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United States Multifamily Capital Markets Report PDF Free Download

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United States Multifamily Capital Markets Report PDF Free Download

United States Multifamily Capital Markets Report PDF free Download. Think more deeply and widely.

United States Multifamily
Capital Markets Report
1Q24
NEWMARK
1. Demand Drivers 4
2. Leasing Market 12
3. Debt Capital Markets 24
4. Investment Sales 42
5. Pricing and Returns 49
2
NEWMARK
-The spread between homeownership and apartments rental costs grew to $824 in the first quarter of 2024, increasing 18.4% year over year. Simultaneously, mortgage
applications for home purchases have declined to a near-14-year low, and active listings remain well below pre-pandemic levels.
-Foreign-born workers have been a catalyst for labor force growth of late and can be credited for multifamily demand, given their propensity to be renters. As of the latest
census data, 55% of the foreign-born population were renters, as opposed to just 42% of native-born population. The share is even higher for recent immigrants; those who
immigrated between 2018 and 2022 have an average renter rate of 68%.
- Demand surged in the first quarter of 2024 with 103,826 units absorbed, representing the largest first quarter total since 2000, as well as outpacing the long-term first-
quarter average of 38,005 units by 2.7x. Additionally, rolling four-quarter demand accelerated to 317,241 units, the highest level since the second quarter of 2022.
- New supply continues to break records as 135,652 units were delivered in the first quarter of 2024, breaking the previous largest quarterly sum in the fourth quarter of 2023.
New deliveries are expected to continue to accelerate in the second and third quarters of 2024, before decelerating in the fourth quarter of 2024, where a reversion to the
mean is expected. Based on annual average absorption, several Sun Belt markets with robust pipelines of new deliveries in 2024 are expected to take upwards of two to three
years to absorb.
- Year over year, vacancies rose 66 basis points to 5.9% nationally. This is the ninth consecutive quarterly increase in vacancy; however, the pace of growth is slowing on an
annualized basis. Meanwhile, quarterly rent growth declined to negative 0.1% in the first quarter of 2024, while year-over-year growth remained flat at 0.2% for the second
quarter consecutively. Rent growth is projected to increase throughout 2024, reaching 2.0% year over year as new supply is set to slow in the second half of the year.
- Multifamily debt originations declined to the lowest level since 2015. While recent activity has been lackluster compared to pre-pandemic levels, originations in the first
quarter of 2024 were down just 7% year over year, suggesting that activity may be close to bottoming. Additionally, $669 billion in multifamily loans mature between 2024
and 2026.
-Investment sales volume totaled $20.6 billion in the first quarter of 2024, decreasing 25.3% year over year. Sales volume on a rolling four-quarter basis declined to $113.0
billion, the lowest point since the fourth quarter of 2014 and 42.2% below the long-term average; however, multifamily remains the largest share of investment sales of
all US commercial real estate property types at 26.2% through the first quarter of 2024.
- As of the first quarter of 2024, the spread between major markets and nonmajor market cap rates totaled 25 basis points, 69.1% below the long-term average of 80 basis
points. The market is pricing nonmajor markets with lower barriers to entry, favorable demographics and strong demand fully compared with major markets, which are more supply
constrained.
- Multifamily expenses increased 6.5% year over year, led by a 36.1% surge in insurance costs. The first quarter of 2024 represents the seventh consecutive quarter on a year-
over-year basis, with double-digit increases in insurance expenses.
3
Market Observations
NEWMARK
1Q24 US MULTIFAMILY CAPITAL MARKETS REPORT
Demand Drivers
NEWMARK
Chart Title
5
Source: Newmark Research, Atlanta Federal Reserve, RealPage
Increasing 18.4% year over year, the spread between homeownership and rental costs grew to $824 in the first quarter of 2024. Driven by record-level interest rates, renting continues
to be significantly more economical than owning a home.
Economics Continue to Favor Renting over Homeownership
Cost of Homeownership Compared to Renting
$824
$2,631
$1,806
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
3Q22
1Q23
3Q23
1Q24
Spread Total Median Monthly Payment (Homeownership) Average Effective Rent (Multifamily)
* Total Monthly Median Home Payments include P&I, Taxes, Insurance and PMI.
NEWMARK
Chart Title
6
Source: Newmark Research, Federal Reserve Bank of St. Louis, Moody’s Analytics, Mortgage Bankers Association, Freddie Mac
As the Fed began increasing interest rates in the first quarter of 2022, many would-be homebuyers exited the market, as evidenced by the 46.5% reduction in applications. High
interest rates continue to depress home purchases, as the mortgage application index hovers close to a 14-year low.
Purchase Applications Plummet 47% Following Initial Fed Rate Hike
MBA Mortgage Applications for Home Purchase Index
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
50
100
150
200
250
300
350
400
450
500
550
1Q00 1Q02 1Q04 1Q06 1Q08 1Q10 1Q12 1Q14 1Q16 1Q18 1Q20 1Q22 1Q24
30-Year Fixed Rate Mortgage
MBA Purchase Index
30-Year Fixed Rate Mortgage Average MBA Mortgage Applications for Home Purchase Index
First FOMC
Rate Hike
NEWMARK 7
Housing affordability declined to a 20-plus year low and has declined 46.0% since the second quarter of 2020. Additionally, active listings throughout the United States declined quarter
over quarter and have dropped 32.8% since pre-COVID levels.
Affordability and Lack of For-Sale Product Contributing to Demand for Rentals
Housing Affordability Index (HAI) Housing Inventory: Active Listing Count in the United States
Source: Newmark Research, National Association of Realtors, Realtor.com, Federal Reserve Bank of St. Louis
101.5
0.0
50.0
100.0
150.0
200.0
250.0
1Q00
1Q01
1Q02
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
1Q14
1Q15
1Q16
1Q17
1Q18
1Q19
1Q20
1Q21
1Q22
1Q23
694,820
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21
1Q22
2Q22
3Q22
4Q22
1Q23
2Q23
3Q23
4Q23
1Q24
NEWMARK
Chart Title
8
Source: Newmark Research, U.S. Census Bureau, U.S. Department of Housing and Urban Development, Federal Reserve Bank of St. Louis, Moody’s, National Association of Realtors
From 1970 through 2023, the average new home commanded a 17.5% premium to the average existing home. Through year-end 2023, that premium has declined to just 5.0% due to
inventories remaining tight and high borrowing cost. Demand for multifamily is a beneficiary of high home prices.
