Dive Brief:

• Despite being the most liquid sector in commercial real estate, and even with the recent drop in 10-year Treasury yields, multifamily sales are on pace to end the year on a downbeat note, according to a report that data firm MSCI Real Assets shared with Multifamily Dive.
• In November, apartment sales declined 68% year over year to $5.1 billion. Prices also continued to fall, dropping 12.1% YOY, according to MSCI.
• A big reason for the overall transaction volume decline is the lack of entity-level deals, those of entire companies or portfolios, that included apartment properties. While there was merger-and-acquisition activity in 2023, it centered around operating platforms, such as Sumitomo Forestry America’s acquisition of Dallas-based apartment developer JPI. 

Dive Insight:

Apartment prices continue to fall, but the pace of decline has moderated. After dropping at a 14.5% pace as recently as August, they only declined at a 12.1% YOY pace in November. 

The Federal Reserve’s interest rate hikes in 2022 and the subsequent increase in 10-year Treasury yields are to blame for the transaction slowdowns and price declines, according to market participants.

“Over the most recent rate hiking cycle by the Fed, we’ve seen a downward impact on apartment valuations from peak values following the COVID-19 pandemic,” said Darren Fisk, CEO of Denver-based Forum Investment Group.

With the Federal Reserve signaling possible interest rate cuts, many multifamily leaders are hopeful that pricing will begin to stabilize in 2024.

“While values may be depressed with some stressed selling in the near term, we believe sustained rent growth, potentially augmented by rate cuts in the future, will create more liquidity in the market in further support of improving values and market fundamentals,” Fisk said.

As more liquidity streams into the market and sellers and buyers come to a consensus on pricing, the sales market should pick up.

“A stable interest rate environment will help lenders and investors to become more closely aligned with the current state of capital markets, putting an end to the transaction halt that we have seen in the past months,” said Gerardo Mahuad, managing principal at Miami-based apartment owner and manager Eagle Property Capital.

Click here to sign up to receive multifamily and apartment news like this article in your inbox every weekday.