Abruptly changing interest rates have a really interesting effect on human behavior. What we’ve seen over the last year is that rather than acting to position themselves for raising rates, market participants on both sides have decided to sit on their hands. There has been some trading into higher quality assets or better economic safe havens, but for the most part, both investors and owners just stopped doing much of anything at the end of 2022.
So far, pricing has remained relatively stable because while there are not very many buyers, there are also not very many sellers. Frankly, sellers are looking for ways to find prices from a day gone by and buyers are looking at cap rates and wondering how those prices make sense.
When a property does come up for sale, there is a healthy competition for the asset, but longer term, we pose the question… who will blink first? We believe it will ultimately be the current owners of multifamily assets.
Pricing has to come down. Cap rates are too low to be supported with debt capital over 6%. Those who purchased property in 2020-2021 with variable interest rates are already feeling this pain, but there is a LOT of debt coming due later this year and into 2024 that will have to be refinanced at much higher rates than were contemplated several years ago. We are obviously looking forward to these dynamics playing out as we believe there will be tremendous opportunities available for our investors in this environment.