The Gray Report Podcast

This month's inflation report came in slightly higher than expected, causing some worry that the much-anticipated interest rate cuts from the Fed may not arrive as quickly as previously thought. A "higher for longer" environment is one reason why some are pessimistic about multifamily in 2024, but there is little evidence for continued declines in multifamily valuations, which are al...

Compared to the prevailing uncertainties of 2023, a better view of the multifamily market and its driving forces points to increased investment activity as the year progresses. Significant challenges remain for apartment operators in 2024, but greater clarity on apartment construction, interest rates, housing demand, and the economy, alongside pent-up demand from investors who were inactive this p...

The enormous amount of apartment supply expected this year should temper any expectations of apartment demand, but  newly-published   research  on the topic argues that U.S. housing needs are far larger than can be addressed even with the historic amount of multifamily completions last year and forecasted for this year. On the capital markets side,  recent data  points to a substantial increase in...

While recent migration and employment data highlights the continued growth of the Sunbelt, the massive amount of newly-built apartments in Sunbelt markets far outweigh the effects of demand drivers like population or job growth. Given this dynamic, investors may find higher-performing assets in multifamily markets in the Midwest and Northeast that have not seen as much apartment construction. Sour...

Markets in the Northeast and the Sun Belt continue to get attention, along with mountain locales like Idaho and Montana, but affordability is a significant draw for Midwestern markets like Cincinnati and Indianapolis. Sources discussed in this episode: U-Haul: “Top Growth States of 2023” - https://www.uhaul.com/Articles/About/U-Haul-Announces-Top-Growth-States-Of-2023-30660/ United Van Lines: &quo...

Recent reporting on commercial real estate financing has highlighted the role of private credit in providing funding for CRE sponsors/owners and delaying the need for a capital call, and despite the expectation of interest rate reductions later in the year, it is clear that private credit will remain an important tool in 2024. Newly-published reports on multifamily performance continue to clarify...

While the continued surge in newly-constructed apartments is relatively unchanged from 2023, the outlook for 2024 interest rates is less clear. The longer-term prospects for the multifamily market remain strong, but given the continued pressure from apartment supply, investors who speculate on lower interest rates and future asset valuation increases could be vulnerable to short-term headwinds. So...

Recent forecasts and expectations for the 2024 CRE and multifamily markets are not very much different than the discussions heading into 2023: Economic uncertainty, expense burdens, high interest rates, and historic amounts of new apartment supply will be major factors for multifamily asset performance next year the same as they were this year, but interest rate cuts on the horizon, lower inflatio...

The Gray Capital team shares their predictions for the multifamily market and the economy in 2024, comparing them to other forecasts that have recently been published. Sources discussed in this episode: Marcus & Millichap: “What to Expect for CRE in 2024” - https://www.marcusmillichap.com/research/videos/what-to-expect-for-cre-in-2024 CBRE: “U.S. Real Estate Market Outlook 2024” - https://www....

On the heels of a CPI report showing inflation on the slow decline, Federal Reserve Chairman Jerome Powell announced that the FOMC would keep the federal funds rate at its current level, with 3 rate cuts expected in 2024. Stock markets reacted with the typical enthusiasm associated with the hope of lower interest rates, and some interesting buying opportunities could emerge in 2024 for investors t...

There is little reason to expect that last-minute deals will buoy the low sales activity in the multifamily market in 2023, but investors should look for opportunities to emerge in 2024 as persistent challenges change the calculation for property owners unable to "survive until 2025." Sources discussed in this episode: Moody’s Analytics: “Timing out the CRE Waiting Game” - https://cre.mo...

Continued updates on housing starts and permits shows multifamily construction starts down sharply even as single family construction continues to grow. The seasonal cooldown in rent growth is less pronounced than last year but remains a challenge for owners and operators continuing to deal with high expenses and the pressure of persistent high interest rates. At the same time, positive economic s...