Market Dynamics Have Caused New and Existing Home Prices to Nearly Converge
Median Home Prices
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
Jan-70
Jan-72
Jan-74
Jan-76
Jan-78
Jan-80
Jan-82
Jan-84
Jan-86
Jan-88
Jan-90
Jan-92
Jan-94
Jan-96
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Jan-14
Jan-16
Jan-18
Jan-20
Jan-22
Jan-24
Percentage Difference
Median Price
Percentage Difference New Homes Existing Single-Family Homes
NEWMARK 9
Total nonfarm private payroll employment increased 0.3% in the first quarter of 2024, marking the 15th consecutive quarter-over-quarter increase. After posting a 28.1% year-over-year
increase, consumer sentiment has rebounded to a 32-month high.
Strong Labor Market Conditions and Consumer Sentiment Bodes Well for Multifamily
Total Nonfarm Private Payroll Employment University of Michigan Consumer Sentiment Index
Source: Newmark Research, Automatic Data Processing, Inc., University of Michigan, Federal Reserve Bank of St. Louis
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
75
85
95
105
115
125
135
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
3Q22
1Q23
3Q23
1Q24
Quarter-over-Quarter Change
Total Nonfarm Private Payroll Employment in Millions
Quarter-over-Quarter Change Total Nonfarm Private Payroll Employment
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
0
10
20
30
40
50
60
70
80
90
100
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
May-22
Jul-22
Sep-22
Nov-22
Jan-23
Mar-23
May-23
Jul-23
Sep-23
Nov-23
Jan-24
Mar-24
Year-over-Year Change
University of Michigan Consumer Sentiment Index
Year-over-Year Change Consumer Sentiment Index
NEWMARK 10
In the latest census data, 55% of the non-citizens were renters as opposed to just 42% of citizens. The share is even higher for recent immigrants – those who immigrated between
2018 and 2022 have an average renter rate of 68%.
Foreign-Born Population Advancing Job Market and Demand for Rental Housing
Labor Force Growth Renter Share by Year of Immigration
Source: Newmark Research, U.S. Bureau of Labor Statistics, FRED, American Community Survey (BOC)
15.5%
16.0%
16.5%
17.0%
17.5%
18.0%
18.5%
19.0%
19.5%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
May-22
Jul-22
Sep-22
Nov-22
Jan-23
Mar-23
May-23
Jul-23
Sep-23
Nov-23
Jan-24
Mar-24
Foreign Born Employment as a Percentage of Total
Year-over-Year Labor Force Change
Native Born Foreign Born Foreign Born Employment Level
Percentage of Foreign Born in 20-39 Age Cohort (Prime Renter)
65.7%
0.0%
20.0%
40.0%
60.0%
80.0%
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
2022
48.8%
0.0%
20.0%
40.0%
60.0%
80.0%
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
NEWMARK
Chart Title
11
Source: Newmark Research, Federal Reserve Bank of St. Louis, U.S. Bureau of Economic Analysis, Board of Governors of the Federal Reserve System
Further increasing the burden of buying a home, credit card debt in the US continues to reach all-time highs with each passing quarter. Simultaneously, the personal savings rate
declined for the fourth straight quarter to 3.2% in the first quarter of 2024, 360 basis points below the long-term average
Credit Card Debt Grows as Savings Declines, Adding to Inability to Buy Homes
Credit Card Debt and Personal Savings
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
$0.0
$200.0
$400.0
$600.0
$800.0
$1,000.0
$1,200.0
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21
1Q22
2Q22
3Q22
4Q22
1Q23
2Q23
3Q23
4Q23
1Q24
Personal Savings Rate
Credit Card Debt (Dollars in Billions)
Personal Saving Rate Consumer Loans: Credit Cards and Other Revolving Plans, All Commercial Banks
NEWMARK
1Q24 US MULTIFAMILY CAPITAL MARKETS REPORT
Leasing Market
NEWMARK
Chart Title
13
Source: Newmark Research, RealPage
Demand totaled 103,826 units in the first quarter of 2024, representing the largest first-quarter total since 2000, as well as outpacing the long-term first-quarter average of 38,005 units
by 2.7x. Additionally, rolling four-quarter demand accelerated to 317,241 units, the highest level since the second quarter of 2022.
Demand Surges in 1Q24; Rolling Four-Quarter Absorption Accelerates
Demand in Thousands
104
317
(200)
0
200
400
600
800
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
3Q22
1Q23
3Q23
1Q24
Quarterly Rolling 4Q Long-Term 1Q Average
*Demand is defined as the change in occupied units.
NEWMARK 14
Led by Dallas, Phoenix and Austin, the South region accounted for 58.2% of demand in the first quarter of 2024. On a trailing 12-month basis, the South region once again led the way
with Texas markets occupying three of the top four markets for demand.
Southern Markets Continue to Display Strongest Demand
Top 25 Markets for Demand in 1Q24 (in Thousands) Top 25 Markets for Demand TTM (in Thousands)
Source: Newmark Research, RealPage
1.3
1.4
1.4
1.6
1.7
1.8
1.8
2.0
2.0
2.2
2.5
2.5
2.6
2.7
2.8
2.8
3.0
3.1
3.2
3.3
4.1
4.5
5.1
5.8
5.9
Fort Worth
Indianapolis
Philadelphia
Boston
West Palm Beach
Fort Lauderdale
San Antonio
Minneapolis
Jacksonville
Salt Lake City
Miami
Washington, DC
Tampa
Nashville
Raleigh/Durham
Denver
Las Vegas
Seattle
Orlando
Charlotte
Houston
Atlanta
Austin
Phoenix
Dallas
3.9
4.1
4.3
4.7
4.8
5.0
5.3
5.7
6.5
6.5
6.6
7.1
7.5
9.0
9.3
10.0
10.0
10.4
11.2
11.7
13.2
13.7
14.8
15.0
18.2
New York
Columbus
Boston
Las Vegas
Tampa
Miami
Jacksonville
Chicago
Seattle
Philadelphia
Fort Worth
Salt Lake City
Newark
Orlando
Denver
Raleigh/Durham
Nashville
Minneapolis
Charlotte
Washington, DC
Atlanta
Austin
Phoenix
Dallas
Houston
*Demand is defined as the change in occupied units.
NEWMARK
Chart Title
15
Source: Newmark Research, RealPage
135,652 units were delivered in the first quarter of 2024, breaking the previous largest quarterly sum on record of 120,226 in the fourth quarter of 2023. New deliveries are expected to
continue to accelerate in the second and third quarters of 2024, before decelerating in the fourth quarter of 2024, where a reversion to the mean is expected.
