sub 6.5%, then we should have a good year with sales on the increase year over year. WHAT DOES SUPPLY/DEMAND LOOK LIKE? There is a healthy demand, but sellers are still adjusting to the higher capitalization rates in the marketplace. HOW ARE NEW CONSTRUCTION MULTIFAMILY UNITS AFFECTING SALES? New construction is slowing down, and I think we’ll see fewer multifamily starts this year than we have seen in quite some time. WHAT SELLER BEHAVIORS HAVE YOU NOTICED? There is still a disconnect between buyers and sellers on cap rates. The interest rates went up so fast that the new cap rates are a shock to sellers. BUYER BEHAVIORS? Buyers are much pickier than they were a couple of years ago. I won’t say it’s a buyers’ market, but we could be morphing into one. ARE YOU SEEING RENT GROWTH RATE SLOW DOWN? I can only speak to Michigan, but the suburban rents have risen 3-5%. In urban locations, we’ve seen a slight decline in rental growth. WHAT HAS BEEN THE CAP RATE TREND? Cap rates have risen across all the markets we serve but have stabilized in the past six months. WHAT HAVE YOU NOTICED ABOUT MULTIFAMILY INVESTORS’ INTEREST IN STUDENT HOUSING AREAS? Most student housing is suffering due to lower enrollment and online classes. The large Division I schools in Michigan, for example, such as the
REGION
SUPPLY
DEMAND RENT GROWTH OCCUPANCY
1.3% 5.5% 1.8% 4.3% 1.5%
1.4% 5.4% 1.6% 4.0% 1.5%
0.2% -1.4% 2.8% -2.6% 2.3%
-0.9% -1.6% -0.4% -1.6% 0.0%
Western
Mountain West Central, Plains
Sun Belt
Northeast, Mid-Atlantic
University of Michigan and Michigan State University are seeing increased construction and demand. IS THERE ANYTHING ELSE WE SHOULD BE AWARE OF? No other industry has seen the approximately 75% reduction in transaction volume like commercial real estate did since the Fed implemented aggressive monetary tightening. We have now turned a corner. Fundamentals remain very strong, with low vacancy, solid rent growth, and limited supply pressure. Simple supply-and-demand economics support Midwest apartment investing for the foreseeable future. We expect sales activity to steadily pick up through the year and for equity and debt to become easier to raise with each passing month. The wild
card will be interest rates and where they head in coming months.
JEFF ROTH
Jeff Roth is the founder of Arbor Advising in Ann Arbor, Michigan. Arbor Advising is a real estate consultancy passionate about helping clients invest, buy and sell in Michigan. You can contact Jeff at jeff@arboradvising. com, visit www.arboradvising.com, or subscribe to the weekly newsletter at www.arboradvising.com/subscribe.
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