Financing and Investing Multifamily Trends to Expect for 2019

With the first quarter of 2019 already underway, it’s time to take a look at the top investing and financing trends that might have an impact on multifamily investing opportunities over the next year. As you consider multifamily investments, keep the following points in mind.

New construction is bringing opportunities

Multifamily development has been strong over the last few years, peaking in 2018. Around 280,000 units were delivered in 2018, according to RentCafe, and over 1 million apartment units were delivered over the last five years. However, only about a quarter of these units have been sold at this point. Developers are expected to implement exit strategies by bringing more stabilized projects to market or using permanent financing on projects, and both represent new opportunities for investors.

Value-add staying profitable and popular

Investors who are trying to stay clear of the more aggressive pricing for new properties will continue to focus on value-add opportunities, which are properties that can generate more rental revenue with some modifications, repairs and/or upgrades. Value-add strategies with shorter execution time frames –18 months or so – will be appealing to investors and lenders as rents rise across markets throughout the country and vacancies fall.

Interest rates plateauing

The Federal Reserve raised the fed funds rate a total of nine times between late 2015 and the end of 2018, but the upcoming year could see an end to the upward rate path. At a December 2018 meeting, the Federal Reserve stated it would increase rates two times in 2019, according to USA Today.  With increases steady over the last few years, a rate leveling will change financing and investment outlets. Lower Treasury rates, when combined with competitive spreads, result in the actual interest rates for buyers being below their initial estimates.

Economic growth slowing

One reason the Federal Reserve is likely going to slow the rate increase pace is because the economy is expected to expand at a slower pace in 2019 compared to 2018. While a recession seems unlikely at this point and economists are still forecasting positive job growth over the near future, the conditions are expected to soften overall. This trend is following on the heels of a long expansion, so it may take a few quarters for the expectations of buyers and sellers to realign in 2019.

Be sure to stay on top of investing and financing trends so you’re always making the most informed decision possible.