Midwest Multifamily Market Trends Here’s why investors are taking a serious look at the Midwest.
by Jeff Roth
W ith so many hot markets (literally and figuratively) in the news (e.g., Arizona, Texas, and Florida), why are investors taking a serious look at the Midwest? An article in the Multi-Housing News by Beata Lorincz, published Sept. 5, 2022, entitled “The Midwest is Attracting Record High Capital. Here’s Why,” offers some compel- ling reasons. NO. 1 LACK OF EXCESS SUPPLY. “The lack of excess supply has kept vacancy rates stable in all the Midwest’s major cities,” Lorincz writes. NO. 2 12% YEAR-OVER-YEAR RENT GROWTH. Additionally, year- over-year rent growth reached about 12% in the Midwest in 2022, according to Jeff Lamott, managing director at Northmarq who was interviewed for the article. NO. 3 RECORD HIGH CAPITAL COMPETING. Further, record high capital is competing for Midwest multifamily investments, Lamott said. He explained that competition is strong from private equity and national syndicators looking to deploy capital in the Midwest. NO. 4 STRONG CASH FLOW AND MORE AFFORDABILITY. Lamott also noted that investors are attracted to the Midwest for the returns and are getting priced out of the coastal and gateway markets.
Michigan, Ohio, Indiana, Kentucky, and Illinois, reflecting more than $2.5 billion in transactional volume. Their website is www.incomepo.com, and they can also be found on YouTube. QUESTION Greg, why the Midwest? Greg: The Midwest is one of the best places to invest money in multifamily. Rent growth is steady and jobs are plentiful. The Midwest typically has good cash flow, unlike coastal states throughout the U.S. QUESTION What trends did you notice in the markets you serve in 2022? Greg: Although my firm focuses on multifamily brokerage throughout the Midwest, my territory is southeast Michigan. Interest rates and cap rates are up. The market is starting to slow in the multifamily arena, as there is a disconnect between buyers and sellers. Cap rates were at 4.5%-6% at the begin - ning of the year and are now at 6%-7.5%, which is up 150 basis points. Rental rates in suburban locations are still holding steady, while tertiary markets are starting to see some stress from both the economy and delinquencies. WHAT IS FORECAST FOR THE MIDWEST MARKET IN 2023? QUESTION What are you forecasting for 2023 in the areas you serve? Greg: While transactions may slow in the first quarter of 2023, due to the
NO. 5 INVESTOR-FRIENDLY PLACE TO DO BUSINESS. Finally, “many developers still find acquiring land in the Midwest easier than in Gateway markets, with the permit process for a building to go vertical done in a timelier manner,” Lorincz writes. The accompanying graph from Real Capital Analytics is from 2021, but it shows apartment transaction volume growth in different markets. We can see Detroit, Indianapolis, and Columbus are popular with investors. The Midwest is a stable place to invest, with solid demand for housing and strong cash flow. It offers an investor-friendly place to do business compared to some of the hotter markets in the country. WHAT IS HAPPENING IN THE MIDWEST MARKET AT THE END OF 2022? To find out what is happening right now in the
Midwest market, I interviewed Greg Coulter, the founding managing member
Greg Coulter
of Income Property Organization (IPO), a privately held multifamily brokerage headquartered in Bloomfield Hills, Michigan. Over the past two and a half decades, IPO has sold more than 1,500 multifamily properties throughout
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