New Supply Breaks Prior All-Time Quarterly High; Deliveries to Peak in 3Q24
Quarterly New Supply
0.0%
1.0%
2.0%
3.0%
4.0%
0
40
80
120
160
200
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
3Q22
1Q23
3Q23
1Q24
3Q24
1Q25
3Q25
Inventory Growth
Units in Thousands
Quarterly Inventory Growth
NEWMARK
Chart Title
16
Source: Newmark Research, RealPage
Based on annual average absorption, Sun Belt markets with robust pipelines of new deliveries in 2024 are expected to take upwards of three years to absorb, led by Austin,
Raleigh/Durham and Phoenix. Conversely, Midwest and Northeast markets where supply is more limited are expected to absorb this year's deliveries at a faster rate.
History Suggests Wave of New Supply to Take Extended Time to Absorb
Top 50 Markets
*Years to absorb based on annual average absorption from 2018 to 2023, excluding 2022.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Austin
Raleigh/Durham
Phoenix
Jacksonville
Denver
Charlotte
Salt Lake City
Riverside
San Antonio
Tampa
Sacramento
Indianapolis
Seattle
West Palm Beach
Newark
Atlanta
Miami
Dallas
Nashville
Los Angeles
Detroit
Orlando
Fort Lauderdale
Philadelphia
New York
Las Vegas
San Jose
Houston
Fort Worth
San Diego
Cincinnati
San Francisco
Greensboro
Columbus
Minneapolis
Portland
Washington, DC
Oakland
Virginia Beach
Memphis
Boston
Richmond
Kansas City
Milwaukee
Baltimore
Pittsburgh
Cleveland
St. Louis
Chicago
Anaheim
New Supply % of Inventory
Years to Absorb
Years to Absorb New Supply % of Inventory
NEWMARK
Chart Title
17
Source: Newmark Research, RealPage
Of the top 30 markets in the country, 17 markets are expected to outpace the previous full-year highwater mark for inventory growth. Led by Austin, 2024 inventory growth is projected
to total 11.5%, compared with the previous high of 5.7% in 2001, more than doubling the former peak.
Projected 2024 Inventory Growth to Exceed Previous Annual Highs in Most Markets
Top 30 Markets by Units
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Austin
Charlotte
Phoenix
Denver
San Antonio
Dallas
Orlando
Seattle
Atlanta
Tampa
Fort Worth
Miami
Newark
Columbus
Houston
Philadelphia
Minneapolis
Las Vegas
Washington, DC
Boston
Portland
San Diego
Los Angeles
Oakland
Baltimore
Detroit
New York
San Francisco
Chicago
Orange County
Full-Year 2024 Projected Inventory Growth Previous Maximum Annual Inventory Growth
NEWMARK
Chart Title
18
Source: Newmark Research, U.S. Census Bureau, U.S. Department of Housing and Urban Development, Federal Reserve Bank of St. Louis
Despite high levels of new supply, rolling four-quarter starts and permits have declined 25.9% and 35.3% respectively from the peak in the third quarter of 2022. A reversion to more
normalized levels is expected in 2025 and 2026, which should in turn boost NOI growth.
Forward-Looking Metrics Indicate Slowdown in Deliveries Coming
New Privately-Owned Housing: 5 Units or More
0
500
1,000
1,500
2,000
2,500
3,000
1Q00
3Q00
1Q01
3Q01
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
3Q22
1Q23
3Q23
1Q24
Thousand of Units (SAAR)
Rolling 4Q Starts Rolling 4Q Permits
NEWMARK
Chart Title
19
Source: Newmark Research, U.S. Census Bureau, U.S. Department of Housing and Urban Development, Federal Reserve Bank of St. Louis
As of March 2024, the number of multifamily units under construction declined to 940,000 from the previous peak of 1,001,000 units in July 2023. Units under construction have
decelerated consecutively over the past five months on a month-over-year basis and slowed seven of the past eight months.
Units Under Construction Has Peaked; Five Consecutive Quarters of Less Units
New Privately-Owned Housing: 5 Units or More
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
0
200
400
600
800
1,000
1,200
Jan-21
Feb-21
Mar-21
Apr-21
May-21
Jun-21
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Jan-22
Feb-22
Mar-22
Apr-22
May-22
Jun-22
Jul-22
Aug-22
Sep-22
Oct-22
Nov-22
Dec-22
Jan-23
Feb-23
Mar-23
Apr-23
May-23
Jun-23
Jul-23
Aug-23
Sep-23
Oct-23
Nov-23
Dec-23
Jan-24
Feb-24
Mar-24
Month-over-Month Change
Thousand of Units (SAAR)
Month-over-Month Change Units Under Construction
NEWMARK
Chart Title
20
Source: Newmark Research, RealPage
Year-over-year, vacancies rose 66 basis points to 5.9% nationally. This is the ninth consecutive quarterly increase in vacancy; however, the pace of growth is slowing on an annualized
basis. Additionally, the 5.9% vacancy rate in the first quarter of 2024 is the highest rate since the first quarter of 2012.
Vacancies Continues to Increase as New Supply Puts Pressure on Fundamentals
Quarterly Vacancy Rate
66
5.9%
-300
-200
-100
0
100
200
300
400
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
3Q22
1Q23
3Q23
1Q24
Year-over-Year Change in BPS
Vacancy Rate
Year-over-Year Change in BPS Vacancy Rate
NEWMARK
Chart Title
21
Source: Newmark Research, RealPage
Quarterly rent growth declined to negative 0.1% in the first quarter of 2024, while year-over-year growth remained flat at 0.2% for the second quarter consecutively. Rent growth is
projected to increase throughout 2024, reaching 2.0% year over year as new supply is set to slow in the second half of the year.
Year-over-Year Rent Growth Drops to Near Zero as New Supply Pressures Prevail
Effective Rent Growth
-0.1%
0.2%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21
1Q22
2Q22
3Q22
4Q22
1Q23
2Q23
3Q23
4Q23
1Q24
Quarterly Year-over-Year
NEWMARK
Chart Title
22
Source: Newmark Research, RealPage
Over the past 12 months, effective rent growth has declined by 449 basis points. Midwest and Northeast markets continue to occupy the top markets for rent growth, led by Milwaukee
and Cincinnati, at 3.4% and 3.3%, respectively. Growth markets throughout the Sun Belt have experienced the largest year-over-year decline.
Rent Growth Decelerates Universally; High-Growth Sun Belt Markets Cool
Year-over-Year Effective Rent Growth (Top 50 Markets)
NEWMARK 23
While new lease trade -outs post-Covid COVID provided landlords with greater income growth, renewals have outperformed by 500 basis points as of the first quarter of 2024.
