Multifamily Development is Flourishing as Never Before

When the pandemic engulfed the world last year, few analysts predicted that the multifamily sector would flourish and thrive so well. Most suspected that the sector would be on life support. Yet, despite a yearlong national eviction moratorium, there hasn’t been a better time to be a big apartment-building landlord. Multifamily-property values have increased 13% since before the pandemic and more money is being invested now in apartment buildings than in any other type of commercial real estate. How did this happen and what explains this? This report will explain why the multifamily sector, contrary to past predictions and present-day misperceptions, is flourishing as never before.

1. Measured on an annual basis, national asking rents rose 10.3% in August. That marked the first double-digit increase in the more than 20 years the data of 13 million professionally managed apartments has been collected, and in several cities, the rent increases were much more significant than the national figure 1 August rents rose more than 20% year-over-year in Phoenix, Las Vegas, and Tampa. Similarly, monthly rents were up more than 20% in comparable markets such as Boise, Idaho, and Naples, Florida.

Buy or Sell. Is it a good time?

As a real estate agent, my obvious answer is YES. But why?

Real estate in the Treasure Valley is probably as good as it has ever been. Demand is soaring, housing prices keep breaking records, the returns for commercial investment properties are compressed more than ever, but it is still a good time to buy. How can this be?

Multiple factors are pushing the market to these new heights. Interest rates at historically low levels make it so we can put the debt on an investment property at 4% for 10-30 years (depending on product type) and purchase a property at a 5-7% cap rate and it still makes sense as a long term investment. Doing this while the Fed chairman, President (current and future), and Speaker of the House are all calling for more printing of money makes this a pretty appealing time to try and find a hedge against potential inflation.

Demand is the other factor that makes buying in the Treasure Valley continue to be a good bet. With Idaho having the fastest growing population per capita and lowest job loss in the nation we have a good recipe for continued growth and development. The hard part about the growth and development is we don’t seem to be keeping up. Permits are down for the year in both residential and commercial construction. Due to this, we are falling further behind in providing products for our businesses and people. With more demand, we will continue to see more price increases.

Assuming the wheel keeps turning the way it currently is, this is the reality we are looking at. What happens if that reality changes though? What would make it a good time to sell now? If in-migration slows to the valley and we don’t continue to reduce our unemployment rate at our current trend we may experience a slowdown. Real estate is influenced by many things but mainly incomes, lending, and mortgage rates. Mortgage rates are about as low as they are going to be without going negative. Lending is still happening, but with more questions and concerns from lenders, and incomes haven’t risen fast enough in the valley to keep up with the increases in prices. Tack on potential inflation in the stores from the continued stimulation out of thin air from the government and we may be looking over the edge of a cliff ready to fall in the next 12-18 months. There is also likely to be an increase in capital gains taxes and another attack on getting rid of the 1031 exchange. I don’t think the latter is probable, but it keeps getting thrown around every couple of years and is something to watch closely.

What reality we end up with is yet to be seen, but the potential for a cliff is a reason some property owners in the valley are choosing to take some chips off the table, shore up their balance sheets, and prepare for a potential buying opportunity in the years to come. 

Boise and the surrounding areas are going through many changes. I think the outlook is strong even if the rest of the country sees some major economic challenges in the coming years. Whether it is a good time for you to buy or sell depends on your personal investment philosophy and your situation. If you don’t have a personal investment philosophy you’re invited to reach out and I’d be happy to give you some things to think about when developing yours out.

Have a great holiday season!

Chase Erkins
Principal, Associate Broker
(208) 789-4900
chasee@leeidaho.com