Multifamily Investment Conditions On the Upswing

Article originally posted on Globe St. on March 13, 2024

Multifamily investors appear to be paying less per dollar of property income compared to one year ago, according to Freddie Mac’s latest quarterly update of its Multifamily Apartment Investment Market Index (AIMI).

That’s because while mortgage rates have risen significantly, the increase has been partly offset by a steep drop in property prices, while net operating income — rental income minus expenses — was virtually flat for the year as a whole.

The AIMI combines multifamily rental income growth, property price growth and mortgage rates to measure multifamily market investment conditions. It ended up higher for the full year 2023 — even though it dropped in 4Q 2023 — indicating that investment conditions were better in the fourth quarter compared with one year prior, Freddie Mac stated.

Mortgage rates rose 72 basis points in 2023 – “high by historical standards but the smallest annual increase since the first quarter of 2022.” For the full year, 10 markets saw growth in NOI and 14 markets saw it fall. For the rest of the nation and Seattle NOI remained essentially flat. “Property prices declined across the board, with the nation and all markets seeing contraction and nearly half of regional markets contracting by more than -12% for the year,” the company reported.

The trend worsened in 4Q 2023. The AIMI fell nationally and in all 25 regional markets in the fourth quarter, as did NOI. NOI fell 0.2% in Chicago and as much as 3.5% in Charlotte. Property prices dropped accordingly. New York, however, bucked the trend, registering a small price gain of 0.2% in the quarter.