Multifamily Strategies in 2024: Origin Investments Opines

In its 2024 forecast, multifamily real estate fund  manager Origin Investments offers insights into the upcoming year. Despite, we hope, the specter of a narrowly avoided recession, and  interest rates that remain high compared to those of the decade before, Origin suggests that investors with the ability to execute on an all cash basis may encounter rare opportunities to expand their portfolios.

These opportunities, deemed as “once-in-a-generation” by Origin, are expected to arise from investments in senior debt, preferred equity, and distressed value-add property acquisitions. Additionally, Origin highlights the resilience of long-term fundamentals, anticipating a return to historical levels of Class A multifamily rent growth, which will help offset geopolitical and economic challenges.

David Scherer, co-CEO of Origin Investments, emphasizes the potential presented by the upcoming maturity of variable-rate bank loans, secured when SOFR stood at 0% and the 10-year Treasury note yield was below 2%. This event, set to occur in 2024, is viewed as a pivotal moment for senior debt and preferred equity investments. Despite uncertainties, Scherer asserts that avoiding the multifamily investment market in 2024 would be a misstep.

The company’s 10 multifamily predictions stem from Multilytics, its proprietary suite of machine-learning models, as well as its extensive industry track record and nationwide hands-on experience:

1. Interest rates are expected to remain elevated, with no significant decrease anticipated until inflation is further curbed.
2. A mild recession is forecasted for the latter part of 2024, likely deepening in 2025, contingent upon actions taken by the Federal Reserve and Congress.
3. Fundamentals are projected to stay robust, driven by strong demand and absorption despite a record influx of supply. This is attributed to the affordability gap between renting and buying, coupled with a national housing shortage.
4. A 12- to 18-month period is foreseen before new construction gains momentum due to challenges in real estate lending and potential defaults on expiring debt.
5. Multifamily valuations may decline by an additional 10%, on top of recent decreases, as rents plateau or experience minimal growth while operating costs rise.
6. Class A multifamily rents are anticipated to reach historic levels, typically within a 2% to 4% range, by the third or fourth quarter of 2024, mirroring 2022 levels of rent growth.
7. The emergence of more distressed multifamily assets is expected in the latter half of the year. Decreasing valuations and maturing variable-rate bridge loans will offer opportunities for recapitalization or the acquisition of value-add assets in burgeoning markets at or below replacement cost pricing.
8. Although interest and mortgage rates are likely to hover around 6% in 2024, home prices are anticipated to begin correcting.
9. High insurance rates are expected to persist throughout 2024, continuing to impact lending, valuations, cap rates, net operating income, and other aspects of the market.
10. Investment capital is predicted to gravitate toward larger providers, prompting consolidations among developers, general partners, sponsors, private equity managers, and property managers. Reputation and proven track records will be key considerations for investors amid market volatility.

As we navigate the multifamily landscape of 2024, it’s evident that opportunities and challenges abound. Despite uncertainties, our insights and predictions offer valuable guidance for investors and stakeholders in the industry. Now is the time to capitalize on the potential for growth and resilience within multifamily real estate. 

Whether you’re seeking to expand your portfolio, optimize your assets, or explore new avenues for investment, our multifamily team stands ready to assist you. Contact us today to unlock the full potential of multifamily real estate in 2024 and beyond.