Four Main Takeaways from CREFC, NMHC, and MBA CREF
During the last two months, the multifamily industry has been on the road, meeting in Miami for CREFC, Las Vegas for NMHC, and San Diego for MBA CREF. In the meantime, the new administration has hit the ground running, issuing executive orders, imposing tariffs, and cutting the federal workforce. It will take some time to understand the ramifications of these measures for the economy at large and multifamily in particular, but the consensus from these meetings, which spanned the two weeks before and after the inauguration, was one of measured optimism as the year unfolds.
The Fundamentals Remain Sound
The signal from these conferences was clear: multifamily fundamentals have stabilized across the country, as metros with oversupply have begun to absorb excess units and building starts slow. The net result is that the gap between Gateway and Sunbelt performance, which has seesawed back and forth over the last three years, will narrow—and the stable, steady Midwest markets look increasingly attractive.
With the cost of home ownership increasingly prohibitive, apartments remain in high demand. Rents are expected to normalize in 2025 with growth between 3% to 4% across the nation, while occupancy stabilizes at around 94%, with slight variations across data sources. Although these levels will also vary from market to market, conference attendees expect rent growth to be positive even in markets like Atlanta and Austin that saw negative growth last year.
In the last few years, rents and occupancy in most metros have grown primarily in inner and outer suburban rings as work-from-home became increasingly the norm. There was discussion at NMHC about whether the pendulum has begun to swing back to central business districts as companies insist that workers spend more days in the office.
Operations Remain a Challenge
The impact of rising insurance costs on multifamily properties remains a topic of great concern, not just for owners but also for lenders. While the growth of insurance premiums slowed in 2024, the heavy hurricane and wildfire losses over the last six months will inevitably produce a spike in premiums. Panelists at CREFC advocated that owners start the renewal process at least six months in advance of the policy ending and provide insurers with mitigation updates, detailed emergency plans, and maintenance schedules that might influence them to minimize increases.
Artificial intelligence (AI) was frequently mentioned by conference attendees as a way for owners to rein in costs, but its applications to commercial real estate, so far, are limited. CREFC experts noted that for AI to significantly transform the multifamily industry, AI developers must train it on huge quantities of relevant data. The fragmentation of the multifamily industry, however, makes assembling a sufficient body of data difficult. Thus far, AI has been deployed for specific tasks like analyzing rent roles, summarizing documents, and streamlining building design.
There’s Ample Financing Available
As usual, interest rates were top of mind for meeting participants—and there was no shortage of divergent opinions. The general view was that the 10-year Treasury would follow the pattern established in 2024, remaining roughly between 4.00% and 5.00%, but with periods of volatility.
The good news for borrowers is that there is plenty of debt capital waiting on the sidelines from banks, debt funds, life companies, as well as the agencies, all eager to step forward for viable deals. This has put the qualified buyer in the driver’s seat when it comes to debt offerings. A key theme at all three meetings was that lenders have tightened credit spreads, enabling borrowers to compensate in part for higher-for-longer interest rates. Borrowers who are refinancing are preserving their options by requesting and receiving shorter term loans with low or no prepayment penalties, allowing them to take advantage of better rates if they emerge in the future. Floating rate loans have become popular for similar reasons.
But not all lenders are created equal. Borrowers are asking for guidance on equity sources, and the ability to place equity will be a key differentiator among lenders. Speakers at MBA CREF noted that some lenders are willing to provide bridge loans on new construction prior to completion, putting them first in line to provide permanent financing.
Buyers Will Continue to Be Selective
During the second half of 2024, acquisition activity picked up—which gave real estate professionals at the January and February conferences hope that they would see an end to the drought that has lasted since mid-2023. There are headwinds—most notably that interest rate volatility and expenses will keep buyers and sellers apart—but time is running out for owners having difficulty stabilizing properties or who are unable to refinance at current rates. Lenders will be thinking twice, for instance, about extending bridge-to-bridge financing. These properties will begin to appear on the market during 2025 and increasingly through 2027 when the wave of refinancing is expected to peak.
There is agreement that buyers will be on the prowl for deals, but they are not likely to spring unless location and strategic fit check their boxes. The upheaval and uncertainty produced by the administration’s changes may give investors pause, but a decline in the 10-year Treasury, such as we’ve seen recently, is a powerful incentive to step in. Overall, the expectation of MBA economists for 2025 is that the volume of multifamily lending will again tick up, though perhaps not as much as it did in 2024.
For those interested in buying, the conference experts advocated vigilance, preparation, and patience. Given the preponderance of potential buyers over sellers, smart buyers, they said, will be redoubling efforts to build networks and thereby maximize their ability to get an early look at deals. They will have lenders and other professionals at ready, so they can remain a step ahead of the competition. There are opportunities to be had and financing available for investors who appreciate the long-term trends supporting the multifamily market.
