February NMHC Conference Insights

The recent National Multifamily Housing Council (NMHC) conference provided a comprehensive snapshot of the current state of the real estate market, offering invaluable insights into the challenges and opportunities facing investors and developers. Attendees gathered to discuss key trends, market dynamics, and the factors shaping investment decisions in the multifamily sector.

Matthews Associate Vice Presidents & Associate Directors Tyler Marshall and Connor Kerns provided insight from their time at the conference and the prevailing trends discussed.

Significant Trends in the Sector

One recurring theme from the conference was the abundance of available capital that investors are waiting to utilize, given the current state of the market. Evidently, a significant pool of capital is waiting on the sidelines, ready to be deployed into real estate assets. However, a common sentiment that echoed throughout the event was the reluctance of investors to make significant moves until there was a tangible decrease in interest rates.

The prevailing narrative highlighted the impact of rising interest rates on investment decisions. With the high cost of debt, investors are understandably hesitant to commit to new acquisitions. This hesitancy has led to a shift in investment strategies, with many investors targeting higher cap rate deals in the meantime. The disconnect between buyers and sellers regarding valuation further complicates the situation, creating a challenging environment for deal-making.

In the current market landscape, many are anticipating the emergence of distressed opportunities in 2024. However, there aren’t that many owners indicating distress to brokers because most owners could secure +/-3% interest rate debt 30-36 months ago on a 5, 7, or 10-year term. For new opportunities hitting the market now, buyers are far more conservative than years prior as rent growth has tapered off and/or stagnant in most areas in addition to the higher cost of capital. It will be interesting to see if some of these distressed opportunities actually do hit the market as the year progresses. Most buyer sentiment is focused on current operations and current in-place cash flows, so how buyers react to those opportunities will also be of interest.

A couple of other things that were highlighted at the conference include:

• Affordability
• Tech
• Regional Dynamics + Rent Regulations
• Operational Risks

The “Star” of The Show

In particular, discussions surrounding the Texas market garnered significant attention at the conference. Texas continues to attract a considerable amount of interest from out-of-state investors, drawn by its favorable tax environment, robust job growth, and overall strong market fundamentals. In addition, Texas anticipates ongoing population expansion as the second most populous state in the U.S. The state also offers a thriving rental market with varied rental rates across different locations, counties, and neighborhoods. Data from Zillow indicates a significant 5.8% increase in the median rent in Texas over the past year, with rental rates expected to continue climbing, according to the Dallas Fed report.

The Lone Star State has emerged as a hotspot for investment, with attendees noting the influx of “foreign capital” into the market.

Takeaways

Despite the prevailing uncertainties, one overarching takeaway from the conference was the resilience of the real estate industry. While challenges such as high interest rates and buyer-seller valuation disparities present obstacles, there remains a palpable sense of optimism among industry professionals. The consensus among attendees was that once interest rates decrease, there will likely be a surge in investment activity, signaling a return to a more robust market.

The NMHC conference provided a comprehensive overview of the current real estate landscape, offering valuable insights into investors’ challenges and opportunities. As investors navigate these challenges, staying informed and adaptable will be crucial to success in an ever-evolving real estate environment.