Paul Fiorilla, Director of Research Yardi Matrix
Multifamily transaction activity declined sharply in 2020 amid Covid-19, but investor demand remains strong and a sharp rebound in deal flow is expected in 2021, according to a recent paper by Yardi Matrix.
Just over $80 billion of multifamily property sales were completed in the U.S. in 2020, down from 2019’s record high of $127.8 billion, per Matrix data.
The dip in activity was caused by logistical forces (i.e., lack of site visits, closed offices), a temporary halt to financing in the spring, and the uncertainty around pricing in the pandemic’s early stages. Capital availability, however, has not waned, for several reasons.
• Healthy prospects: Outside of Gateway markets, fundamentals have largely held up. Metros in the South, West, and Midwest and suburbs surrounding Gateway centers have maintained occupancy and rent growth. Given the shortage of reasonably priced housing, population growth projections, and homeownership trends, demand for multifamily should stay strong.
• Debt availability: Although multifamily lending is led by Fannie Mae and Freddie Mac, which are set up to provide support in economic downturns, all lender types are eager to increase holdings in multifamily because of its stability.
• Healthy returns: Apartments typically produce 4-6% dividend yields. Not only is a better return than most bond products, it is attractive relative to other commercial property classes.
Strong demand is evidenced by the fact that acquisition yields have barely budged, despite the drop in volume. That has been helped by lower interest rates, which makes borrowing cheaper. The upshot is that investor demand should remain heightened, barring a sharp and unexpected economic downturn.
A white paper about transaction activity can be found on Yardi Matrix’s website: https://www.yardimatrix.com/publications/download/file/1171-MatrixBulletin-MultifamilyTransactions-December2020
Paul Fiorilla is Director of U.S. Research with Yardi Matrix. He is also the volunteer Editor in Chief of CRE Finance World, a magazine published by the CRE Finance Council, the premier trade group representing the real estate capital markets industry