Renewals have demonstrated resilience by maintaining a significant edge over new lease trade-outs for six consecutive quarters. Markets throughout the Mid-Atlantic, Midwest and
Northeast, where pipelines remain low, have also experienced higher rates of renewals, resulting in stronger rent growth.
Rental Growth Outperformance in Renewals, Benefitting Supply-Constrained Markets
Renewal and New Lease Rate Renewal Conversions and Inventory Growth
Source: Newmark Research, RealPage
-0.8%
4.2%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
3Q22
1Q23
3Q23
1Q24
New Lease Rate Change Renewal Lease Rate Change
ATL
AUS
BOS
CHA
CHI
DAL
DEN
HOU
JAX
LV
LA
MIA MSP
NASH
NY
ORL
PHI
PHX RD
SLC
SD
SF SEA
TAM
DC
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
1Q24 Renewal Conversions
TTM Inventory Growth
NEWMARK
1Q24 US MULTIFAMILY CAPITAL MARKETS REPORT
Debt Capital Markets
NEWMARK
Chart Title
25
Source: RCA, Newmark Research as of 4/26/2024
Note: loan origination volumes are adjusted for future expected revisions using Newmark’s proprietary models
**Excludes construction loans
While recent activity has been anemic compared to pre-pandemic levels, there is a silver lining in that originations in the first quarter of 2024 were down just 7% year-over-year,
suggesting that activity may be close to bottoming.
Multifamily Debt Originations Lowest Since 2015 in 1Q24
Multifamily Debt Origination Volume*
14.2 21.1 27.4 20.6 36.9 42.7 42.5 48.8 50.5 60.1 56.7
82.0
35.7 33.1
7.6
18.6 22.4 28.1 21.5
42.3 42.5 51.4 55.5 73.2 64.6 76.7
94.9
51.8
12.9
17.0
26.3 20.4 33.6
41.5 50.9 55.1
63.7
80.5 58.8
90.9
81.5
41.9
17.5
22.0
31.1 26.9 46.4
50.3
53.0
60.3
65.8
77.3
88.5
126.4 65.1
43.2
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Dollars in Billions
Qtr 1 Qtr 2 Qtr 3 Qtr 4
NEWMARK
Chart Title
26
Source: RCA, Newmark Research as of 4/26/2024
Note: loan origination volumes are adjusted for future expected revisions using Newmark’s proprietary models
**Excludes construction loans
Multifamily origination volumes declined 33% year-over-year as of March 2024. There was a moderate pickup in the fourth quarter of 2023; however, volume has considerably trailed
pre-pandemic and 2022 levels.
Monthly Originations Remain Soft; Running Consistently below Pre-Pandemic Level
Monthly Multifamily Debt Originations Volume*
22% 3%
-33%
YoY
0
5
10
15
20
25
30
35
40
January February March April May June July August September October November December
Dollars in Billions
2024 '17 - '19 Average 2022 2023
NEWMARK
Chart Title
27
Source: RCA, Newmark Research as of 4/26/2024
Note: loan origination volumes are adjusted for future expected revisions using Newmark’s proprietary models
**Excludes construction loans
GSEs and banks remain the largest lenders, despite originations declining 17% and 39% year over year respectively. CMBS has been a bright spot, with a 517% year-over-year surge
in the first quarter of 2024.
Multifamily Originations Declined in 1Q24 among Largest Lenders
Multifamily Loan Origination Volume
-17% YoY
-39%
+52%
+55%
+517%
+120%
0
5
10
15
20
25
30
35
Government Agency Bank Insurance Financial CMBS Other
Dollars in Billions
'17 - '19 Avg. 1Q21 1Q22 1Q23 1Q24
NEWMARK
Chart Title
28
Source: RCA, Newmark Research as of 4/26/2024
Note: loan origination volumes are adjusted for future expected revisions using Newmark’s proprietary models
**Excludes construction loans
Bank lending declined sharply in 2023, both in absolute dollars and as a share of total originations. While GSEs could not put out more dollars, they were able to gain market share. In
recent months, the bank share of originations seems to be stabilizing, while debt funds, insurance and CMBS/CRE CLO lenders have become relatively more active.
GSEs Carried the Market in ‘23, but Other Non-Bank Lenders Are Now Stepping Up
Origination Share by Lender Group: Rolling 6-Month Average
53%
18%
4%
9%
12%
3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Mar-23
Jun-23
Sep-23
Dec-23
Mar-24
Share of Total (%)
Government Agency Bank CMBS Insurance Financial Other
NEWMARK
Chart Title
29
Source: RCA, Newmark Research as of 4/26/2024
Note: loan origination volumes are adjusted for future expected revisions using Newmark’s proprietary models
**Excludes construction loans
Both the number of lenders and origination volume are now materially below pre-pandemic levels.
The Number of Active Lenders Has Declined 55% since Peaking in 4Q21
Multifamily Debt Origination Volume
Sep-20
528
Dec-21
798
361
0
100
200
300
400
500
600
700
800
900
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Mar-23
Jun-23
Sep-23
Dec-23
Mar-24
Count (#)
Dollars in Billions
Volume Number of Active Lenders
NEWMARK 30
Source: Federal Reserve, Newmark Research as of 4/29/2024
CRE loan shares are elevated at small and regional banks, while the largest banks’ loan shares continue to decline. Small and regional banks face mounting pressure to reduce CRE
exposure. This will play out over the next several years, during which the CRE loan share is likely to retest cyclical bottoms of 25%, implying a net reduction of $347 billion. Large
banks’ exposures have been trending downwards since 2007. This is likely to continue, absent a significant increase in relative yields.
Regional Banks Need to Reduce CRE Exposure…And They Haven’t Even Started
CRE Loans as a Share of Total Bank Assets
Average
25%
30%
6%
11%
13%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Dec-96
Jun-97
Dec-97
Jun-98
Dec-98
Jun-99
Dec-99
Jun-00
Dec-00
Jun-01
Dec-01
Jun-02
Dec-02
Jun-03
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
Dec-22
Jun-23
Dec-23
Small & Regional Banks Large Banks All Banks
$347B à 25%
Share
NEWMARK 31
Source: MBA, Trepp, RCA, Newmark Research as of 4/30/2024
*Adjusted for year-to-date estimated loan originations
Banks account for 25% of debt maturities in the full 2024-to-2033 period, but they account for 46% of maturities between 2024 and 2026. Debt fund maturities are similarly frontloaded,
accounting for 14% of near-term maturities vs. 9% in the full period. The same is true of securitized lending, driven by CLOs. In contrast, GSE maturities are heavily backloaded.
