Harbor Group Secures $1.6B for Multifamily Credit Fund

Despite  short-term volatility in the multifamily sector, capital appears abundant on the sidelines, suggesting long-term optimism for the sector.

Harbor Group International has secured $1.6 billion in capital commitments for its multifamily credit fund, including a $585 million commitment from a wholly-owned subsidiary of the Canada Pension Plan Investment Board. HGI plans to invest in multifamily credit opportunities including senior mortgage loans, Freddie Mac K-series bonds, preferred equity and mezzanine debt investments, and investments in securitized multifamily mortgage products, it said in a statement.

It’s the latest in a stream of multifamily-focused funds driving capital into the sector: in early January, past investors raised $748 million for Covenant Capital Group and its value-add investments for its latest $2 billion fund focused on approximately 40 to 50 apartment communities over the next three years. And CP Capital recently noted a plethora of dry powder waiting to invest, with sale pricing expected to strengthen once buyers return to the market en masse, potentially during the second half of 2023.

But while investments in multifamily have slowed considerably, they are still outperforming other categories. According to November 2022 sales transactions analyzed by MSCI and reported in Wealth Management, while investments by multifamily buyers dropped 74%, they are still acquiring properties at a pace twice that of other sectors.

And though fundamentals have softened somewhat, with vacancy ticking up 190 basis points to 4.5% and rent growth slowing as of late, demand is likely to remain strong for apartment product over the next five years.

“Because the cost of homeownership surged, apartment rentals have become even more cost effective housing options. on a macro level, that will sustain multifamily investments over the five-year horizon,” says John Chang of Marcus & Millichap.