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Private and institutional investors’ sentiment is anticipated to improve as economic conditions moderate in 2024, according to Berkadia’s seventh annual Powerhouse Poll.

Investment sales advisors and mortgage bankers at Berkadia, a leader in the commercial real estate industry, expect investors to be more active this year as they pursue strategic opportunities.

According to the survey, 72% of Berkadia’s producers project that institutional transaction volume will be stronger this year than it was in 2023. In addition, the majority of respondents, 78%, agree that private investors will have a leading role in acquisition activity, followed by institutional investors at 42%. Berkadia also says it expects to see international investors play a larger role in transaction activity in 2024 and beyond.

“Investors’ ability to navigate this challenging environment in light of anticipated, persistent headwinds through 2024 only reinforces our belief in the industry’s desirability,” said Ernie Katai, Berkadia executive vice president and head of production. “While multifamily fundamentals may be cooling off in many markets across the U.S., we are encouraged by investors’ positive sentiment to pursue strategic opportunities, both equity and debt.”

Berkadia notes that the short- and long-term disruptions from inflationary pressures, high interest rates, and a tightened credit environment will continue to have an impact in 2024.

Government-sponsored enterprises Fannie Mae and Freddie Mac are expected to be the most active lending sources in the year ahead, according to 87% of respondents. Among the opportunities for institutional investors, distressed properties will be the most sought strategy, closely followed by core and core-plus opportunities.

“As some investors remain cautious and take a ‘wait-and-see’ approach in response to current capital markets conditions, more opportunistic private and institutional investors will be more active in 2024 as we expect stronger transaction volume than 2023,” said Katai. “The ongoing impact of high interest rates, persistent inflation, and tightened lending standards underpins the importance of delivering timely, local and global market insights to help support investors make better real estate in this volatile time.”

Class A and B multifamily communities are piquing the most interest from investors as they seek to capture the heightened demand for rental housing. In the year ahead, 40% of respondents say the multifamily market will center around Class A properties, followed by Class B properties, 28%.

“Ever-changing employment trends and higher interest rates are increasingly driving millennial and Gen Z populations toward renter lifestyles, and, as a result, investors are focusing on Class A and B multifamily strategies,” noted Katai. “Class A has steadily attracted reliable, high-income tenants that investors depend on when purchasing core properties for a stable and predictable cash flow. Investors today also feel they can acquire new Class A projects at a discount to replacement cost, which makes this strategy desirable.”

According to the survey and consistent with last year’s poll, millennials, 58%, and Gen Z, 30%, will remain the most active renters this year as high interest rates and home prices as well as student loan debt impact their housing decisions.

Investors also remain attracted to affordable housing, 29%, and student housing, 20%, as these asset classes are expected to face less headwinds as market conditions improve. Berkadia respondents agree investors will be most interested in acquiring and preserving existing affordable housing properties this year versus developing ground-up projects.

Outside of multifamily, single-family rental/build-to-rent housing is seen as the most attractive property sector at 40%.

The proprietary poll was conducted in December and collected insights from over 210 Berkadia investment sales advisors and mortgage bankers across 70 offices.