Multifamily Experts Discuss Market Volatility

A multifamily forecast panel and the panel, Getting Deals Done Today: Transacting in a Bifurcated Market, capped the day of discussions at Connect Orange County 2022, a one-day gathering hosted by ConnectCRE at the Balboa Bay Resort in Newport Beach, CA.

The multifamily forecast panel included moderator Jon Giannola of Marcus & Millichap; Joanne Lucus of Greystar; Jerry Fink of The Bascom Group and Kristen Croxton of CapitalOne Multifamily Finance.

Like the first panel, volatility was an ongoing theme coupled with a fear of a possible recession. However, other issues like unpaid rent, big equity remaining on the sideline, sensitivity to rent increases, recession, interest rates, all were the concerns panelists had.

“Debt financing has gotten so much more expensive and cap rates went from three to four in a matter of months. And now if you’re marketing the property, the level of offers has dropped dramatically,” said Fink of The Bascom Group.

When the moderator asked the panel to give the current market a grade what would it be, given the status today for the multifamily market. Fink said he would give an A+ for operation. “My negativity is more on the debt lending side. It has one of the lowest vacancy rates ever. Everything today (vacancy rate) looks amazing.”

Lucas and Croxton echoed Fink’s comments on the operation side, adding the fact of an “unprecedented high occupancy rate and a caution by acting partners, who Fink calls ‘extremely nervous’.”

“They don’t want to do long term investing, since their fear is a low cap apartment today, in six months from now, or when the recession might hit, they’re going to wish they didn’t buy it. And big equity is sitting on the sidelines waiting to see how this will shake out,” Fink said.

Lucas pointed to an abundance of fallout deals. “We’re looking at a lot of fallout deals in 2022, things that didn’t trade in early 2022 are now starting to bounce back. So, we’re looking at these deals and we’re underwriting some of these deals, but our investors and partners are a little bit more cautious.”

Croxton, however, was a bit more optimistic on the business pipeline. “It’s better for me to be optimistic. After 25 years of doing this it’s the only way to survive.” On the other hand, she keeps the Pollyanna glasses off. “It’s definitely challenging, deals take a lot more long more time to get done. There’s a lot more cooperation on deals to solve problems.” In addition, Croxton did say Fannie Mae and Freddie Mac are still there as an option.

As far as OC, when compared to LA, all agreed that Orange County was not facing the same issues that LA is, like rent activism and rent control.

When comparing Los Angeles, Orange County and Inland Empire, the OC clearly seemed to stand alone when compared to the issues LA and the IE are facing. “For us, eviction, especially in IE, is impacting us and our inability of raising rates. This is all hampering my ability and is creating a hangover in our California portfolio,” Croxton said.

Fink added: “My major concern over the next six months, are, if we do go into a recession, which I think we will, will rents be lower or higher?”

Coverage of the third and last panel, Getting Deals Done Today: Transacting in a Bifurcated Market, will be the last installment of these three stories and will be posted on Tuesday.

<< Back