The Multifamily Market is Shifting...
The multifamily market has been a popular investment choice for the past few years, attracting a large number of investors looking for cash flow and appreciation. However, in 2023, it is expected that the competition in this market will decline due to a combination of factors such as higher interest rates, longer holding periods, and a shift in investor focus.
Higher Interest Rates
The Federal Reserve has indicated that it plans to maintain higher interest rates in 2023 to help curb inflation. This keeps the cost of borrowing high, making it more difficult for investors to finance their deals. As a result, many properties that are in need of refinancing will no longer cash flow, putting many operators out of business. Although this will lead to a spike in inventory, competition will likely be reduced.
Longer Holding Periods
In the previous few years, many syndicators have been attracted to multifamily investments because they offered a "quick" return on investment. However, with the current market conditions, holding property for only 1-3 years with an easy value-add plan is no longer on the table. This, combined with the higher interest rates, is causing many syndicators to look elsewhere for investment opportunities.
Shift in Investor Focus
With the increase in popularity and the decline in available inventory, many investors are starting to shift their focus to other asset classes. This includes commercial real estate alternative investments such as industrial, retail, office, and hotels, as well as other asset classes such as crypto or equities. The shift in focus will further decrease the current competition
The multifamily market in 2023 will likely see less competition due to higher interest rates, longer holding periods, and a shift in investor focus. While this may be seen as a negative for some investors, it could also provide opportunities for those who are able to navigate the market conditions and find attractive investment opportunities. As always, it is important to do your due diligence and carefully consider your investment strategy before making any decisions.