Unlike Dennis Rodman, the darling multifamily sector should have another good year in 2014. We’ll just have to watch interest rates and our old friend irrational exuberance, Multi Housing Advisors founder and managing partner Josh Goldfarb tells us. Here are the big stories:
1) Interest rate watch
This could be one of the biggest blips on the radar, the Atlanta-based broker tells us. “The tail has been wagging the dog” for the past year and a half, he says, resulting in attractive leverage and higher values. But as the hiccup last July showed, a bump in rates could cause deals under contract to reset rapidly and market confidence to fall. Sadly, nobody’s been able to predict interest rate movement just yet (if they did, they’d be retired on an island). But new Fed chair Janet Yellen seems to favor the status quo this year, given the still fragile economy, Josh says.
2) Infill takes off
In the Southeast, like the rest of the country, development is hottest in infill locations surrounded by complementary uses like retail and office (meaning there’s no mad rush to the ‘burbs). Josh has noticed developers catering to two key demographics: Millennials and retirees. Millennials’ more efficient use of space means smaller units and supercharged amenities like all-over WiFi and a clubhouse for socializing. The older crowd agrees on amenities but may lean more traditional within the unit, Josh says, preferring more formal rooms (versus a loft space, above) that reflect how they grew up.
3) Rumblings of euphoria
The financing faucet is on and flowing. While Fannie and Freddie are a bit more selective, demand has been backfilled by a return of conduit lending, plus balance sheet lenders and life companies. “There has been chatter that we have short memories,” Josh says, especially as people pay closer attention to today’s ballooning values. He’s noticed the Southeastern markets are still in varying innings of recovery, depending on how prone they are to wide swings. (E.g., Atlanta’s still early on, versus cities like Raleigh and Charlotte that are further along.) After ending 2013 with a whopping 108 completed deals (totaling roughly $700M), Josh spent the holidays with his family in Arizona.
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