The Federal Reserve rate decrease of 50 basis points has garnered plenty of attention and the drop in interest rates has also impacted commercial properties—specifically multifamily buyers, including both institutional and private investors. In the past few weeks, we have seen a high volume of buyers interested in acquiring properties, deals going into escrow, and completed investment transactions. Is this a result of interest rates, buyers getting excited about having investment opportunities in one of the nation’s hottest multifamily markets, or a combination of factors?
All investment asset classes are particularly sensitive to interest rates. Multi-family assets are particularly attractive to investments as an investor has the ability to spread its risk through multiple tenants/revenue pockets.
As noted briefly in the July issue of The Real State, the multi-family market is undergoing a period of price discovery. In general, deals are coming together at 20%-25% discount compared to last trade at the market peak, which occurred in late 2021/early 2022, before interest rates started going up dramatically. Yes, the situation is not as challenging as it is on the office side, but some investors may be stuck with deals they are unable to trade without taking a price hit, due to declining rental rates, higher vacancy rates, lack of financing, and other factors.
For multifamily buyers, this may spell opportunity: good products and owners who need to sell or are concerned about their position. On the sellers’ side, it is a welcome sight to see buyers who are out there buying.
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