It’s the Goose, Not the Eggs, That Are Golden: Why NOW is the Best Time to Sell Your Multifamily Investment Property
On September 26, 2021, Berliners were given their say on how ownership rights of property should be organized and also an opportunity to vent frustrations over an exceedingly expensive rental market in a region where over 80% rent their primary dwelling. In a referendum on whether or not to expropriate more than 200,000 homes owned by Germany’s largest residential property firms, Berliners voted overwhelmingly for their government to do so.
Of course, the referendum is non-binding and the result unlikely to hold up, but the fact remains that rents are rising and not just in Berlin, but all over the world, and this had led to multifamily properties becoming the most sought after commercial real estate. Year-over-year rents are increasing in the US at an eye-popping double-digit rate, occupancy rates are at nearly 100%, and the value of multifamily properties has increased more than 13% since the onset of the pandemic.
Interestingly enough, early advisors feared the opposite for multifamily investments at the beginning of the pandemic. As unemployment rose and economies shut down across the world, the question on many minds was: How are people going to pay rent?
However, the great rent crisis never occurred; instead, multifamily investments proved a safe bet indeed, capitalizing on two important trends: The continued exponential rise in home prices and the pandemic-driven work-from-home revolution.
Rising Home Prices
While rents may be rising, the cost of homeownership is rising even faster. As more and more millennials begin to enter their late 30s and early 40s, the draw of small, big city condos dwindles and they look for more space to accommodate growing families. With homeownership firmly out of the grasp of many, renting an affordable and well-maintained family dwelling becomes an attractive option. This trend has been helped along by the pandemic-driven work-from-home revolution.
Work-From-Home Revolution
The incredible explosion of work-from-home opportunities created by the pandemic has now made it easier than ever for millennials looking for more space to move out of big city centres while still keeping their high paying jobs. This trend is evident in the huge spike in year-over-year monthly rents in not only large city centres but also smaller areas such as Boise, Idaho, and Naples, Florida, which each saw a 20% rise year-over-year in rents from August 2020.
As the housing market shows no signs of slowing down, record-high home sale prices are sure to keep the multifamily market strong.
Time to Buy, or Time to Sell?
Multifamily properties have delivered healthy returns to investors, but is it individuals or institutions that benefit the most? It’s estimated that $87 billion went towards institutional purchases in America in the first half of 2021 alone, led by buyers such as JPMorgan Chase and private equity firms KKR and BlackRock. Cushman & Wakefield, a global commercial real estate powerhouse, negotiated over $11 billion in rental apartment deals for its clients in 2020 and recently paid half a billion dollars for a 40% stake in Greystone & Co.’s rental apartment lending and loan servicing business. Did you catch that? They want to finance the loans of those investing in multifamily properties but aren’t directly investing themselves.
If you own a multifamily property you may be thinking, why would I sell this goose that keeps delivering golden eggs? For institutional investors, that may be true, but for individual investors, caveat emptor. Individual investors are much more sensitive to vacancies and especially those that persist for a long period of time; while institutional investors can typically weather the storm, individual investors are desperately trying to keep their lifeboat afloat.
You may remember earlier in this blog post the prediction that the pandemic would bring about mass rent defaults. This did happen, but fortunately for landlords, governments stepped in to help cover losses (in the case of the US, over $46 billion in aid was provided). Now that the pandemic is (hopefully!) drawing to an end, those government bailouts are unlikely to continue. In addition, many workers who had been relying on government payouts to compensate for employment losses due to the pandemic will stop receiving those and we may again see mass defaults.
Another trend that has seen a resurrection since the pandemic is turning unused office space into residential housing. It was this exact strategy that propelled Lower Manhattan from a population of only 14,000 in the 1990s to approximately 60,000 today. Given the incredible amount of vacant office space in Canada, it’s easy to see this transformed into housing that could attract renters away from multifamily.
The other consideration is the prevalence and endurance of this fairly new work-from-home revolution. While the long-term benefits and drawbacks are yet to be seen, rarely seen colleagues who work-from-home may find themselves kept out of the close relationships that can develop between co-workers and may even find themselves passed over for promotions. If this does indeed happen, we will no doubt see those that moved out of city centres moving back to further their careers.
Golden Eggs or Golden Goose?
“You don’t have a single private source of capital that isn’t interested in lending on multifamily.”
- Willy Walker, chairman and chief executive of commercial real estate firm Walker & Dunlop Inc.
If you own a multifamily property there has never been a better time to sell. Institutional buyers are gobbling up multifamily investments like an eager kid on Halloween set loose on their treat bag. Selling prices will never be better, however, some individual investors worry that by selling their “Goose” they’ll lose the golden eggs. We’d like to argue that it is not the future rents that are most valuable but the current asset, in effect your multifamily property the Golden Goose. There are many bets being placed on the future of multifamily property at the moment but it is only institutional investors who have the deep pockets able to withstand a downturn in the market. And remember, should the favourable conditions brought forth by the pandemic start to disappear, your Goose will start to look a lot less golden.
We all know the age-old adage, buy low and sell high; for multifamily properties, you will never see a high higher than this. For the prudent investor looking to maximize the return on their investment, now is the time to sell your multifamily property!
For help selling your multifamily property, contact the professionals at MCRE—we’re property owners too!—for the expert advice you can bank on.