MARKET & TRENDS
MIDWEST MULTIFAMILY
Midwest Multifamily Market Trends
ALTHOUGH THERE IS INCREASED INTEREST IN MIDWEST MULTIFAMILY INVESTING, THE PACE OF INTEREST RATE HIKES HAS SLOWED ACTIVITY. STILL, OPTIMISM REMAINS FOR 2024.
By Jeff Roth
n a May 23, 2023 MarketWatch article by Aarthi Swaminathan,
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“Investors, who are seeing rent growth fall, are consequently shifting their money into Midwestern markets where they are still finding slow but steady growth.” —AARTHI SWAMINATHAN, MARKETWATCH
he notes several reasons why investors are looking at the Midwest. Among them are: • Investors are seeing profitability drop in the Sun Belt. • The number of apartments under construction in the Sun Belt is expected to exceed the number of tenants. • The oversupply is pushing
Question: What are you forecasting for the second half of 2023 now? Greg: Increased sales due to loan maturities and rates stabilizing. Not as significant of a rebound as we had first anticipated though. Question: What behaviors are you noticing with sellers right now? Greg: They are living in the past. While cap rates have risen 200-300 basis points over the past 12 months, sellers have only bumped cap rates 100 basis points in their minds. There is a gap between the bid and asking price. Question: What behaviors are you noticing with buyers right now? Greg: Buyers are negotiating harder with less non-refundable monies being put up. Question: What behaviors are you noticing with lenders right now? Greg: Many local and regional lenders are out of the market. Loan- to-values have shrunk, and spreads are much higher on the rates.
During the past two-and-a-half decades, IPO has sold more than 1,500 multifamily properties throughout Michigan, Ohio, Indiana, Kentucky, and Illinois, reflecting more than $2.5 billion in transactional volume and earning Midwest Real Estate ’s “Best of the Best” Top Commercial Brokers for the past decade. Question: What trends did you notice in the Midwest multifamily market for the first half of 2023? Greg: The market has slowed to a snail’s pace in the first half. Our transaction volume is down 75% year-over-year. Question: The last time we talked, you projected investment sales declining in the first half of 2023 and, if interest rates settled, sales picking up in the second half of 2023. Did this play out as expected, or has there been a twist to the story so far in 2023? Greg: So far, yes, but the rebound may take longer than first anticipated.
rent growth down—and even negative—in some places in the South. • Real estate markets in
Cleveland, Detroit, Milwaukee, and Richmond saw increased interest from investors. • The biggest jumps were found in Akron, Ohio, Grand Rapids, Michigan, and Peoria, Illinois. THE MIDWEST MARKET AT END OF Q2 2023 To get a boots-on-the-ground read on the Midwest apartment market from someone working it every day, I spoke with Greg Coulter, the founding/managing member of Income Property Organization (IPO), a privately held multifamily broker- age headquartered in Bloomfield Hills, Michigan.
44 | think realty magazine :: september – october 2023
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