparing to hedge against increased risk.

“It is difficult to say when a next recession might occur but borrowing from CBRE’s latest 2020 outlook, US GDP growth is expected to slow notably this coming year as various issues create higher levels of uncertainty, such as trade conflicts, slowing global economic growth and the upcoming elections,” Dan Blackwell, SVP at CBRE, tells GlobeSt.com. “But with the exception of any unforeseen developments, CBRE believes a recession can be avoided thanks to the positive effects of the Fed’s rate cuts in 2019. So, our firm foresees slow growth to continue into 2020, which will support already strong property fundamentals. Having said that, the market will cycle at some point and investors should always make sure they are not overleveraged and have plenty of cash available.”

While investors are moving ahead with caution, most still see strong opportunities and a long runway for apartment product. To prepare for potential risk, investors are weighing options and trading when possible. “In many ways we have never been here before, given the length of this cycle, so naturally, this will create some uncertainty among investors,” says Blackwell. “Hence, we have seen more owners this year weighing their options with holding, selling, refinancing or completing a 1031-exchange. Some of these exchange scenarios are to acquire another property here in California and some are looking to exchange out of state. We have also seen investors acquiring property with new financing or refinancing an existing one while rates are still at all-time lows.”