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The multifamily market continues on a positive trajectory, with investors returning to meet the needs of a growing renter population.

According to Berkadia’s 2021 Mid-Year Powerhouse Poll, conducted in July with insights from nearly 180 investment sales brokers and mortgage bankers, 78% of the Berkadia professionals reported that they are optimistic that the number of transactions within the multifamily industry by the end of the year will top 2020’s numbers.

As the market continues its rebound from the economic volatility related to the COVID-19 pandemic, 61% of Berkadia professionals expect to see a trend of investors actively pursuing acquisitions in the second half of the year.

The firm’s investment sales advisors also said the capital sources prime for the most activity in the second half include private domestic investors, 58%, and institutional domestic investors, 32%. On the lending side, the firm’s mortgage bankers expect to see the most activity from the government-sponsored enterprises (GSEs), 69%, and debt funds, 18%.

According to Berkadia professionals, multifamily rental demand outpacing supply is one of the major trends that will impact multifamily financing and investing in the second half of the year. The survey respondents also anticipate investor interest in Class B, 39%, and Class A, 35%, properties. And of the generation that will make up the highest percentage of multifamily renters in the next one to two years, almost three-quarters of respondents selected the 25- to 40-year-old millennial group.

“Multifamily real estate transactions may have taken a pause at this time last year, but the length of a market slowdown was much shorter than initially predicted. In the first half of this year, we saw a rebound resulting from pent-up industry energy and availability of capital, leading to a record-setting start to 2021,” said Ernie Katai, executive vice president and head of production at Berkadia. “Further, an increased desire for the transient, renter lifestyle and migration patterns have led to increased renter demand, and corresponding investor interest, particularly in secondary markets across the country.”

Affordable Housing Remains Top Priority

The pandemic reaffirmed the critical need for affordable housing nationwide. The majority of Berkadia professionals, 92%, agreed that investors are more interested in affordable housing properties than they were a year ago.

“Lack of affordable housing continues to be an issue across the country, and, as such, the renewed commitment of legislation, investors, and the GSEs presents opportunities for investors to build new properties to meet these requirements or convert existing multifamily properties to affordable,” said Katai. “Compared to last year, our affordable transaction volume grew 400% in the first quarter of 2021, indicating that investors are committed to diversifying their portfolios with affordable properties to support the industry’s effort in solving the affordable housing crisis.”

Looking ahead to the next year or two, the Berkadia professionals said they anticipate the West, 32%, and Southeast, 30%, will see an increase in affordable housing development. They also anticipate affordable housing acquisitions, 49%, and rehabs of existing properties, 31%, will be most attractive to investors.

Institutional Investor Interest

Berkadia’s poll also looked at trends within the investor group. Of the most common pain points for the institutional investors, respondents ranked the lack of deals to purchase, 58%; lower risk-adjusted returns, 19%; and decreasing cap rates, 18%.

As stability and liquidity return, respondents said they expect to see single-family rentals or build-to-rent, 28%, and renovation and rehab property opportunities, 24%, to be most attractive to these investors in the next two years. They also said they anticipate the Southeast, 49%, and Southwest, 28%, being of most interest to institutional investors.