Buyers Outnumber Sellers in Multifamily Finance Survey

Article originally posted on Multifamily Executive on February 28, 2017

In order to gauge current industry trends and sentiments, Capital One Multifamily conducted a survey of multifamily professionals during the National Multifamily Housing Council’s Annual Conference in San Diego, Calif. on January 24th, 2017. Capital One asked its ninety-five respondents whether they planned to be buyers or sellers in the coming year, whether they believed the current cycle was ending, beginning, or ongoing, and about the conditions and challenges that governed their decisions.

Rising interest rates were the most-commonly cited concern; 52% of respondents foresee this trend as their biggest incoming challenge, given the potential effect of rising interest on cap rates and returns. Twenty-five percent cited concerns about rising market costs, while only 5% worried about potential regulations. When asked about the potential impact of the current political climate on the multifamily sector, a 73% majority reported high hopes for multifamily activity, 16% percent predicted no impact, and 11% predicted negative impact.

The same majority of respondents (50%) believe that the market is in the final third of its cycle. A little under one-half (43%) of respondents believe the market is in mid-cycle, while less than 10% say the cycle is just beginning. Jeff Lee, Executive Vice President for Capital One Multifamily Finance, believes that the respondents’ varying answers depended on their current stage in the investment process.

“A lot of [investors] are just getting equity and capital now to deploy, so I think those are probably the first third,” Lee told Multifamily Executive. “I think the middle third is just a little bit further along, and the last third are the ones who have built their portfolios and are just standing back and watching.”

Despite these conditions, 41% of respondents plan to be buyers in the coming year. Twenty-three percent plan to be sellers, while 25% do not plan to buy or sell, and 11% are not yet sure.

Thirty-two percent of these potential sellers cite rising interest rates as their greatest driver, while 28% cite market demand and 27% cite strong economic conditions. On the other hand, potential buyers are spurred on by market demand (30%), strong economic conditions (28%), and the belief that interest rates will remain low, despite marginal rises (16%).

“We were surprised given the political environment, the interest rate rise, [and] the performance of the market, that there were so many net buyers,” Lee said. “They continue to be the majority of the respondents in 2017 and it just tells you how much liquidity is still left in the market.” Lee believes that the market’s incoming buyers will be quicker to lock in rates, given the rising rate environment.

Overall, Capital One concludes that their clients and respondents are optimistic about the future, though uncertainties and challenges remain. “I think everyone’s approaching it cautiously,” Lee said, “and picking and choosing and being far more selective than they were.”