The largest private equity players in commercial real estate are in buying mode and several are zeroing in on large multifamily REITs in what may become a crescendo of mega-deals. These impending acquisitions may rival in size and scope Blackstone’s $13B all-cash transaction in 2022, when the firm swallowed student housing REIT American Campus Communities and its portfolio of 166 properties in 71 university markets.
“There’s obviously a big push toward deregulation, but M&A activity hasn’t really picked up that much,” Willy Walker, CEO of Walker & Dunlop said, during a keynote presentation at GlobeSt.’s spring multifamily event in NYC on Tuesday. “There are some larger REITs that are in the process of being taken private and these could be important bellwether events for the commercial real estate industry.”
“I know of three transactions right now where major investment banks want to take private certain REITs,” Walker added. “That goes back to the amount of private capital that’s out there.”
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Large players are opening their wallets and coming back into play in the multifamily market. “Investor sentiment is getting much better because everyone wants to buy. There are a lot more people wanting to buy but not as many willing to sell,” Walker said. “Today, what you have is a huge amount of capital wanting to buy but sellers are saying I’m not selling at this cap rate.”
“Cap rates are tied to capital flows,” he noted. “So, if you get these big sources of capital coming back into the market it will have a huge impact on what happens to volumes as well as cap rates.”
The big buyers are coming back to a multifamily market where leverage has turned upside down in a roller coaster ride that began during the pandemic. In 2020, the spreads between cap rates and 10-year Treasury yields were enormous, creating positive leverage that spurred a massive uptick in buying.
“Since the end of 2021, you’ve been basically upside down on leverage,” Walker said. “We’re back in a situation where it’s really hard to buy with positive leverage, where spreads are. But we’re seeing buyers come back, because they’re seeing fundamentals like rent growth and supply constraints.”
A multifamily building boom focused on the Sunbelt resulted in a tidal wave of deliveries in 2024 and the unprecedented absorption of 667,000 units across the country. Oversupply has flattened rent growth in several Sunbelt markets, but the wave of new supply is cresting and long-term fundamentals are strong.
“The fundamentals are driving transaction volume,” Walker said. “In 2024, we had incredible absorption on the back of incredible demand and incredible deliveries. Construction starts peaked after 2022 and completions are peaking.”
“What everyone is betting on in 2026 and 2027 is lack of supply,” he said.
The multifamily sector also is benefiting from a surge in home prices during the past five years that has made renting a more cost-effective option than buying.
Median home prices in the U.S. averaged about $280K in March 2020 and the average monthly mortgage payment was about $1,100, while the average rent was about $1,400. Now, the median home price is $390K, with monthly payments averaging $2,300, while the median for apartments is about $1,800.
“It’s upside down,” Walker said. “This will put significant pressure on rents. What this tells me is median rents will go up.”
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