Thomas Foley: Multifamily Underwriting Sees Significant Increase Despite Economic Challenges
In October 2023, data company Archer.re reported a notable rise in national underwriting activity for multifamily properties. This comes at a time when the commercial real estate market is facing obstacles such as higher interest rates, limited capital and economic uncertainty.
According to Archer’s proprietary technology platform, there was an increase from 1,019 to 2,083 in underwriting activity between August and October. The focus remains on core-plus and value-add multifamily properties with strong interest across various regions including the Carolinas, Colorado,Texas and Pacific Northwest.
Archer.re’s Co-founder and CEO Thomas Foley shared his insights on this trend saying that it now takes significantly more underwriting processes to close a deal compared to historical norms. He explained that while previously it took around 50 processes for one closed deal,it has now increased to anywhere between250-500 processes per deal.
Foley identified three main drivers contributing towards this surge in underwriting activity:
1) More deals are being pushed towards year-end closing dates by buyers,sellers,and owners who are examining increasing debt or insurance costs as potential reasons for selling.
2) Difficulty in finding attractive returns is leading investors,brokers,and lenders alike,to scrutinize more deals through thorough underwriting.
3) Certain geographic regions have seen heightened investor interest due to significant rent growth despite an increase in supply.Others like coastal markets face challenges such as unaffordable insurance costs which have led many investors away until conditions improve.
Looking ahead,Foley predicts continued growth of the multifamily sector but also acknowledges ongoing challenges posed by debt markets.He emphasizes the importance of utilizing newer tools available during these times stating that those who do not incorporate them may be at a disadvantage when tryingto close deals going forward.This report highlights how despite current economic hurdles,multifamily property investments remain resilient with promising opportunities nationwide.
