Real Capital Markets: Not even interest rate fears slow multifamily

The specter of additional interest rates isn’t enough to keep investors from sinking their real estate dollars into multifamily properties across the Midwest, according to the latest research from Real Capital Markets.

The majority of investors surveyed in Real Capital Markets’ 2018 Multifamily Investor Sentiment Report said they were in buying mode today. That’s because the underlying fundamentals powering rental demand remain strong.

“Housing is one of the most fundamental needs, regardless of income level or socioeconomic status,” said Steve Shanahan, executive managing director of Real Capital Markets, in a statement. “Investors will continue to leverage those intrinsic needs to create and take advantage of a steady stream of investment opportunities.”

Real Capital Markets said that investors will continue to target high-rent districts such as Chicago, New York City and Los Angeles. But investors are also sending their dollars to growing Midwest cities such as Minneapolis and Columbus, according to the sentiment report.

According to Real Capital Markets’ mid-year numbers, there were $69.8 billion worth of multifamily sales in the United States during the first half of 2018.

David Schwartz, chief executive officer, chairman and co-founder of Waterton, a real estate investment and property management firm based in Chicago, was quoted by Real Capital Markets as saying that multifamily investment should remain strong during the next three years. That’s because real estate fundsd still have billions of dollars in callable capital that has to be invested during this time.

“On top of that, there is a plethora of non-traded REITs, public REITs, private high-net-worth capital, foreign capital and other sources, each of which has some interest in multifamily investment,” Schwartz said. “That’s what’s keeping these cap rates low.”

Developers have recognized the demand for multifamily product in the Midwest. The U.S. Census Bureau stats say there were 76,908 apartment units built across 14 states in the Midwest in 2017, with a total construction value of $8.3 million.

Illinois led the pack with 13,522 apartment units built in 2017. Tennessee came next with 9,659 units, while Minnesota ranked third with 8,042 units. Michigan saw 7,133 new apartment units in 2017, while Ohio ranked fifth with 6,580.

This isn’t to say that multifamily investors don’t have some concerns. Tops among them is the threat of higher interest rates. Real Capital Markets said that 69.7 percent of survey participants ranked interest rates as a looming concern.

The survey also found that 58 percent of investors are looking for 1970s and 1980s rental properties that need upgrades. The problem? There is fierce competition for such properties and the prices of them are soaring.