Multifamily Investors Returning as Values Stabilize

With construction tapering, confidence is making a comeback.

Just as interest rates spiked more than three years ago, multifamily developers unleashed a torrent of new construction, primarily across the Sun Belt. That's when investors who had fueled higher values in the sector abruptly exited the market. Softening rent growth or rent declines amid rising vacancy in the most overbuilt cities kept most of them on the sidelines.

Since then, multifamily values either have hit bottom or are just a few inches away in overbuilt markets. Strong renter demand is reducing the supply glut as construction starts have declined more than 47 percent over the 12 months ending in September, according to Avison Young.

Stockdale Capital Partners recently purchased Amelia at Farmer's Market, a 297-unit luxury project in downtown Dallas, from Kairoi Residential. The cash deal marked the launch of the company's new multifamily investment platform.

Meanwhile, monthly home mortgage payments have stayed some $825 higher than rents for the past couple of years, and developing properties is more difficult given the higher cost of capital and inflation, according to William Dunkel, a market intelligence analyst at Avison Young. Combined, these elements are creating a compelling investment thesis, especially in markets enjoying population and job growth, including Denver, Phoenix and Austin, Texas.