Capitaliza Blog

By: Tanya Sterling for GlobeSt.

“The market is experiencing steady rent growth and an active acquisition environment which makes deals easy to finance.”
Jeff Burns.

LOS ANGELES—It’s the end of the cycle and there are fears that supply may be catching up with demand in some markets. But Burns, managing director at Walker & Dunlop, insists that now is the ideal time to invest in the multifamily asset class—especially if you are also seeking financing. “10-year Treasury rates are low which has made for a busy first half of the year,” he tells GlobeSt. “The market is experiencing steady rent growth and an active acquisition environment which makes deals easy to finance. Bottom line, dropping rates and rising rents make for a great combo.”

His view extends to all segments of apartments, not just the current favorite of value-add and workforce housing. Here is the case he makes for these categories.

Value-Add Dwellings
The multifamily niche experiencing significant rental growth is the value-added rental market. Value-added dwellings are more suburban, garden-style units dating back to the 2000-2005 era. “The owners are basically coming in and investing $5,000-$25,000 per unit and successfully repositioning the asset”, Burns says. “Owners are actually outperforming their performas as they renovate units and re-rent them out,” explains Burns. “The demand is consistent and compelling.”

High-End Units
High-end units are rapidly being built especially in the coastal gateway cities with developers unabashedly chasing the very top-end of the rent pool. As a result, “we are starting to see rents level off in some markets,” says Burns. Developers and investors are chasing this market for a variety of reasons including limits cities enact regarding the creation of cheaper housing and of course, supply and demand.

Affordable Housing
There is simply not enough affordable housing nationwide. The situation is so dire that states, such as California, are putting pressure on the ballot box for new rent control legislation. “While this may sound great, rent control actually has a negative effect on the housing supply. Among other reasons, it makes it harder to attract new developers to the associated markets,” explains Burns. Burns went on to say that “nationally and overall, we are still not supplying enough rental units especially in the affordable housing market.”

In short, he concludes “as multifamily financing could slow down towards the end of the year, now is an opportune time for developers and investors to realign or enter the multifamily market.”

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