Commercial Real Estate, Capital, Insurance, Leasing & Management

EXCLUSIVE: The X Factor Driving Multifamily Investment

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Rising tenant demand and declining vacancy are doing away with any fear of multifamily overbuilding in Atlanta. Indeed, with performance improving, the competition is heating up for multifamily investors in the metro.

ATLANTA—Rising tenant demand and declining vacancy are doing away with any fear of multifamily overbuilding in Atlanta. Indeed, with performance improving, the competition is heating up for multifamily investors in the metro.

The big question, then is this: How is the current interest rate environment impacting multifamily investment sales?

GlobeSt.com caught up with Jake Reid, senior director at Franklin Street, to get his perspective. He told us multifamily has been the darling of investors for the last several years because of the affordability of debt provided through agency financing.

“Outside of improving fundamentals, low interest rates are the driving force behind the steady increase in value for apartments,” says Reid. “Low interest rates allow for lower cap rates to achieve yield, allowing buyers to be more aggressive and creating an excellent environment for sellers.”

Reid offers an example: If interest rates were at a higher level such that a buyer would go from a 5% cap to a 6% cap to achieve the same yield, the property would need to have a 20% higher net operating income to maintain the same value. This is why many owners will consider selling at lower rates, as it gives them a lot more value, he says, while the buyer achieves their goal and is able to lock in a rate for 10 years.

Regardless of interest rates, Marcus & Millichap reports Atlanta’s favorable demographics and improving economic outlook are attracting more investors to local multifamily assets. The firm predicts increased buyer competition will contribute to an “intense” bidding environment, motivating more owners to list their properties.

 

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