SoCal Multifamily Sales Pulse - March 20, 2022 - March 26, 2022

• 28 March 2022
• Mike Lembeck

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Here's What's Happening In The Market, Here’s What This Means For You

Multifamily Investor Demand Remains Strong Despite Rising Interest Rates

The Southern California apartment market is seeing high growth, but several factors have many owners asking themselves, ‘Should I stay or should I go?’ 

Multifamily owners are enjoying the fruits of favorable housing dynamics and pro-renting demographics. However, a handful of factors, including rising interest rates, could have landlords deciding to sell. Timing the top of any market is difficult, but several waves of looming interest rate hikes can add to the motivation. On the other hand, apartment investments are a safer bet in inflationary markets.

Despite global geopolitical turmoil, local government policy, especially in the form of rent control, seems to be the primary fear of the unknown for apartment owners. Investor demand is and will continue to be strong given impressive rent growth, still cheap and abundant debt, multifamily stability relative to other asset classes, and as a hedge against inflation.

The Pulse of the Market 

It’s officially happening. Interest rates are moving up. After years of quantitative easing, inflationary pressures have forced the Federal Reserve to reverse course. 

Rising interest rates will make deals more challenging, but the rate jump is coming when commercial real estate fundamentals are tremendously strong, particularly in multifamily, which is benefitting from a supply-demand imbalance and material and labor shortages that have increased the barriers to building new supply. 

For smaller properties, under $5-10 million, sales are often driven by a desire to 1031 into a larger property and lock in the low interest rates on a new acquisition before they continue to rise. Even with interest rates increasing I don't expect this to change much in the short term. 

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