The multifamily market is facing a looming wall of debt maturities, with $1.99 trillion in outstanding mortgage debt through 2028. As this deadline approaches, Gray Capital reports that certain areas of the market are already adjusting to prepare for potential distress and price fluctuations. According to the Indianapolis-based owner/operator and syndicator, investors can expect opportunities as property owners anticipate cap rate expansion and seek to sell before further pricing declines.
Gray Capital’s new report highlights the impact of higher interest rates on investor returns at current prices, leading to low sales activity and a significant bid-ask gap for multifamily properties in 2023. This trend is expected to continue as lower income growth, increased expenses, and stricter lending terms create potential distress situations that favor buyers over sellers.
Recent projections from the Federal Reserve show an increase in long-term interest rates since Gray Capital’s previous report on multifamily loan maturities. With these rising rates comes greater potential for price discovery driven by upcoming loan maturities during Q4 2023.
Despite a peak in apartment sales during Q4 2021 ($115 billion), volumes have plummeted due to various factors including bridge loans coming due this year which will likely lead many borrowers towards selling their properties closer or below buyer expectations – creating more favorable conditions for buyers.
While CBRE has reported that ongoing declines may soon come end within the sector; low transaction volumes make it difficult use cap rate measurements accurately reflect confidence levels within this space according according Grey Captial who also note headwinds such as higher interest rates , increasing supply (newly-built properties) , resuming student loan payments & economic downturns could negatively affect apartment performance .
However despite these challenges,the long-term outlook remains positive with high demand continuing . To learn more about distressed assets join us at Connect Investment & Finance Conference taking place Oct .24th Hyatt Regency O’Hare Rosemont IL where leaders from loan advisory and special servicing will share their insights on the current state of the market. Register here for this must-attend event.