$669 Billion in Multifamily Loans Mature between 2024 and 2026
Multifamily Loan Maturities by Lender Group*
27.6 36.5 51.1
126.4 101.8 76.0
13.7
14.5 21.5
40.2
36.0
23.5
66.7
26.6
274.6
215.5
179.0
138.7
167.0 161.8
144.1
134.3
156.1
84.7
0.0
50.0
100.0
150.0
200.0
250.0
300.0
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Dollars in Billions
GSE Bank Insurance Debt Fund Securitized
NEWMARK 32
Source: Newmark Research, MBA, Trepp, MSCI Real Capital Analytics as of 4/30/2024
*Adjusted for year-to-date estimated loan originations
Multifamily received tremendous capital inflows during the pandemic liquidity bubble of 2020 to the first half of 2022. This was reflected both in transaction activity, as well as pricing for
both debt and equity. A significant portion of these loans had short duration and were financing value-add projects. Now those loans are coming due and in a very different environment
than when they were originally issued.
Upcoming Maturities Heavily Exposed to Bubble-Era Loans
Multifamily Loan Maturities by Origination Period*
$36B /
13%
$58B /
27%
$79B /
29% $26B /
12%
$76B /
42%
$105B /
38%
$50B /
23% $46B /
26%
$55B /
20%
$81B /
38%
$49B /
27%
0
50
100
150
200
250
300
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Dollars in Billions
Pre-2016 Last Hiking Cycle (2016-2019) Pandemic Liquidity Bubble (2020-2021) Current Cycle (2022-Present)
NEWMARK 33
Source: RCA, Green Street, ICE Data Indices, ACLI, Federal Reserve, Newmark Research as of 4/26/2024
Note: Excludes construction financing
Historically, multifamily debt rates have run somewhat above those of BBB corporate bonds. Yields on multifamily agency debt have tended to trade closely with the broader fixed-rate
transaction market yields. Until recently, multifamily debt benchmarks were lagging movements in corporate bonds. As corporate bond yields have declined from early November
highs, multifamily benchmarks have in effect caught up. While further declines in debt costs are likely to be limited, the market could benefit from greater stability.
Multifamily Debt Costs Continue to Follow Pied Piper of Corporate Bonds
Multifamily Cost of Debt Capital
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Sep-17
Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Mar-23
May-23
Aug-23
Nov-23
Feb-24
RCA Average Fixed Rate (5.7%)
Agency Debt (6.2%)
LifeCo Fixed Rate (6.6%)
BBB Corporate Bond (5.9%)
NEWMARK
20.5
16.3 15.7
5.0
10.2 9.5
0.0
5.0
10.0
15.0
20.0
25.0
Office Multifamily Industrial Retail Hotel Other
Dollars in Billions
Final Maturity in Next 12 Months Later
34
Delinquency rates, notably for office, have begun to increase, but the levels are still highly contained relative to expectation. The answer to this conundrum is an older one: extend and
pretend. Anecdotes abound, but the securitized market offers some hard numbers. Of an estimated $163 billion in 2023 CMBS maturities (based on original maturity date), $82.1 billion
remain outstanding, mostly by exercising existing extension options. The same is taking place in the non-securitized lending sectors, perhaps to a greater extent, given the greater
flexibility and opacity.
Distress Suppressed by Widespread Use of Extension Options
Moody’s CMBS Delinquency Tracker Securitized Debt with 2023 Original Maturity Still Outstanding
Source: Moody’s Investor Services, Trepp, Newmark Research as of 4/29/2024
$82.1B
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
Mar-23
Mar-24
Office Multifamily Industrial Retail Retail (ex. Malls)
NEWMARK 35
Source: Newmark Research, MSCI Real Capital Analytics, ICE Data Indices as of 5/8/2024
Higher debt costs on refinancing will lower return for all and will give rise to a range of reactions within the market. Some borrowers will choose to pay down their debt, especially if the
asset has appreciated meaningfully. Others will refinance the principal or partially pay down, whereas in a lower cost-of-capital environment, they would have re-levered. Still others will
be unable to make the math work and will need to pursue a loan modification, return the keys and/or source rescue equity at an appropriate price point.
Multifamily Borrowers Face Starkly Higher Costs as Loans Mature
Weighted Average Interest Rate on Maturing Debt vs. Prevailing Bond Yields
Likely range for corporate debt =
floor for CRE debt costs
For over a decade, borrowers
refinanced at lower cost
5.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Multifamily BBB Bond Yield
NEWMARK 36
Source: Trepp, Newmark Research as of 5/3/2024
Even property types with strong operating fundamentals could face challenges covering new, higher interest costs. Floating rate loans on transitional product, a significant portion
originated by debt funds and securitized in CRE CLO, are particularly fraught. This is largely responsible for the high portion of at-risk loans in the multifamily and industrial sectors.
The securitized markets are not an isolated problem; banks engaged in a great deal of this newly risky lending. New bank regs give them a “pass” on underwater loans but not DSCRs.
Some Loans Will Be Able to Absorb Higher Interest Costs; Many Will Not
DSCR Profile of Securitized CRE Debt Maturing between 2023 and 2025
NEWMARK
Chart Title
37
Source: Trepp, Newmark Research as of 5/3/2024
Floating rate loans are more prevalent in CRE CLO and SASB product, helping to explain their outsized role in driving DSCR risk in upcoming maturities.
Floating Rate Loans Are an Even Better Indicator of Potential Distress
DSCR Profile of Securitized CRE Debt Maturing between 2023 and 2025: Floating Rate Loans Only
NEWMARK 38
Source: Trepp, Green Street, Newmark Research as of 5/3/2024
Note: to estimate the impact of market rates. We analyzed representative samples of 2023 to 2025 maturity loans for each property type. We calculated a pro forma DSCR by comparing the
current loan rate with the current market rate. For the current market rate, we used data from Trepp’s weekly balance sheet lender survey for loans with LTV’s between 66% and 70%. The
assumed market debt rates were 6.6% (multifamily non-agency), 6.2% (multifamily agency), 6.7% (retail), 6.6% (industrial), 7.0% (office and hotel).
At in-place rates, fixed-rate loans are comparatively unexposed to immediate payment risk. As these loans mature, they will face market rates which have risen dramatically. This will
be a major impediment to refinancing these loans, particularly as banks have been given much less flexibility in dealing with loans that are unable to pay market rates as opposed to
loans that exceed LTV covenants. While this analysis focuses on securitized debt, it has serious implications for the broader landscape.
