We hope everyone is enjoying the last few weeks of summer and that you’ve gotten to spend some quality time with family and friends before the kids went back to school.It’s hard to believe fall is right around the corner.
It has been an interesting summer in multifamily to say the least! Here are a few trends we’re keeping an eye on:
- Transaction Volume is Down YOY –Higher interest rates, slow moving cap rates, and lack of price agreement between sellers and buyers have led to slowing multifamily origination volume. According to Costar, multifamily mid-year sales are at 63% transaction volume compared to 2022.
- Operating Expenses are Up 10.7% YOY –Rising insurance costs, tax increases, & utility costs all are contributing factors to the rise in operating expenses.
- Treasury Yields Hit Highest Since 2007 – We are now well over a year into the Fed’s hiking cycle.
Given all the uncontrollable market conditions, the Arc team is continuing to invest in our business for long term growth in 2024 & beyond. Here is what we have been up to in the month of August:
- Acquisition Strategy
We recently visited Cincinnati & Indianapolis to tour our existing properties as well as new properties on the market. While we have remained diligent in pursuing opportunities in markets we already own and invest in, and continue to submit offers, we are being extra conservative right now with the market continuing to shift so quickly. Our current focus is on class A or B properties built after 1980 that provide cash flow in year 1. We feel this provides attractive flexibility with multiple exit strategies through either sale or cash-out refinance and an opportunity to force appreciation for improved investment returns. - Investor Relationships Our goal is to help you to build a diversified portfolio that offers solid returns in growing Midwest markets. In a time filled with uncertainty, we are spending as much time as possible speaking with existing and new investors to understand investing goals for the rest of the year.
- Asset Management
Arc Equity Group is expanding our team as we recently hired an Asset Manager, David Kugler . David brings a unique blend of experience and knowledge to Arc, where he oversees the operations of the portfolio and the company.
New Asset Manager: David Kugler
Breaking Down Freddie Mac’s 2023 Midyear Multifamily Outlook
This article continues to reinforce our confidence with multifamily fundamentals moving forward. Our main takeaway from this article is the following quote, “The multifamily market will continue to be propelled over the long term due to an overall housing shortage, expensive for-sale housing and favorable demographics.”
Take a look at the below table that shows the average costs of Homeownership has risen 85% since 1Q20! We feel over 70 Million Generation Z young adults are going to be forced to rent for longer periods of time given the rising costs of Homeownership ARC EQUITY GROUP INSIGHTS In fact, more than 80% of the top 49 markets have seen flat or positive rent growth for the year ending in May 2023. Rent growth has been strongest in two of our target markets including Cincinnati and Indianapolis at 6.4% and 6.1% respectively. Freddie Mac’s baseline forecast for the end of 2023 is to see vacancy at 5.1% and rent growth to total 3.1% for the year.
Property Highlight:
Pointe Townhomes – Valparaiso, IN
Purchased Oct. 2021 In less than two years, we have experienced an increase in rents by 29.1% in our 2-bed units and 20.4% in our 3-bed units:
Rents at Acquisition: 2Bd – $1,007 3Bd- $1,134
Current Rents: 2Bd – $1,301 3Bd- $1,365
What We Are Listening To:
Contact Us:
Brian Kochendorfer
[email protected]
Danny Baylis
[email protected]
We believe that a cohesive team of experienced investment real estate professionals
partnered with our clients delivers superior results to traditional investment models.
