BOSTON, August 5, 2024 – In its latest insights, “1H 2024 Management Commentary: Stress, without distress,” Kingbird Investment Management (“Kingbird”), the real estate subsidiary of Puerto Rico-based family-owned strategic investment company Grupo Ferré Rangel, highlights the reasons that multifamily properties have avoided going into widespread distress, despite the deterioration of capital market conditions.
“This year is proving to be more of a continuation of 2023 than we expected,” said Vincent DiSalvo, Chief Investment Officer, Kingbird Investment Management. “With sellers too well capitalized to sell at a discount, multifamily transactions will remain limited for the remainder of 2024,” he added.
While deal flow is muted, investors with the flexibility to strategically structure investments can capitalize on the current market dislocation. For example, Kingbird is seeing many preferred equity opportunities this year due to a plethora of multifamily mortgages that need to be refinanced in a higher interest rate environment.
“The confluence of high levels of raised but uninvested capital, challenging debt conditions, and minimal transaction volume has created a situation in which investors with flexibility structuring are well-positioned to source and execute on opportunities over the coming months,” explains DiSalvo.
The commentary notes that the fundamentals underpinning the multifamily sector remain exceptionally healthy, with demographic and supply/demand trends favoring apartment investment.
- Chronic shortage of housing supply: New apartment construction has been sluggish and unable to effectively combat the long-term housing shortage that has afflicted the United States. Based on U.S. Census Bureau data, we estimate that, at most, the nation’s estimated 3.8- to 6-million-unit housing shortage was reduced by 290,000 units (from 2021-2023). To fully address this U.S. housing shortage, the sector will need to produce a minimum of 1.8 million units annually for the next 10 years—a volume that is significantly above the historic average of 1.1 million units produced annually.
- Rent vs. own equation tips in former’s favor: The cost of homeownership is out-of-reach for many American households. As of Q1 2024, the national average monthly cost of homeownership is $1,005 higher than renting. Although an over-supply of apartments has increased vacancies and slowed rent growth in some markets, renting continues to be the most affordable option for many U.S. consumers.
“These conditions validate the fundamentals that provide the foundation for Kingbird’s long-term multifamily thesis,” said DiSalvo. “The complex dynamics surrounding today’s market are likely to create good investment opportunities over the coming year, even if transactions are limited in the near-term.”