Debt Service Risk Will Rise Dramatically as Fixed-Rate Loans Face Market Rates
Share of Securitized Loans Maturing between 2023 and 2025 with a DSCR under 1.25x (“High Risk”)
NEWMARK 39
Source: RCA, Green Street, NCREIF Newmark Research as of 4/30/2024
*We take the average loan-to-value ratio of loans originated in each respective year based on an analysis of RCA data, then we mark the value of the assets to market using the various proposed
benchmarks.
Public market benchmarks and those adjacent (Green Street CPPI) in general show greater recent declines in value and higher resulting mark-to-market LTVs; however, the
discrepancy is narrow, except for office and multifamily. We believe the public market benchmarks are more credible in this instance. It is worth noting that, except for the RCA
transaction-based series, all of these measures are biased towards higher-quality, institutional properties. As such, this likely represents a best-case scenario.
Falling Asset Values Mean That Some Loans Are Already Underwater
Average Mark-to-Market* Loan-to-Value Ratio by Year Debt Originated
NEWMARK 40
Source: Green Street, NCREIF, RCA, Trepp, MBA, Newmark Research as of 4/30/2024
*Loans with an estimated senior debt LTV of 80% or greater are potentially troubled. The loans are marked-to-market using an average of cumulative changes in the Dow Jones REIT sector price
indices, REIT sector enterprise value indices and Green Street sector CPPI.
Combining our analysis of mark-to-market LTVs with the structure of debt maturities, we estimate the volume of debt that currently is potentially troubled.* Office and multifamily loans
constitute most potentially troubled loans, particularly in the 2024-to-2026 period. The high office volume results from most loans being underwater. The distribution of LTV ratios for
multifamily are more favorable overall, but the greater size of the multifamily market and the concentration of lending during the recent liquidity bubble drive high nominal exposure.
$1.3T of Outstanding CRE Debt is Potentially Troubled, $679B Maturing in ’24 to ’26
Potentially Troubled Loans by Maturity Year*
106
73 62 44 41 48 28
66 64
18
184
87
66
61
31 41
22
26 17
7
25
23
21
15
13
8
4
44
2
332
189
159
126
90 99
55
99 89
31
0
50
100
150
200
250
300
350
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Dollars in Billions
Maturity Year
Apartment Industrial Office Retail
NEWMARK 41
Source: Green Street, NCREIF, RCA, Trepp, MBA, Newmark Research as of 4/30/2024
*Loans with an estimated senior debt LTV of 80% or greater are potentially troubled. The loans are marked-to-market using an average of cumulative changes in the Dow Jones REIT sector price
indices, REIT sector enterprise value indices and Green Street sector CPPI.
Focusing on the 2024-to-2026 period, banks are most exposed to potential distress in nominal terms, but this mostly parallels their share of maturing loans. The same is true of
securitized financing. In contrast, debt funds account for 18% of potentially distressed loans but only 14% of maturing loans, a ratio of 1.3x. GSE is the most significant outlier but in the
opposite direction with a ratio of 0.4. There are significantly more at-risk GSE loans later in the decade, but it is premature to focus overmuch on these.
Potential Multifamily Distress Concentrated in Bank, CLO and Debt Fund Lending
Potentially Troubled Multifamily Loans by Maturity Year*
49
38 32
25
6
25
20
12
106
73
62
44 41
48
28
66 64
18
0
20
40
60
80
100
120
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Dollars in Billions
Maturity Year
Bank Securitized Insurance Debt Fund GSE
NEWMARK
1Q24 US MULTIFAMILY CAPITAL MARKETS REPORT
Investment Sales
NEWMARK 43
Investment sales volume totaled $20.6 billion in the first quarter of 2024, decreasing 25.3% year over year. Sales volume on a rolling four-quarter basis declined to $113.0 billion, the
lowest point since the fourth quarter of 2014 and 42.2% below the long-term average.
1Q24 Sales Volumes Fall 25% Year over Year; Pace of Decline Moderating
Quarterly Sales Volume (in Billions) Rolling 4Q Totals (in Billions)
Source: Newmark Research, MSCI Real Capital Analytics
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
3Q22
1Q23
3Q23
1Q24
Rolling 4Q Sales Volume High Low
$20.6
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
350%
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21
1Q22
2Q22
3Q22
4Q22
1Q23
2Q23
3Q23
4Q23
1Q24
Sales Volume Year-over-Year Change
NEWMARK
Chart Title
44
Source: Newmark Research, MSCI Real Capital Analytics
Multifamily remains the largest share of investment sales of all US commercial real estate property types at 26.2% through the first quarter of 2024; however, continued higher rates
have resulted in the market share decelerating.
Multifamily Remains Top Recipient of Capital, Although Market Share Continues Slide
Multifamily Market Share as a Percentage of US CRE Sales Volume
26.2%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 1Q24
Multifamily Linear (Multifamily)
NEWMARK
Chart Title
45
Source: Newmark Research, MSCI Real Capital Analytics
Individual deal volume accounted for 86.1% of transactions during the first quarter of 2024, well above the 10-year average (75.5%). Portfolio and entity-level transactions sank 13.9%,
the lowest mark since 2009.
Mega Deal Volume Sinks to 15-Year Low
By Transaction Type
13.9%
86.1%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 1Q24
Portfolio Entity Individual
NEWMARK 46
Dallas and Atlanta continue to be largest recipients of transaction volume over the trailing 12 months with $7.9 and $5.3 billion respectively. New supply pressure, which is most robust
in the Southeast and Southwest regions, has put pressure on deal flow, yet combined for 47.7% of transactions as investors remain bullish on the long-term growth prospects.
Appetite for Sun Belt Remains Strong, Despite Short-Term Supply Challenges
12-Month Sales Volume (in Billions) Sales Volume Share by Region
Source: Newmark Research, MSCI Real Capital Analytics
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
Dallas
Atlanta
Chicago
Houston
Boston
NYC Boroughs
Manhattan
Phoenix
Denver
Los Angeles
Austin
Seattle
Raleigh/Durham
San Diego
Orlando
Charlotte
Tampa
Nashville
DC VA Burbs
Northern NJ
Broward
Orange County
San Antonio
Miami
Indianapolis
8.2%
12.7%
12.0%
23.5%
24.2%
19.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 1Q24
Mid-Atlantic Midwest Northeast Southeast Southwest West
NEWMARK
Chart Title
47
Source: Newmark Research, MSCI Real Capital Analytics
Private capital sources, including owners, operators and developers, accounted for 64.6% of acquisitions, and 64.9% of dispositions in the first quarter of 2024. Only cross-border
capital groups have been net acquirers year-to-date.
