MARKET-LEVEL APARTMENT TRANSACTION VOLUME GROWTH IN 2021 ONE-YEAR PERCENT CHANGE AND TWO-YEAR PERCENT CHANGE Source: Real Capital
where we see the distressed assets coming online in 2023. QUESTION What behaviors are you noticing with buyers right now? Greg: They believe it’s going to be 2009 all over again. I don’t foresee the market collapsing because the fundamentals are still good, but the bears are out of hibernation. QUESTION On the topic of “hot markets,” is there anything that I did not ask that I should have? Greg: If you are looking for garage sale pricing, then you may see it in secondary markets over the coming year. The top-tier market owners will just hold and sit on the sidelines. MULTIFAMILY INVESTING IN THE MIDWEST REMAINS A SOLID CHOICE The Midwest is a solid choice for multifamily property investing because it has stable vacancy rates, plentiful jobs, rent growth, strong cash flow, and is a mostly investor- friendly place to do business. Investors have noticed, and a record level of capital is competing for opportunities in the Midwest as they are getting priced out of coastal and gateway markets. Recent increases in interest rates have pushed up cap rates and slowed transactions, which is expected to continue into 2023. If you are looking for deals, focus on secondary and tertiary markets rather than the top-tier markets in the Midwest the second half of 2023. •
ONE-YEAR % CHANGE
-100%
0%
100%
200%
300%
400%
500%
DETROIT
LAS VEGAS
HOUSTON
GREATER MIAMI
BALTIMORE
COLUMBUS
GREATER SAN FRANCISCO
CLEVELAND
SACRAMENTO
PITTSBURGH
TWO-YEAR % CHANGE
INDIANAPOLIS
DETROIT
GREATER MIAMI
HARTFORD
ST LOUIS
GREATER NEW YORK CITY
SEATTLE
GREATER SAN FRANCISCO
CLEVELAND
PITTSBURGH
-100%
0%
100%
200%
300%
400%
500%
interest rate effects on capitalization rates, we still see the long-term viability of the market as very strong. You may need to pan more dirt to find the gold at the bottom of the pan in the coming year. We see investment sales declining in the first two quarters of 2023 by as much as 50%. If interest rates settle in the first quarter, then we
see sales picking up the second half of the year. QUESTION What behaviors are you noticing with sellers right now? Greg: Sellers in good markets are living in the past. In tertiary markets, there is fear about the future of court systems and delinquencies. These markets are
Jeff Roth is the founder of Arbor Advising, a real estate consultancy in Ann Arbor, Michigan, dedicated to growing and securing your wealth. They
help clients invest, buy, and sell in Michigan. You can contact Jeff at jeff@arboradvising.com, or www.arboradvising.com or subscribe to the weekly newsletter at www.arboradvising.com/subscribe.
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