Since the start of 2021, unprecedented rent growth and historic levels of liquidity in the capital markets have pushed valuations increasingly higher in the multifamily industry. In an interview with Bisnow, New Standard Equities Founder & CEO Edward Ring discussed the explosive growth in multifamily and factors playing into it.
While rents are rising across all markets across the country due to inflationary pressures, value-add properties are the most sought-after deals on the market, and the competition for them threatens to erase the very value proposition on which such deals are based. Reports of value-add properties being sold above replacement cost in the hottest markets have grown commonplace. “I think that the demand to put money out from some of the large investors and institutional groups has them making an excuse for why this or that property is particularly ‘special’, or, ‘Oh, you can’t build anything today so this or that one makes sense,’” said Ring.
The areas in which the housing market may be overheating are in the Sun Belt, particularly certain cities in Arizona, New Mexico, Texas and Florida. While population growth there has been the steepest since the pandemic began, and rent prices following suit, job creation over the long term may not keep pace.
Ring adds, “Even though supply is trailing demand in the Sun Belt, construction prices are lower than in traditional gateway cities and the threat of political intervention like rent control is more distant, making the prospect of development ramping up to close the supply gap more realistic than some might expect. On the West Coast, there’s so little land and there’s so little political will to allow developers to build more. If developers are really looking at runaway rent growth in the Sun Belt, or markets like that which have very few restrictions in terms of what you can and can’t build, I’d be cautious about those markets facing an oversupply problem in the longer-term.”
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