Private Capital Remains Leading Source of Transactions
Capital Flows by Investor Group (in Billions)
-$25
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
$25
2020
2021
2022
2023
1Q24
Cross-Border
-$100
-$80
-$60
-$40
-$20
$0
$20
$40
$60
$80
$100
2020
2021
2022
2023
1Q24
Inst'l/Eq Fund
-$30
-$25
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
2020
2021
2022
2023
1Q24
Listed/REITs
-$300
-$200
-$100
$0
$100
$200
$300
2020
2021
2022
2023
1Q24
Private
NEWMARK
Chart Title
48
Source: Newmark Research, MSCI Real Capital Analytics
*Data based on single-asset sales transaction where the most recent trade was $25 million and greater based on RCA’s
confirmed price qualifier for existing properties built in 2019 or prior. This excludes bulk condo and leasehold transactions.
Despite the challenging market dynamic brought on by higher rates, 84.3% repeat sales of institutional-quality multifamily product in 2023 to 2024 with a prior sale during the lower
rate, 2020-to-2022 environment have produced positive sales appreciation.
Most Repeat Sales from 2020 to 2022 Have Traded in the Money
Dollar and Percentage Change for Repeat Sales
NEWMARK
1Q24 US MULTIFAMILY CAPITAL MARKETS REPORT
Pricing & Returns
NEWMARK
Chart Title
50
Source: Newmark Research, MSCI Real Capital Analytics
Following the first rate hike in March 2022, average cap rates have accelerated 60 basis points across all deal sizes. Deals $50 to $74.9 million have increased 79 basis points, $75 to
$99.9 million have increased 93 basis points and deals $100 million and greater have increased 76 basis points.
Larger Deals Experiencing Most Evident Reset in Pricing
Average Cap Rate by Price Tier
5.59%
5.28%
5.18%
5.16%
4.90%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 1Q21 3Q21 1Q22 3Q22 1Q23 3Q23 1Q24
$0-24.9M $25-49.9M $50-74.9M $75-99.9M $100M+
First Fed Rate Hike
NEWMARK
Chart Title
51
Source: Newmark Research, MSCI Real Capital Analytics ($5 million and greater)
As of the first quarter of 2024, the spread between top quartile cap rates totaled 25 basis points – 69.1% below the long-term average of 80 basis points. The market is pricing non-
major markets with lower barriers to entry, favorable demographics and strong demand fully compared with major markets, which are more supply constrained.
Low Barrier to Entry Markets Valued Similarly to Supply-Constrained
Top Quartile Cap Rates by Market Tier
0
25
50
75
100
125
150
175
200
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20 1Q21 1Q22 1Q23 1Q24
Spread in BPS
Cap Rates
Spread Major Markets Non-Major Markets Long-Term Average Spread (80 BPS)
NEWMARK
Chart Title
52
Source: Newmark Research, Trepp
While the cost of debt has remained “higher for longer,” the spreads for securitized debt have averaged 193 basis points for Freddie Mac and 274 basis points for CMBS, representing
a year-over-year decline of 11.4% and 17.2% respectively.
Securitized Spreads Have Decreased Year over Year
Average Spread to Treasury (Fixed Rate Loans)
274
193
0
50
100
150
200
250
300
350
400
450
1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 1Q21 3Q21 1Q22 3Q22 1Q23 3Q23 1Q24
Spread in BPS
CMBS Freddie Mac
Chart Title
53
Source: Newmark Research, NCREIF
Multifamily expenses increased 6.5% year over year, led by a 36.1% surge in insurance costs. The first quarter of 2024 represents the seventh consecutive quarter on a year-over-year
basis with double-digit increases in insurance expenses.
Investors Confronted by Rising Operational Costs; Insurance Continues to Accelerate
Year-over-Year Change
4.1%
8.7%
36.1%
2.7%
11.0%
6.5%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
3Q22
1Q23
3Q23
1Q24
Utilities Management Insurance Property Taxes Other Totals
NEWMARK
Chart Title
54
Source: Newmark Research, NCREIF
On a quarter-over-quarter basis, net operating income declined to 0.6% and year-over-year declined to 3.5%. On a year-over-year basis, this marks the seventh consecutive decrease
in the pace of growth.
NOI Growth Remains Positive; Pace of Growth Continues to Decline
Net Operating Income
0.6%
3.5%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
3Q22
1Q23
3Q23
1Q24
Quarter-over-Quarter Year-over-Year
NEWMARK 55
Dry powder at closed-end funds is 9% below its December 2022 peak, reflecting declines in dry powder at value-add and debt funds. Opportunistic fund vehicles are also off the peak
but by a smaller margin.
Dry Powder Has Declined from 2022 Peak, but Still Elevated Overall
Dry Powder – Closed-End Funds Dry Powder by Strategy*
Source: Newmark Research, Preqin as of 4/29/2024
*Not shown: Fund of funds, co-investments, and secondaries strategies
96
80
43
22
3
0
20
40
60
80
100
120
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
Dec-23
Dollars in Billions
Opportunistic Value-Add Debt Core & Core-Plus Distressed
91
79
108 101
134 139
165
196 199
220
243
283
259 257
0
50
100
150
200
250
300
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
Dec-23
Apr-24
Dollars in Billions
NEWMARK
Chart Title
56
Source: Newmark Research, NCREIF
In the years following the Global Financial Crisis and the COVID-19 outbreak, multifamily proved more resilient to investors as they generated greater returns than other property
types. Although still down into 2024, as a more defensive and less volatile asset type, multifamily still outperformed the NCREIF All Property Index during the first quarter of 2024.
Multifamily Outperforming; Strong Track Record of Generating Alpha in Recoveries
Calendar Year Total Returns
-17.5%
18.2%
15.5%
11.2%
10.4%
10.3%
12.0%
7.3%
6.2%
6.1%
5.5%
1.8%
19.9%
7.1%
-7.3%
-6.3%
-16.9%
13.1%
14.3%
10.5%
11.0%
11.8%
13.3%
8.0%
7.0%
6.7%
6.4%
1.6%
17.7%
5.5%
-7.9%
-7.2%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 1Q24*
Multifamily NCREIF Property Index (All Property Types) 15-Year Annualized Multifamily Total Returns = 7.3%
*1Q24 total returns are annualized
Multifamily Outperforms
NEWMARK 57
On an annualized basis, garden, low-rise and high-rise property subtypes accelerated in the first quarter of 2024. Within the residential and senior housing expanded types,
apartments, assisted living and independent living also all saw a boost in the first quarter of 2024. While student living remained flat, it is the top performer year to date.