With forecasts of greater supply and continued pressure from high interest rates, predictions that we are in the early moments of CRE valuation adjustment are gaining prominence, but expanded interest in non-bank lending is helping multifamily borrowers looking to resolve challenges related to increased borrowing costs. Sources discussed in this episode: Newmark: “United States Multifamily Capital...

With continued low CRE property sales and a narrow cap rate-interest rate spread, investors looking for investment opportunities are turning to non-bank lending, preferred equity, and other strategies in place of direct investment and acquisitions. Sources discussed in this episode: CPI: “Consumer Price Index: October 2023” - https://www.bls.gov/news.release/cpi.nr0.htm Urban Land Institute: “2024...

New data showing that multifamily loan originations are down 50% from last year (and down by 40% compared to pre-pandemic 2019 numbers) joins a growing discussion about the changing state of multifamily lending, and a recent report suggests that rent growth patterns are stabilizing and trending toward historical norms. Sources discussed in this episode: Mortgage Bankers Association: “Quarterly Sur...

For CRE investors waiting to buy (or sell) properties, a rate hike pause may not be enough to encourage their re-entry into the market as investors expect further cap rate expansion in 2024. For multifamily specifically, confidence in longer-term asset performance has led to greater investor interest compared to other CRE sectors, but overall investment volume is lower than pre-pandemic averages....

While home buyers contend with higher costs, apartment renters have benefited from lower rent growth in 2023, with recent coverage of the housing market describing how rising mortgage rates and still-elevated home values have led to soaring costs of home ownership compared to the price of rent. Sources discussed in this episode: The Wall Street Journal: There’s Never Been a Worse Time to Buy Inste...

While recent comments and reports depict our current moment as a substantial opportunity for multifamily investors, there has been little disagreement about the headwinds for apartment performance in 2024, with continued rent growth stagnation and elevated interest rates as prominent challengers for investors. A more favorable environment for multifamily asset performance is expected to develop mo...

The Gray Capital team discusses cap rate trends and apartment supply. Also in this episode, Gray Capital President, CEO, and Co-Founder Spencer Gray brings Hannah Ott and Cameron Benz, powerhouse multifamily brokers on the Indianapolis Cushman & Wakefield team, into the studio for a discussion of what's happening on the ground for multifamily buyers and sellers. For the latest multifamily...

Multifamily assets have proven their worth in both strong and weak economies, but cripplingly high interest rates have frozen the sales market for apartment properties in 2023, leaving the outlook unclear for 2024. Even though the potential for lenders to grant accommodations to troubled borrowers could extend the stagnation and uncertainty in the multifamily sales market, pressures on bank balanc...

Reports of persistently-high expenses for commercial real estate operators, extended periods of higher interest rates, and lower rent growth have compounded the potential for distress linked to the wave of multifamily loan maturities due in Q4 of this year. Solid, long-term fundamentals and robust housing demand continue to make multifamily an attractive investment, but for floating-rate borrowers...

The Federal Reserve decided this week to maintain the current Federal funds rate without an increase (or decrease), but their updated economic projections suggest that the Fed is more driven to sustain these elevated rates through 2024, increasing their end-of-year 2024 projection from 4.6% in June to 5.1% now. While CRE pricing has been trending down since the start of this elevated interest rate...

While recent topline inflation numbers may help justify the recent interest rate increase from the Federal Reserve, a more compelling signal of economic activity can be seen in the robust housing demand that has led to rebounding single family home prices in spite of the high mortgage rate environment, which is a strong indication of robust multifamily demand moving forward. CBRE: “2023 U.S. Real...

Recent reports on the apartment market show year-over-year rent growth heading into negative territory after 18+ months of deceleration from its peak in late 2021/early-2022. Alongside lower rent growth and higher vacancy, apartment operators contend with rising expenses and higher interest rates, and the sharp increase in multifamily loan maturities in the coming months is a dramatic example of t...

Low transaction activity in the commercial real estate markets has some looking for "secret" distress, and while the growing perception that interest rates will remain high is slowly impacting price discovery, there is still room for prices to reach a point that would bring sales volumes in line with historical averages. Sources cited in this episode: CBRE: “Spiking 10-Year Treasury Rate...