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Still on the Sidelines

Investors are still attempting to figure out how assets should be repriced in the current climate.

Market uncertainty has taken a toll on investment sales. Transaction volume dropped sharply in second quarter with $13.9 billion in apartment sales that was down 70 percent compared to the prior year, according to Real Capital Analytics.

“When this whole pandemic happened, a lot of people just stopped in their tracks. They weren’t looking to buy, or sell or do anything,” says Warren Berzack, a national director with the multifamily advisory group at brokerage firm Lee & Associates. “There is still a large segment of the buyer pool that is still on the sidelines, but then you have a decent segment of the market that is back in the market looking.” Financing is still available, and borrowers are seeing that they can still get financing at attractive rates, he adds.

When asked about their plans for multifamily assets over the next 12 months, nearly half of respondents (54 percent) expect to hold, while 37 percent plan to buy and a minority 9 percent intend to sell assets. Comparing that sentiment to past surveys reveals some interesting trends. Although the number of respondents who plan to hold is up from 47 percent in the 2019 survey—and the biggest percentage in the seven-year history of the survey—the 37 percent who said they intend to buy apartments in the coming year remains unchanged compared to 2019.

“My take is that investors would prefer not to sell due to an exogenous event,” says Severino. If they owned assets they believed in, they’d rather not be forced to sell. Moreover, the underlying thesis behind owning multifamily assets—namely strong demand and undersupply or limited supply—remains intact, he says. “That will continue to be true once we move past the pandemic. That does not mean that all markets and all subtypes will perform the same, but most investors are smart enough to see through the pandemic to the long-term thesis,” he adds. 

Market uncertainty is also pushing investment managers and sponsors to increase communication with investors and stakeholders. Companies are focused on being highly transparent with their investors and providing news on COVID-19 response plans, market information and updates on asset-level and portfolio performance. When asked how respondents are communicating multifamily asset performance to investors, a majority favor email (66 percent) or one-on-one phone conversations (53 percent). Additionally, 26 percent use video calls and 16 percent rely on investor portals.