Total Returns Accelerate in 1Q24 across Residential Subtypes
Total Returns by Subtype (Percentage Annualized) Total Returns by Expanded Subtype (Percentage Annualized)
Source: Newmark Research, NCREIF
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 1Q21 3Q21 1Q22 3Q22 1Q23 3Q23 1Q24
Apartments Student Housing Assisted Living Independent Living
-20%
-10%
0%
10%
20%
30%
40%
50%
1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 1Q21 3Q21 1Q22 3Q22 1Q23 3Q23 1Q24
Garden Low-Rise High-Rise
NEWMARK
Chart Title
58
Source: Newmark Research, NCREIF
No market produced positive total returns over the past 12 months; however, markets with above average income growth, such as Miami, Chicago, Fort Lauderdale, Washington, DC
and Houston, were the most resilient.
Income Growth Helps Propel Top Markets for Total Returns
NCREIF Annualized Apartment Total Returns by Market as of 1Q24
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
Miami
New York
Chicago
Fort Lauderdale
Dallas
Washington, DC
Houston
Boston
Tampa
Charlotte
San Antonio
Atlanta
Riverside
Minneapolis
West Palm Beach
Orlando
Austin
Anaheim
Seattle
Raleigh
Denver
Nashville
Los Angeles
San Jose
Phoenix
Oakland
Portland
San Francisco
Appreciation Income Total Returns
NEWMARK 59
Source: Dow Jones, Moody’s, Newmark Research as of 5/13/2024
All REIT sectors, except for regional malls, have recorded negative total returns since December 2021 or roughly when the current monetary policy cycle began. There has, however,
been significant heterogeneity across REIT sectors and cyclicality within the overall downward trend. To illustrate, the Dow Jones All REIT index is up 18.4% since its October 2023
lows. Office, industrial and multifamily have experienced the greatest drawdowns, while retail, healthcare and hotels have been comparatively resilient.
REITs Have Generated Negative Total Returns since the Hiking Cycle Began
Dow Jones REIT Index Total Returns
5%
-6% -6% -7% -9% -10%
-15%
-21% -22%
-30%
-34%
-39%
Sep-22
Oct-22
Sep-22
Oct-22
Oct-23
Oct-23
Mar-23 Oct-23
Oct-23
Oct-22
Oct-23
Oct-23
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
Regional Malls Strip Centers Retail Healthcare Hotels Self-Storage Commercial
Mortgage
Dow Jones All
REIT
Apartments Industrial Manufactured
Homes
Office
Cumulative Return Since December 2021 Max Drawdown
NEWMARK 60
As the prospects for declining interest rates have waxed and waned, so have REIT returns. Looking at cumulative changes (left panel), while volatility is visible, the overall downward
impulse from higher rates and, to a lesser extent, softening fundamentals leave the dominant impression. The rolling 13-week return reveals just how many mini-cycles the market has
been subject to. This underlines the challenge of using public comparable to inform private property valuations on a tactical basis.
REIT Returns Have Been Volatile with Periods of Significant Appreciation
Dow Jones All Equity REIT Total Return Index Dow Jones All Equity REIT Total Return Index: Rolling 13-Week Return
Source: Dow Jones, Moody’s, Newmark Research as of 5/13/2024
61
78
70
92
0
20
40
60
80
100
120
Dec-21
Feb-22
Apr-22
Jun-22
Aug-22
Oct-22
Dec-22
Feb-23
Apr-23
Jun-23
Aug-23
Oct-23
Dec-23
Feb-24
Apr-24
Normalized 12/31/2021 = 100
Office Multifamily Industrial Retail
4%
14%
-14%
2%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Apr-22
May-22
Jun-22
Jul-22
Aug-22
Sep-22
Oct-22
Nov-22
Dec-22
Jan-23
Feb-23
Mar-23
Apr-23
May-23
Jun-23
Jul-23
Aug-23
Sep-23
Oct-23
Nov-23
Dec-23
Jan-24
Feb-24
Mar-24
Apr-24
May-24
Office Multifamily Industrial Retail
NEWMARK 61
Source: NCREIF, RCA, Dow Jones, Green Street, Moody’s Analytics, Newmark Research as of 4/26/2024
Industrial is the only sector for which a range of benchmarks show large and significant gains since the fourth quarter of 2019. Conversely, all benchmarks show office values down,
but there is a large difference between appraisal / transaction-based measures, which show modest depreciation and measures informed by the public markets. The latter seem far
more realistic. Multifamily markets show the same cleavage, with the enterprise value and NCREIF measures clear outliers. Retail measures generally point to modest declines in
value.
What Happened to Values? Depends on the Benchmark
Comparison of Value Benchmarks: Cumulative Index Change since 4Q19
NEWMARK 62
Source: NCREIF, Newmark Research as of 5/13/2024
Markets clearly registered the shift in return momentum in the first quarter of 2024. For office and multifamily, this shift manifested as a shift in markets from negative and decelerating
to negative but accelerating. On the other hand, industrial and retail saw markets transition from negative and decelerating to positive and accelerating in a striking reversal; 73% of
industrial markets and 58% of retail markets generated positive and rising total returns in the first quarter of 2024, according to NCREIF.
NCREIF Returns Positive in 56% of Markets in 1Q24, up from 19% in 4Q23
Breakdown of NCREIF CBSA Total Returns: 1Q 2024
17 Markets / 30%
3 Markets / 5% 5 Markets / 6%
11 Markets / 19%
15 Markets / 11%
24 Markets / 43%
39 Markets / 67%
16 Markets / 20%
8 Markets / 14% 42 Markets / 32%
1 Markets / 2% 2 Markets / 3%
1 Markets / 1%
6 Markets / 10%
6 Markets / 5%
14 Markets / 25% 14 Markets / 24%
58 Markets / 73%
34 Markets / 58% 68 Markets / 52%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Office Multifamily Industrial Retail Overall
Returns Negative and Decelerating Returns Negative but Accelerating Returns Positive but Decelerating Returns Positive and Accelerating
For more information:
David Bitner
Executive Managing Director
Global Head of Research
david.bitner@nmrk.com
New York Headquarters
125 Park Ave.
New York, NY 10017
t 212-372-2000
Jonathan Mazur
Executive Managing Director
National Research
jonathan.mazur@nmrk.com
Mike Wolfson
Managing Director
Multifamily Capital Markets Research
mike.wolfson@nmrk.com
nmrk.com
Christopher Boutsikaris
Senior Research Analyst
Multifamily Capital Markets Research
chris.boutsikaris@nmrk.com