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Category: Multifamily Tags: GlobeSt

An Outlook at Multifamily Deals

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After a difficult year, the capital markets for multifamily borrowers are opening up with a narrowing buyer-seller gap, plateauing interest rates and increased liquidity.


Last year, multifamily investors faced a challenging investment market, marked by a wide pricing gap between buyers-sellers, limited lender appetite and a volatile interest rate market. In 2024, thankfully, the tide is changing, and lenders are showing an increased enthusiasm to work with borrowers and push deals across the finish line.


According to David Treadwell, first VP of capital markets at Matthews Real Estate Investment Services, increased optimism paired with significant changes in the capital climate will help to drive transaction activity this year.


Getting on the Same Page

Interest rates have been the cornerstone of the stalled investment markets. Fueled by the Fed’s aggressive quantitative tightening strategy, interest rates increased 525 basis points in 18 months, and cap rates naturally lag such sharp increases. Sometimes by nine to twelve months simply because sellers are unwilling to lower the purchase price to accommodate the interest rate increase.


Now, the market is beginning to reach an equilibrium. “If interest rates come in a little bit and cap rates move up a little bit, we’re closing that buyer and seller expectation gap to get to an equilibrium where we can transact,” says Treadwell.


Closing that gap is pivotal to getting deals across the finish line this year. While interest rates might fall by 50 or 100 basis points, they will remain significantly higher than they were pre-pandemic or anytime in the last decade. And while rates have a long way to fall from last year’s furious rate of increases, Treadwell notes that just leaving rates alone has allowed both sides to adjust, renewing deal interest. More than lower interest rates, alignment between buyers and sellers and stabilizing interest rates will help support transaction activity.


Those details are also helping to fuel lender appetite, which is helping to close more deals. “Last year was such a slow year, and there were a lot of lenders that wanted to kick the can down the road,” says Treadwell. He recently secured $94,555,000 in new financing which included $9,400,000 in preferred equity for a multi-property multifamily property in the Greater Denver area. Treadwell’s strategy emphasized creative thinking and collaboration with capital partners to tailor a financing solution that addressed the complexities of the transaction while aligning with the client’s short and long term objectives. “This year, there is going to be a little more urgency to get deals done.”


Determine Your Strategy

While lenders are showing increased confidence, borrowers still need a clear and defined strategy to secure capital. Borrowers should understand the holistic investment plan, including the hold period. That type of self-examination will help borrowers not only secure capital but the right capital from the right group to achieve business objectives, whether from an agency lender, life insurance company, bridge lender, CMBS and possibly even preferred equity to round out the capital stack.


“It boils down to what the borrower’s objectives are on their specific deal,” says Treadwell. “There is plenty of capital for multifamily and other product types as well. It’s just a function of finding the right fit.”


To determine the best fit, borrowers should lean on their debt professionals, who will understand the different buckets of capital available to borrowers and the types of deals that work best for each. They can also help to round out the capital stack whenever necessary.


“Even if deals are coming up short, there is fair amount of preferred equity lenders that have jumped into the space,” adds Treadwell. With the market dynamics emerging this year, there are plenty of opportunities to creatively structure deals.

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